Money creation and sustainable development

In the previous blog posts we discussed why a new financial system is needed and what the alternative, a system in which the state is responsible for money creation, would look like. Also, the different ways were reviewed in which the newly created money is to be channelled into the economy. Distinction was made between expenditures by the state and those by business and citizens. To what extent, that is to say, in what proportions that happens is a political decision that stands apart from the issue of monetary creation. In other words, how to spend the benefits of public money creation is a political choice.

Money for sustainable development: a political choice

People and groups for which environment, sustainability, social justice and responsibility for future generations are important will plead for spending the benefits mostly on policies contributing to those goals. That implies a major role for government. Others think that citizens and businesses will spend the money more wisely than government, and that the solution of social and environmental problems can best be left to private enterprise and the market. This group will do their utmost to ensure the benefits of money creation end up with citizens and business, through tax cuts and possibly a citizen dividend.

As will be obvious from the previous blog posts the author of this booklet belongs to the first group: those who consider that in spending the benefits of public money creation investment in sustainable development should be given priority. This epilogue is in line with that choice. It was separated from the main text because this choice is independent of the need for and benefits of monetary reform as discussed before.

As previously stated, public money creation is indispensable for achieving the goal of an environmentally sustainable, socially just society. Without it governments will not be able to invest in sustainable development on the required scale. On the other hand, public money creation is by no means a guarantee for the realisation of such a society. Therefore this epilogue gives special attention to the link between our monetary system and sustainable development.

Attention is also paid to the question of whether in the context of the transition to an ecologically sustainable and socially just society we should aim for stopping economic growth and the transition to a “steady state economy” now. Many groups that deal with environmental issues advocate for such a halt to growth, some advocate economic contraction.

An alternative viewpoint is that of “selective growth”: instead of an overall increase in the production of all goods and services growth is aimed for only in the production of those goods and services that promote the sustainable use of finite natural resources or otherwise benefit the environment. To this can be added growth in the production and consumption of goods and services that enhance social justice without detrimental effects for the environment. This kind of growth can be referred to as (economic) development rather than (economic) growth.

Money creation and non-sustainable consumption

As already mentioned, public money creation would allow for government to use optimally the productive capacity of society to address the environmental and social problems society faces. The investment and jobs required for doing so would also resolve our current economic problems: it would end the economic crisis. From an environmental perspective, however, public money creation is also risky. On the one hand we can argue that the newly created money should be used for investment in sustainability and social justice, but political forces who want to reduce the role of government because they believe businesses and consumers spend money more wisely than government could frustrate those efforts. If they would succeed in having the benefits of public money creation accrue to citizens and businesses rather than to the state the result would be, in today’s conditions, a sizeable increase in unsustainable consumption at the expense of the environment and hence, of future generations. The risk of this happening would be considerable as a sizeable reduction in taxes and a citizen’s dividend would go down well with a large proportion of the electorate. It would, therefore, be something easy to exploit by politicians.

Unsustainable consumption would increase even if all newly created money were invested in sustainable development. This is because the new jobs, wages and profits resulting from such investments would lead to higher disposable incomes and thereby consumption. As today’s consumption is largely unsustainable the proposed change in the monetary system could turn out to work against the much-needed transition to an environmentally sustainable economy.

An integrated approach

To prevent a new monetary system from leading to even more unsustainable production and consumption a comprehensive approach is needed. The new monetary system and investment in sustainable development should be combined with regulation and a “green” tax system which would reward sustainable investment and consumption and discourage unsustainable investment and consumption. For example the use of libraries, theatres, public transport and transport by bike can be encouraged by subsidies, and the use of passenger cars using petrol or diesel can be taxed more heavily. At the same time, research should be promoted on cars propelled by (green) electricity, hydrogen or other renewable fuels. The purchase of such cars can be subsidised so the transition from unsustainable to sustainable driving is made as rapidly as possible. In addition, producers would have to be required to produce new cars in as durable a manner as possible, that is, in such a way that raw materials used in production and use are recycled in full.

In other areas also complementary policy will be needed. Government should take the initiative for a series of round table conferences to arrive at agreements, or social contracts, with employers and unions to control prices and wages. Trade agreements would need to ensure that imports and exports would meet minimum standards for environmental and worker protection. Demands on national business regarding maximising recycling options would also have to apply to imported products, meaning further conditions for trade.

Transition to sustainable: with or without growth?

Many people and organisations advocating a sustainable economy and society advocate transition now, the sooner the better. “We must take a step back now. Put an end to growth, and switch to a steady-state economy.”

From the perspective of the burden today’s economic activity puts on scarce, finite resource that makes sense. But if at this point in time, with the current economic system, we would make the switch towards a zero growth or shrinking economy large numbers of people would remain unemployed, underemployed and poor. Our current economic system is not prepared at all for such a transition because of its addiction to growth and its focus on and bias towards economic activity that generates financial profit. This problem would weigh even heavier on less developed countries, where hundreds of millions of people are still living in extreme poverty and billions more live just above that level.

Proponents of transition now argue that poverty in less developed countries should be solved by the rich nations sharing more: the cake should be distributed more fairly. That’s an idea that will find little support in the rich countries, especially among people with lower incomes. And many people with higher incomes too prefer to keep their money for themselves and their families – if only because of the high probability that the transfers to developing countries do not end up with the right people. At present the latter is already often the case with the much smaller transfers of money in the form of development assistance. Moreover economic stagnation or decline in the rich countries would cause, in the current global economic system, major economic damage to developing countries which depend on both domestic growth and growth in exports to developed nations.

First growth, then steady state

An alternative strategy to “stop growth now” is to give a huge but temporary boost to the economy by carrying out a global program for sustainable development. So instead of reducing growth and the transition to steady state there would be more growth – growth coming from the transition to an environmentally sustainable economy and a socially just society. Such a program will not be ecologically sustainable, in the sense that many finite resources will be used in ways that could not be continued for centuries to come. But there would be no need to do so: the program would be a one-off investment which, once completed, could be brought back to the level required for maintenance and gradual replacement. Thus society and the economy would switch gradually to investment and consumption levels at which no more finite resources would be used then could be substituted.

Arriving at a sustainable use of resources would mean reduced investment, which would decrease the amount of work. This decline is likely to occur anyway as a result of technological development, particularly automation. The challenge then becomes to divide the remaining work, which could be achieved by reducing labour hours and job sharing. To ensure that people, despite fewer working hours, would keep an acceptable income a reduction in labour hours could be combined with providing all citizens with a basic income.

Growth for sustainable development

In conclusion, the transition to a society that uses its resources sustainably will have to take place according to the concept of “first-then”. First development on such a scale that, because of the associated investment and economic activity, it will not be environmentally sustainable in terms of the use of finite resources; then, when this investment has led to the desired impact, the transition to an environmentally sustainable economy and society.

“First-then” is necessary both for social justice and for implementing the enormous changes that are needed to achieve an ecologically sustainable and socially just society in the shortest possible time. On the fact that there is urgency, in particular as regards climate change, most experts agree. On the other hand, towards the fully or partially unemployed people in rich and poor countries and those in developing countries who subsist on low productive and barely paid work we have a moral obligation to offer sufficiently productive and fairly paid employment and thus, a better life. The better off in the rich nations do not have the right to halt growth as long as those who still need it to improve their living conditions and build a life have not been able to benefit from it. Yet towards future generations we have the obligation to bring about this better life through a different kind of growth: through growth resulting from investments in sustainability and social justice. If as a result of such sustainable growth all basic needs are met – food, water and sanitation, housing, a healthy environment, education, health – and if all environmental issues are adequately addressed the transition to a stationary economy will likewise become a moral imperative.

To summarise: to achieve a socially just and environmentally sustainable society, growth will still be needed initially. But it will be a kind of growth that’s very different from the growth we have now. It will be growth from investment in sustainable development rather than the drive for profit. As such it will be growth contributing to an ecologically sustainable economy and socially just society rather than growth leading to greater prosperity for the already well-off through more non-sustainable consumption and production.

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This was the postscript of the booklet “Our Money” by Frans Doorman. This booklet explains, in plain English, what money is and how our current monetary system came about. It discusses the problems inherent to the present system and proposes an alternative.

It also explains how the current monetary system restrains us in addressing our economic, social and environmental problems, and even worsens them. It discusses the transition to a system that would work better, the main traits of that system, and the reasons why such a better alternative is hardly considered at present.  This booklet is intended for a broad audience: anyone with an interest in the solution of society’s social, environmental and economic challenges. People who are concerned about the continuing impact of the economic crisis that started in 2008 and about its aftermath: growing economic insecurity, inequality, and poverty. And people who are distressed about the environmental problems our global society is facing: the degradation of ecosystems and the environment in general, the depletion of natural resources, climate change, loss of agricultural land, and looming fresh water shortages. People who, even though they do not expect to be affected by these problems directly themselves are concerned about the future of their children and in general, of future generations.

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