Column #91 THE SEVENTH-GENERATION LAW

(Week 18 - Monday, Dec. 8)

The Great Law of the Iroquois Confederacy states, "In our every deliberation, we must consider the impact of our decisions on the next seven generations." This passage is often quoted and widely admired in our culture for its farseeing wisdom, especially among those who are concerned with the human and environmental "cost of doing business," but I find it dismaying that it is rarely invoked with respect to the monetary question.

Those who "invest" with the idea of making money with money (i.e. look for opportunities to buy up the contracts that secure "debt") will naturally expect to "earn a return." Otherwise, why would they "invest"? The factors that determine the "yield" (increase) will vary, but let us assume that the "market expectation" is that one should be able to double one's money (adjusted for inflation) at least once per generation to make the process worthwhile (a very modest expectation by historic standards). For simplicity of discussion let us assume that one generation is twenty-four years, which is the period of time it would require for an "investor's" money to double at a compounded three-percent rate of return.

Let us suppose that someone took out a loan of $1000 from a bank that was repayable as a "balloon payment" (principal and "interest" due all at once) of $2000 dollars in twenty-four years. The borrower brought $1000 into circulation with his loan, but he will have to gather up $2000 at that time, and remit the money to the bank. This scenario will be replicated throughout the economy with millions of loan-and-payback-with-"interest" transactions. Each will require that there be more money than was borrowed available for payments as they come due. If we assume that on-average the money supply is maintained through loans taken out at three-percent "interest," the quantity of currency in circulation must also grow at a three-percent annual rate to maintain a constant ratio between funds available and money owed. This is what is required to keep old loans from going into default, and maintain an adequate supply of circulating medium.

Banks do not lend out significant sums of money without collateral, and so the financial requirement that there be twice the money in circulation at the end of each twenty-four-year generation must be matched by twice the amount of wealth or economic activity in existence against which money can be borrowed.

We as a society have reached the point where our entire capital wealth, as measured in dollars, is roughly equivalent to the amount we "owe" to private "investors" through the banking system for the privilege of having a money supply. This means that if the "fractional reserve formula" pyramid scheme by which the monetary structure is governed is not to collapse over the next generation, the level of economic activity at the end of the next twenty-four years must be such that for every car manufactured and sold this year, there must be two in that year, for every gallon of gas burned this year there must be two burned then, for every unit of human service performed now there must be two, and so forth. It is not strictly necessary that such doubling be accomplished on a product-for-product basis, but the Gross Domestic Product (GDP) must in some way be multiplied by a factor of two.

The more germane question is, what are the implications of this monetary "necessity" for human life and the earth itself? Much human need may indeed be taken care of in the course for pursuing the satisfaction of this monetary imperative (there may even be a great deal of "green" enterprise that is included), but at what human and physical cost? It should be noted that the GDP, like bank collateral, is essentially a quantitative measure of economic activity, not a qualitative index. Ambulance rides, pollution cleanup, building prisons, and war materiel do wonders for the numbers, and that may explain, at least in part, why such "enterprise" has become a larger part of our economic picture.

So far we have looked at only the first generation. To make it to the second while avoiding monetary collapse, the size of the physical economy must be doubled again, to four times the original level. Nor does it stop there. Taken to the seventh generation the physical economy would have to grow by a factor of 128 (2 raised to the 7th power). Is there any way one can look at the world today and imagine an economy on the earth that is, materially speaking, 128 times its present size?

I think it safe to say that this is not going to happen. Admittedly, the analysis I am running through here is in itself an abstract numbers game that correlates very imperfectly with life, but it is the game that we as a financial order are still trying to make work. The reliance on "economic growth" (i.e. the creation of collateral to borrow more money into existence) to keep the monetary system pumped up with "debt-money" is reaching its practical limits. The tragedy is that it has made "necessary" such dubious modes of "enterprise" as wasteful consumer consumption, sub-prime lending schemes, and borrowing for war as engines of money creation to keep what is essentially a pyramid scheme in the guise of a monetary system from collapsing. We have reached the point where even that is not enough; hence the spate of "bailouts."

By our society's failure to examine the monetary underpinnings of the current financial crisis, are we not by default effectively making a decision that is utterly untenable within the seventh-generation principle? Clearly, to persist on our present course will overwhelm human and environmental capacities. This is not to say that life does not still hold the possibilities for manifold growth in a multitude of directions, but to yoke that potential to the doctrine of the compounding material exploitation requisite to supporting "debt-money" expansion is, in my view, to effectively negate the possibilities for any future world we would care to contemplate.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403

218-828-1366
mailto:218-828-1366richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm