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Austrian Ecology

Sound money will save the environment.

by James Leroy Wilson
April 16, 2009

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Austrian Ecology

What is wealth?

Wealth is surplus, it is more than one needs. It is discretionary purchasing power. As necessary expenses fall in proportion to what you own, the wealthier you are. If income exceeds expenses, the wealthier you are. If income stays the same and prices fall, the wealthier you are.

Our economic system is based on what you will be paid in the future. You are given loans based on anticipated future earnings. This is called credit. Individuals are given credit. The federal government is given credit. Even banks are given credit by a central bank. The money they use has no intrinsic value; the Federal Reserve Board of Governors just creates it with strokes on the computer keyboard. Banks can lend up to ten times the amount of money they actually have in cash reserves for depositors to withdraw. The Federal Reserve was set up to be a "lender of last resort" to supply banks with money and guard against bank runs.

But the more dollars the Fed creates, whether by computer entry or the printing press, the less valuable each individual dollar is.

Few people understand this system, and I don't know all of its intracacies. But it is based on the hope that economic growth will come if future production and earnings are greater than loan repayments. And money has no value except the market's anticipation of future production. If calamities strike and production is halted, we're all in trouble.

But what characterizes this system is a) too much debt, and b) too much artificial money pouring into the economy. And all this money floating around leads to speculation: borrowed money is gambled on the stock market and other places. But too much money also means over-production - in houses and other goods - which in turn harms the environment. And with natural resources depleting at an accelerated rate, we find out that too many speculative enterprises have gone bad, leading to bankruptcies and a collapse of the system.

The flaw in this system is that wealth is not a future good. Credit is no way to build and sustain an economy because the future doesn't exist.

All that exists is the present. Wealth exists in the present. You are rich not based on what you will be paid, but what you currently own and have been paid.

If all that exists is the present, then any sound means of exchange must either be, or represent (in the form of certificates, notes, bills) something that exists in the present and can be tangibly owned. Money could be gold, silver, oil, honey, just about anything taken from nature.

And economic growth would be built on investment from savings of real money, not from loans of artificially-created money. Money would signify ownership of a present good (e.g., gold, silver, oil, honey), and whatever it is exchanged with would also be a present good (cars, groceries, computers, furniture, etc.)

In other words, sound economic growth comes from real wealth, not from anticipated future increases in wealth.

But although I've said what wealth is, I didn't say where wealth comes from.

It comes from doing more with less. And this comes from some area of the mind. It could be repetition trained into habit, so that a typist can type more words a minute than previously and therefore accomplish more. It could be from perceiving that a process has inefficient elements that could be modified, allowing the process to produce more. Greater production leads to falling prices per unit, allowing more people to purchase the product.

Falling prices are the blessing of a sound economy. They are a blessing to the poor. To investors in a sound economy, greater efficiency and falling prices mean an expanded market and greater profits. That's because investors take only from their own surplus to start a new enterprise; if it doesn't succeed, the most they lose is their surplus. In a credit-based economy, when the producers borrow money (that was itself artificially created and "borrowed" by the bank) to get their start, falling prices may mean that between their cost of production and the debt repayments, their profit margins are eliminated and they go out of business.

In a real wealth-based economy, natural resources will not be over-exploited from the borrowing of credit money. For this reason alone, environmentalists should embrace the Austrian school of economics that teaches that sound or "real" money is based on a commodity produced from nature, so that all exchanges are of one currently-existing product of nature for another currently-existing product of nature. Greater production in energy-intensive enterprises like home construction would be possible only when there is the money to do so. There would not be over-production and speculation from borrowed artificial money.

The Austrian school of economics implies that a free market, including a free market in money, is the only viable and stable means toward upward mobility and greater prosperity. But it is also the only system that puts a check on environmental degradation and that puts a check on over-production. That's because it challenges people to contemplate what they should do with their current savings and surpluses, not what they might do with borrowed artificial money.





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