As impressively (though unwittingly) shown by Francis Fukuyama, attempts to imagine the future of societies are likely to go wrong. Extrapolation of trends can well be a bad idea. On the other hand, some idea about what the future is to look like is needed when a major transformation of the society is to be attempted. The transformation towards a post-growth society is no exception here. It would be naive to expect an exacting outline of how a post-growth society is supposed to work, but it is important that those advocating it at least try to give answers to some inconvenient questions: what about productivity growth? Can universal basic income, supported by many in the degrowth movement, work? And what about the monetary and financial systems? The latter question has gained some attention recently, and some argue that monetary factors might be a main obstacle for a post-growth society. Their arguments should get proper consideration if we do not want to choose the wrong transition “trajectory”, given path dependencies so common in socio-economic systems.
Two authors have proposed, independently of each other, a complex argument why money and related factors might prohibit any prolonged period of prosperity without growth – in other words, they have proposed the existence of a monetary growth imperative. These authors are the US-American William F. Hixson and the Swiss economist Hans Christoph Binswanger. Although their starting points are quite different, their approaches share a common leitmotif of a profound monetary growth imperative. Most other lines of reasoning in this field are either simplistic versions of Binswanger’s and Hixson’s argument or they focus on some specific part of their more general argument, or they have too much of the touch of a conspiracy theory to be taken seriously.
Contrary to the traditional Walrasian model of the economy, where all transactions take place simultaneously, a typical firm in the modern economy has first to buy factors of production (i.e., make an investment), then it produces something, and then it sells it. This means that it has to find somebody who will give it the money/financial capital needed to pre-finance its production (buy the factors of production). Commonly, this “somebody” is some combination of banks and shareholders. As financial capital is scarce, it has a price – credits bear interest, shareholders expect profits. To repay them, our model firm has to sell its products for more than it paid for the factors of production, i.e., it must yield a profit large enough to satisfy both creditors and shareholders. This in itself is not problematic, because the reason there are firms is that they produce added value (which ideally is their profit). If all firms in the economy work this way, however, we have a problem: all the money that is in the system is the original credits out of which the firms bought factors of production. There is no money there to “pay” the profits. Thus, argue Binswanger and Hixson, firms must make larger and larger investments in every period so as to “inject” enough money into the economy to make possible selling their products (produced a period earlier) with profit. Binswanger calls this the ‘growth spiral’. An attempt to keep production constant would trigger a downward spiral leading us back to the level of a subsistence economy or, in Binswanger’s words, a Crusoe economy. In other words, if the reasoning of Binswanger’s and Hixson’s is true, we have a choice between subsistence economy on the one hand and a growth economy on the other hand (due to ecological and social limits, the latter would likely collapse sooner or later, so it is only a temporary choice). According to them, a non-growing yet prosperous economy is a non-option.
Potentially, there are some possibilities to overcome the dilemma posed by the ‘growth spiral’. One option would be to design an economic system where interest and profits would not be necessary (e.g., by redefining ‘profit’ or reforming the monetary system according to the ideas of Islamic banking) – this, of course, is much easier said than done. Another option might be, depending on the exact interpretation of the ‘growth spiral’, either a 100% reserve banking system (advocated by Hixson, whose goal, however, was a stable economy, not necessarily a non-growing one) or a 0% reserve one: indeed, the only possibility to escape the ‘growth spiral’ I found in Binswanger’s model would be to prevent banks from keeping any of the interest-based profits (i.e., no reserves). First, however, we would have to settle the point of which is the right interpretation.
The point of my post is by no means the claim that Binswanger and Hixson are right and/or that we are doomed to failure with any attempt of a transition towards a post-growth society. Even though I wasn’t able so far to find a lapse in their reasoning and although I have no idea what is to be done if they are right, this does not mean that I am right/that there is no solution. What I do think is that it is important for post-growth advocates to confront these issues and to think how a post-growth society might work to circumvent money-related problems.