By marromai: Energy, economy and the role of money

There was a nice surprise in my inbox this morning.

Marromai, a frequent visitor from Germany, having tired of seeing the same un-Denial post for 10 weeks, wrote an excellent essay to freshen things up. Thank you.

See also another essay by marromai here.

We all use and need money every day and would often like to have more of it. The vast majority of people don’t really understand what money actually is. Many think it is a medium of exchange that was invented at some point to facilitate commerce – which couldn’t be more wrong.

Readers of this and similar websites at least know that it must be more than that, and that money is connected to energy in some way. Naked Emperor summed this up the other day with a reference to Dr. Tim Morgan’s Surplus Energy Economics:

Dr. Morgan believes that there are two parallel economies. One is “the underlying ‘real’ or physical economy of products and services” and the other is a “financial economy of money and credit.” “Money has no intrinsic value, but possesses value only in relation to the material things for which it can be exchanged.”

https://nakedemperor.substack.com/p/the-everything-bubble-the-end-of

His article somehow anticipates the conclusion of this essay and describes very well why the divergence between ever-expanding, artificially inflated finance and shrinking real economy will soon lead to a pretty big bang. But an interesting point for me – and maybe for you too? – is how did our financial system emerge in the first place? What exactly is money and how did it become a proxy for energy?

I will try to describe that below, also to better understand it myself – feel free to ask questions or write your critique in the comments. My findings, which I try to summarize in my own words, come mainly from “Ein Buch für Keinen” (A Book for None) by Stefan Gruber which in turn is based on an economic theory called “Debitism” according to German economist Paul C. Martin.

In advance, we must be clear that all life forms known to us are dissipative systems. Every living being is condemned to accumulate energy to maintain itself, irreversibly increasing its complexity and thus entropy. If it cannot collect more energy than its body needs to sustain itself, it dies. A simple basic equation: life requires energy. This is the primordial debt that every living thing owes itself and that it must pay off if it does not want to perish. The crucial thing is that this debt must be paid in time (hunger) to escape the sanction (death). If food (energy) was always and everywhere available, this would be an insignificant automatic action. Only the pressure of a deadline in combination with scarcity and effort to procure measures a value to the debt. This definition will be important later.

Now let’s look at mankind, which for a long time lived in nomadic hunter-gatherer groups and more or less unconsciously paid off its primordial debt, like all other animals. At some point in history, due to external pressures such as depleted hunting grounds or changing climatic conditions, it transitioned to both nomadic pastoral tribes, which learned to raise animals and move with them when a region was grazed off, and permanently sedentary, arable land societies. Tribal societies don’t know or use money, since they produce everything they need on their own and share it among each other. This is called a subsistence economy.

An arable tribe has the great disadvantage of no longer being regionally flexible – its sedentariness was a weakness that made it vulnerable to raids by nomadic pastoral tribes who could rob its earned and stored supplies (stored energy to pay the primordial debt). However, the predatory pastoral tribes soon discovered that a peasant tribe could be raided and wiped out only once. But if it is “offered protection” from other nomads in return for a tribute in the form of the food it produces, this is to the advantage of both (more to the advantage of the herdsmen than the farmers, of course). The shepherd tribe arises as guardians and rulers over the peasants (“The Lord is my shepherd”), promising protection and demanding tributes in return to maintain and expand their power.

Only after the ruler specified the levy, which had to be paid on a date, this levy became a commodity in demand and thus money. And it became the yardstick for the valuation of all other goods. The levy, i.e. money, was a commodity and with this commodity the debt to the authorities was repaid.

The first taxes were paid in kind, e.g. grain (energy to service the original debt) – later, when empires and complexity grew, they were put in parity with silver for the sake of simplicity (e.g. 180 barley grains = 1 shekel of silver in Mesopotamia). After that, weapons metal, i.e. copper, tin and later iron were declared to be levies. Also gold counted at first as weapon metal, because it was easy to work. Whether money is in kind, or metal to produce weapons, or today’s colorfully printed paper slips, is completely irrelevant. Money is, what is defined as levy by the ruling power. It does not need to have an intrinsic value.

The decisive factor for the emergence of money was therefore the simultaneous emergence of a power cycle: the levy could be used to buy mercenaries to maintain power. The mercenaries exchanged the levy for goods and services from the population. The people in turn were able to pay tribute to the ruler, which further strengthened the ruler’s power. But the ruling power had the problem of having to make expenditures in advance. Naturally, it tries to recover this deficit with the demanded levies, whereby it has to expand and increase its power. Whereupon it needs more levies to maintain itself – maybe that looks familiar to you? (A dissipative system)

Since not everyone was always able to produce the required amount of levy goods by the deadline, the subjects were forced to trade among themselves – thus division of labor and specialization developed. While some focused on the cultivation of food, others produced tools for the peasants or weapons for the rulers, for which they received the coveted levy in return, in order to pay off their debt to the ruler. Those who had no other option had to offer their labor (debt bondage, day laborers,…). Individuals in an economy based on the division of labor are practically forced to conclude contracts with others or to fulfil these contracts in order to obtain the required levy and to survive.

By the way, the invention of writing is – not as some people think – due to the preservation of knowledge – but to bookkeeping, as Babylonian cuneiform writings prove. It was a system for documenting the taxes already paid by the subjects. On small clay tablets it was recorded who had paid what amount of tax, which then was used instead of the levy itself – an early form of money without intrinsic value.

The ruler is ultimately the owner of his realm, which is the area he can protect and demarcate from others by force of arms. But he can cede his property, i.e. share it, by granting the subjects the right to private property and defending it against opponents with his military power. The subject can manage the property guaranteed to him by the ruler and trade with it and its proceeds to be able to pay the tribute. And, very important, he can lend on his property to obtain credit. However, if he remains in debt, the subordinate is punished, or his property is foreclosed.

Those who submit and agree to the rules (forcibly set by the ruler) to maintain the status quo are part of that state(!). Those who do not want to belong are left to their own devices without any rights and were thus doomed to death in the past – today statelessness is no longer even conceivable.

The described processes of the emergence of states, money and economy were the initial sparks for today’s global trade economy, which is still based on the assurance of property by the central powers. We see that state, property, money and economy form an indissoluble mesh and a state is always based on the exercise of power and the compulsion to pay a levy. A state can therefore never be based on voluntariness of all participants. Today, more than ever, it is clearly visible that the state apparatus must inevitably become ever larger and more inefficient and, in the final analysis, serves only self-preservation and not its inhabitants. Like any dissipative system, it will vanish someday – this is by the way, the reason why there are so many collapsed civilizations in history and ours will be no exception.

But the trigger for the economic dynamics in a ruling system – from the destruction of a moneyless solidarity community to a highly specialized society based on the division of labor with compulsory trade and individual liability – is solely the pressure to pay the levy to the state on time. The means to pay off this tax debt is money. Money therefore always documents a debt. First, the tax debt to the rulers and, building on this, the contract debt between private individuals. So money is only a debt repayment vehicle. If money exists, a debt must exist at the same time, which can be erased with this money. Money receives its value only by the underlying debt contract, it cannot have an “intrinsic value” detached from a terminally fixed debt.

With this description, the definition of money is suddenly very clear:

Money (usually uncountable, plural monies or moneys): A legally or socially binding conceptual contract of entitlement to wealth, void of intrinsic value, payable for all debts and taxes, and regulated in supply.

Here we close our circle to the primordial debt mentioned above. Only the obligation to surrender a commodity earned by performance to the state at the deadline in order to escape a sanction defines money and gives it a value. Without a deadline there would be no reason to generate money, and without scarcity at the deadline, it would be worthless. It must always be earned first by doing work. Money is a debt, which has to be repaid at a certain point in the future by doing work before that time has come.

To do work means energy must flow. As power is a measure of energy per unit of time, money is therefore actually a measure of power and thus more directly linked to energy than most people can imagine. So, it is absolutely true that energy drives the economy. How fortunate that we discovered fossil fuels, developed combustion engines, etc., to accelerate economic activity, technological progress, and trade exponentially. Fossil energy made our economy grow fast and big.

Our credit-based finance system made it possible to create money which is solely based on the promise to perform work, in order to be able to take advantage of it immediately or to start new economic activity with it. When the modern world started to decouple the financial system from the real economy, the problems began. And this is where it gets ugly: In order to provide the promised future work, energy will be needed. But because far too much credit was granted without taking into account the energy that will actually be available, a Ponzi scheme was kicked off with nothing but empty promises on future energy. The worldwide fantasy amounts of money are no longer matched by any economic output that can be provided in realistic terms – financial collapse is pre-programmed and with it collapses any economic activity driven by energy. At present, attempts are being made to conceal and delay this by all means.

We have bought with lazy money a claim on future energy and have already squandered everything today. When the fossil energy is depleted we will be left with much worthless money.

Our dissipative system aka “modern civilization” will soon not be able to pay off its primordial debt.

I hope that when the world ends, I can breathe a sigh of relief because there will be so much to look forward to.¹

P.S. Since we have seen that every state, economy and money are based on oppression and force, all possible future states will be no exception. I see a backfall to small tribal solidary communities as the most promising concept for humanity to survive the coming hardship.

¹From “Ein Buch für Keinen” (A book for no one) by Stefan Gruber. The bible of nihilism: How economic, ideological, social, biological and physical systems emerge and why they are doomed to fail. I would recommend this as a must read, but unfortunately, this masterpiece is only available in German.