Our Money System and Oil Depletion; Are they Compatible? "Houston, we have a problem." The world's present industrial civilization is saddled with a dilemma: how can a debt-based monetary system based upon infinite growth in a finite world deal with resource depletion? Quote me and answer that question with your reply. On another thread, nero wrote: "The belief that the current monetary system is incompatible with a declining energy resource is not an essential component of the peak oil thesis." It's not? I care to differ. It's part and parcel. The steady state economy into which we are being inexorably forced by oil and other fossil fuel depletion means the end of the current money system. The following is a quote from a summary of a seminar taught at MIT by M. King Hubbert in 1981:
"The world's present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evolved from folkways of prehistoric origin. The first of these two systems has been responsible for the spectacular rise, principally during the last two centuries, of the present industrial system and is essential for its continuance. The second, an inheritance from the prescientific past, operates by rules of its own having little in common with those of the matter-energy system. Nevertheless, the monetary system, by means of a loose coupling, exercises a general control over the matter-energy system upon which it is superimposed. Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest. "Hubbert's Prescription for Survival, A Steady State Economy http://www.hubbertpeak.com/hubbert/hubecon.htm Richard Heinberg, in The Party's Over, wrote: "Hubbert thus believed that society, if it is to avoid chaos during the energy decline, must give up its antiquated, debt-and-interest-based monetary system and adopt a system of accounts based on matter-energy--an inherently ecological system that would acknowledge the finite nature of essential resources." Our system of fractional reserve banking suffers from an inherent instability that increases over time; because at the base, fractional reserve banking is a kind of Ponzi or pyramid scheme. As long as there is economic growth the pyramid stands, but if not, it collapses like a house of cards. Under our current economic system, Hubbert wrote that the maintenance of a constant price level in a non-growing industrial system implies either an interest rate of zero or continuous inflation. However you spin it, there is no price component for resource depletion. What if the supply of oil cannot increase forever, but the demand for more oil continues to grow? The conclusion is simple: The house of cards comes down. Who is going to loan money at zero interest?