The Wealth of Planets

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"Yes Mr Smith, the Invisible Hand lead us to our final destiny"

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THE WEALTH OF PLANETS
 

Introduction and Purpose

Humanity’s course is clearly in the grips of a fate that is accelerating it to a final destiny. We are at a crossroad. Our choices at this crossroad are defined by two paths, either to slow the pace of our journey to extinction or to carry on as before with exponential speed. Preference is sensibly given to the former, as it provides some time for a possibility to put the proverbial house back in order, thereby extending the fate of our species. Central to achieving this order of utilities are global economic frameworks and beliefs aimed at prolonging human activity and resource supplies.

Currency constructs play a major role in how we go about organizing our economic activities and conceptions. In turn their implementation affects whether we venture towards a more sustainable path of existence or move in rapid concert towards our final demise. Thus, this abstract briefly examines and illustrates the nature of currency and surrogates. It provides a possible redefinition of the conceptual process leading to the creation of currency and management of economies. A process that is aimed at more directly managing object concrete constructs – more particularly, non-renewable resources.

In short, “it plants the seed” for a  revised view related to the printing of money (currency) that embeds a concurrent goal of sustaining and allocating resources of the planet for as long as possible… “Thus, deferring our final curtain”.

Paper Currency or Gold?

The view that gold and similar assets will act as alternate currencies in the immediate term is apparent and unfolding. Gold, in particular is still a feel good visible abstract and not a concrete construct with diverse utility. Gold has operated with this unique psychological characteristic through-out civilized history, a perceived store of magical invisible value. In the last analysis however, the trading of this abstract (gold) for another abstract (paper currency) as a last store of value is redundant unless it is also tied to usable concrete constructs with utility.

The Wizard of Oz, parody, sheds historic light on the on-going forces within societies that debated for decades the contrasting values of paper currency and surrogate constructs, such as gold. An impossible debate to conclude. There is no form of object reasoning or algebra that may be applied to analyze “two visible abstracts” to form an absolute utilitarian answer. Add into the mix the perception or notion of magical powers … the social conversation then shifts from the parody of Oz to the fairytale of Alice in Wonderland. A collective insanity of sorts.

Currency Extinction

  

This redundancy issue and lack of magic that these constructs hold will become increasing apparent as the human race runs quickly towards resource exhaustion and a resultant extinction. Ultimately extinction is a mathematical reality. The course of any wasting finite constructs plotted against the infinity of time (abstract), intersects at a point where a final state occurs. In stages before the intersection, both currency and surrogates move to a point of becoming worthless. Simply because these visible abstracts can no longer be exchanged for concrete constructs with utility. There are too few left.

Easter Island and more recently the country of Nauru have provided examples of what happens when resources are depleted. Those who argue that these defacto extinctions occurred because these were small and isolated geographies on the planet need a dose of quantum perspective. Earth is a small and isolated place in the context of a vast unimaginable universe. We would be wise to heed this quiet warning. Very wise indeed.

What are the Choices?

What to do? What concepts of currency align best with sustaining human survival for a longer period? Existential economics suggests that the currency construct and creation should centre more on a balance sheet approach as opposed to the income statement approach commonly used. a.k.a., GDP. There are important simple distinctions between the two. One favours the past, the other the future. One favours consumption, the other savings.

The income statement approach - GDP is a measure or report on the history of what aggregate economic activity occurred over a period. When currency is created based on a nation’s GDP it assumes an on-going relationship between past and possible future activities. The currency created takes no measure of a nation’s ability to continue to produce such goods and services in the future. For instance, in the extreme case when all of a nation’s resources were consumed in the past GDP period, then all of its currency has no future value. No store of value whatsoever and it can no longer be exchanged for concrete objects with utility.

Income Statement Shortcomings

Flaws with this approach are clear. First, there is no firm relationship between the currency created based on past GDP and the future utility it purports to convey for exchange. In fact it is created simply by extending the past goods and services mix produced. The likely future production mix based on productive capacity and resources is largely discounted in its creation. Any budgetary deficit further fuels the unsound relationship and the use of resources currently

Second, it sets the stage for the rapid waste and use of resources by encouraging sequential increases of GDP, with little regard for future supply shortages of key economic elements. Ironically, the math of finites invisibly works (“the invisible foot”©) against this approach as we rush to produce much more today, for a lot less output tomorrow faster. Again adding deficits compounds the rapid use of resources and essentially makes the “outright theft” of the non-renewable resources belonging to future generations legitimate. Something just does not make sense, neither is it responsible nor fair.

Balance Sheet Approach for Future

In light of this, it seems to make more sense to print and distribute currency tied to only current concrete resources and capacities of a nation and their abilities to create future utility… its balance sheet. These concrete constructs of the balance sheet may be broken into five elements: renewable and non-renewable resources; physical and conceptual infrastructures; plus human capital. These are the five key concrete constructs of a nation’s balance sheet. (Conceptual and human capital are concrete constructs for purposes of this discussion).It is then important to rank their value, so as to properly focus on their management and long-term use.

The ranking of balance sheet constructs places non-renewable resources at the top of the list of elements for reasons of need and limits. In metaphorical terms they may be viewed as the lifeblood, insulin or oxygen that all the other economic elements require in order to exist and function. They are extremely precious and important because they cannot be renewed. Ever. (Assuming we never learn all the laws of the universe in order to create matter and energy at will?). This leads to an illustration using oil to show how such elements determine the viability of a nation.

Planet OIL a Case Study

For illustration purposes, assume oil is the only non-renewable resource that exists on this case planet - Planet OIL. There are no other resources. And no replacements. It is finite. It is the lifeblood of economic activity and its species concerns. Therefore it is also the true currency for the economy of Planet OIL as all other elements are derived and exist because of it.

Planet Oil’s circumstances raise many interesting observations and questions. But first let us divide the planet into two nations where each owns a 100 year supply of oil. No population growth. No pollution. No weapons. Two very nice places. One nation is called the Rapidusers and the other is called the Slowusers.

The Rapidusers consume twice as much oil (a two year supply yearly) as the Slowusers. Relatively their economy is booming twice as fast as the Slowusers. Their GDP is twice as big and its currency is valued at twice the value of the poor ole Slowusers. What currency really has greater value? What nation would you prefer to live in for the next 75 years?  The answers with a little math should be self-evident

Now in 40 years their currencies are still valued at a two to one ratio in favour of the Rapidusers based on GDP. However their oil reserves are only good for another 10 years while the Slowusers have a supply good to last 60 years. Dr. New Economist comes along and says the GDP approach (income statement) for your currencies is wrong and they should be based on the respective nations’ balance sheets …their likely future utilities.

Overnight currency markets panic and are engulfed in historic sensational trading volumes. The next morning the currencies are realigned. Slowusers currency is now valued at six times the value of Rapidusers…a 1200% increase. The Rapidusers nation falls into chaos with financial meltdowns, business closures, massive unemployment, political upheaval and social unrest. It was heart-breaking. The party is over

  

While this story hints of today’s realities, what is clear is that creating currencies, managing resources, economies and lives of nations based solely on a GDP approach may lead to disastrous outcomes. The value of a nation and its currency is better based on a balance sheet approach tied to concrete constructs to assure its longer-term stability and sustainability

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Real Life Application?

    

What if real currencies are valued and tied to the productive capacity and resources of a nation – its balance sheet? Will it change present currency values? Yes, it may. Compare Canada and the US resource reserves on a "per capita basis" and an answer is somewhat evident. It may be asserted that the US dollar is worth .15 in Canadian dollars terms based on resource reserves divided by population (balance sheet per capita) Compare this figure to the parity ascribed by current markets. The difference relates to perhaps the GDP bias, historical perceptions and sadly the US military/industrial complex.

Summation

The balance sheet approach conveys a different story of value and sustainability. No approach is perfect. A mixture of the two approaches in the end should serve to provide a better way to manage and sustain longer-term economic activities. But, to ignore a bias of emphasis towards the balance sheet approach places our travels on this planet in great peril.  

And, we should wisely heed quiet warnings…

First Financial Insights

Toronto ON

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A very special thanks to a dear late friend,  Dr. Albert A Bartlett, Professor Emeritus of Nuclear Physics, University of Colorado at Boulder,  for his ongoing work and passion in this area of grave human concern, as well as his inspiration and permission to use the video included in this blog. His unyielding efforts pass on a great heroic legacy to many coming generations; that so few bravely achieve, for so many. Thank you.

http://www.albartlett.org/

One small step...

The conceptual duality that creates a wall between the theories of economics and the principles of both science and mathematics cannot persist should we desire to move
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