8. Three Overarching Topics

Research on the nature of peace economies as opposed to war economies goes back to Keynes and Boulding. See Blum (2011).

Military expenses represent the single largest component of the cost of violence, standing at almost two trillion in 2020 globally with an increase of 2.6% compared with 2019, while internal security measures, including police, prison and judicial measures, rank second. Homicide and interpersonal violence represent the third largest component, with significant indirect economic impacts. Taken together, the direct and indirect costs of war, defence and security measures globally amount to several times the spending in the same year on the UN SDGs. See https://​www.​sipri.​org/​yearbook/​2021. This does not include the additional expenses incurred by the war in Ukraine in 2022.

It should be noted that the German fascists ran a propaganda machine in parallel that encouraged people not to spend the additional income but instead save it in their bank accounts so they could buy a car in the future. Under the conditions of a war-prone economy, that meant there was then not enough money to buy tanks and bombs. The scenario with regard to the UN SDGs is fundamentally different. Whereas a war-prone economy is productive and destructive at the same time, a peace-prone economy is consumptive. The UN SDG agenda provides millions of jobs, services and goods for a better life.

If we take a 1000-year historical view on parallel currencies, we can observe that during most of this period, some sort of dual-currency system was the norm and not the exception. One of the two currencies was intended for long-distance trading (usually backed up by a metal that had the additional function of storing value), while the second currency was primarily intended for local and regional exchange. Any time these currency systems broke down due to unregulated money creation and/or unregulated convertibility, the society in question would start over with a dual system and not with a monetary monoculture. It is only in the last 100 years that a monetary monoculture has been favoured exclusively. Taking the default (unregulated) design into account, at the beginning of the twenty-first century we can now do better. Given new (blockchain-associated) DLT, a deeper understanding of the dynamics of dual systems (resilience, anti-cyclical steering, cost savings due to the stimulation of regional economic activities) and more empirical evidence on the role of monetary regulation (price stability, convertibility and impact of regulatory efforts), re-establishing a dual currency for the wealth of nations seems an obvious choice. See for instance Rössner (2012, 2018).

For example, the cost of forced migration, refugees and internal displacement amounts to several hundred billion USD globally. This crowds out positive investment in peace measures such as education, health, WASH and renewable energy initiatives. The global loss in GDP due to lost opportunities as a result of war and violence is up to 6%, representing a ‘prosperity gap’ of trillions of USD that would be available under conditions of peaceful development. See https://​reliefweb.​int/​sites/​reliefweb.​int/​files/​resources/​WMR-2022-EN.​pdf

However, such positive peace is also associated with costs, including violence containment and preventive measures such as ODA and UN peacekeeping efforts. Expenditure to contain violence is economically efficient if it can prevent violence cost-effectively. There is a fine line between costs to contain and prevent violence on the one hand and costs to manage violence and its consequences on the other. Prevention costs account for two-thirds of the overall costs arising from violence. Whereas Syria spends up to two-thirds of its GDP on costs related to violence, Switzerland only spends 1% of its GDP on these costs, including direct and indirect costs and prevention. Empirically, a high level of human capital, low levels of corruption, a well-functioning government and an equitable distribution of resources are the four most important factors preventing violence between people. Any mechanism that can demonstrably reduce the curse of violence is worth considering. Since the war in Ukraine broke out on 24 February 2022, European countries have doubled their military spending, crowding out civil and humanitarian spending. Hopefully, this enhanced military spending will provide positive peace measures to ensure our freedom.

See the influential paper (Sachs & Warner, 1995; Blair et al., 2021; O’Brochta, 2019).

From a more general perspective, we could say that communism emphasised collective goods but had no understanding of free competitive market allocation. Capitalism promotes profit maximisation through competitive markets, private property and price signals, but making and earning money has become an end in itself. If we want to integrate these two mega-trends, we need to give equal emphasis to the commons and market allocation. If the monetary system becomes a means to a greater whole, then we will end up integrating both communism and capitalism, and transcending them as we take the next step in evolution. Or in other words, we will shift from an ethno-centric to an ego-centric to an eco-centric worldview, and organise our economic activities accordingly.

As a side note, the big advantage of SWFs is that they are public funds and therefore reflect public interests, public goods and public ownership. That means it is in their self-interest to shift from a more traditional strategy towards one that is greener and more resilient.

The well-known Keynesian multiplier depends on the propensity to consume and save, and on the interest rate. The lower the saving and interest rates, the higher the multiplier. If we take into consideration an ageing society that tends to de-invest and consume more, and the fact that lower-income households have a higher consumption rate, all operating within an environment of a low interest rate and high imported energy and food prices, this will result in an even higher multiplier and in consequence a higher inflation rate.

Complexity research has shown that there is a non-linear link between food and energy prices on the one hand and social upheaval, wars and state failures on the other. Since 2000, food prices have been deregulated, allowing traders to bet against rising and falling commodities. Up to 80% of any given commodity price has become speculative and does not reflect the real demand for that commodity. This leaves large cohorts in LDCs with unmanageable food prices. At the tipping point, high food and energy prices increase the probability of social unrest by up to 80%; see https://necsi.edu/. We have to assume that the trend towards urbanisation will further exacerbate this development. By 2050, 2.5 billion people across the world will have left rural regions and moved to megacities. Instead of becoming self-sufficient farmers, these 2.5 billion people will depend on the international commodity markets to feed themselves.

Notably, there have been only four periods during the last 250 years when economies experienced a negative real interest rate: during the First and Second World Wars, during the oil crisis of the 1970s and since 2010. Could it be that we have to adjust our monetary policy to these serial new events?

It should be noted that due to inflation, public revenues are increasing (nominally). But these additional inflows of money represent a kind of window dressing or cosmetic tweaking of balance sheets. They do not really solve the actual problems we are facing. If public revenues increase by 30 billion euros but the real prices in the economy soar by 45 billion euros, for instance, businesses and households have to cover 15 billion euros, which decreases their purchasing power. Only credit holders are the winners in this game.

The most prominent paradox is the VAT paradox. Once a government lowers VAT, households have more money available to spend, which in turn will increase overall inflation even more. The most prominent trade-off is fuel subsidies. In most cases, upper-income households benefit the most and need the support the least. In conclusion, we should not intervene in a complex, non-linear, chaotic and dynamic system using a linear tool. Rather, we should learn to ‘dance’ with the system. See Brunnhuber (2021).

As a rule of thumb, any increase in additional money creation of 1% (of base money) would increase the CPI by 0.5%.

This is substantially less than what the Fed spent in September 2019, when the repo markets crashed overnight. At that time, the Fed injected a series of short-term loans with a total value of 1.5 trillion USD into the system. At its peak, this was equivalent to one million USD per second. See https://​www.​federalreserve.​gov/​econres/​notes/​feds-notes/​what-happened-in-money-markets-in-september-2019-20200227.​htm; https://​www.​bankrate.​com/​banking/​federal-reserve/​why-the-fed-pumps-billions-into-repo-market/​

Unlike a credit line or a loan from the capital market, where the money is purchased by a private lender, QE (quantitative easing) is a non-refundable and non-defaultable state loan in base money (M0), created by the central bank itself.

It should be noted that the combined balance sheets of the ECB and its member states remain net zero.

The volume of currency trading in 2019 exceeded 8,000 billion USD per day, including all instruments. Adding some one billion USD per day (out of the 100% increase in the CPI, see above) will not change the face value of the currencies involved. 97% of this volume is speculative and does not relate directly to real economic fundamentals. About 18,000 billion USD of goods are exported globally per year, equivalent to 50 billion per day. For relevant data, see statistics.com.

This strategy can easily cause a beggar-your-neighbour policy, where the hot potato is handed over to clients further down the value chain. First, if inflation is purely speculative, the agent will quit the market because it cannot bet against a central bank. Second, if the high CPI is correlated with real economic supply shocks, this will then either stimulate further R&D or further regionalise the value chains domestically. In any case, imported inflation caused by a constraint on fossil energy would encourage renewable energy supply at a high scale. All three aspects can help us move towards a more sustainable future.

The ECB bought up to 80 billion euros per month in state bonds through a heterodox, accommodated and expanded monetary policy (QE). The purchasing programmes were mainly run through the national central banks (referred to as ‘target accounts’), inflating their balance sheets by a factor of 6 to 8. However, these QE programmes were empirically disconnected from the CPI and the conversion rate to major currencies (USD, yuan, yen or the British pound). See www.databank.worldbank.org

There is a link and trade-off between the transition towards a greener future and inflation. Climate action will increase costs by 0.25–0.50% over the existing price level. However, fossil energy is the greatest inflator and we are still dependent on this highly monopolised source for 78% of our energy needs. Whereas renewables represent a new technology that has proven to have a high learning curve, reduces production costs by 60–90% and is highly scalable and decentralised, oil, coal and gas are commodities traded on highly speculative and volatile markets. Over 50% of the increase in energy prices is due to fossil energy. If we add the direct and indirect subsidies for the fossil industry into the equation (five trillion USD globally per year) and further consider that the cost of repairing climate damage in the future will be several factors higher than the initial investments in green technology, we will be forced to admit that there is no such thing as ‘green inflation’.