Degrowth and the supply of money in an energy-scarce world

doi:10.1016/j.ecolecon.2011.03.020

Ecological Economics

Volume 84, December 2012, Pages 187-193

https://doi.org/10.1016/j.ecolecon.2011.03.020 Get rights and content

Abstract

Degrowth is going to happen whether governments want it or not because, as fossil fuels run out, incomes will shrink along with the energy supply. This degrowth can either be unplanned and catastrophic or managed and relatively benign. This paper argues that three tools are essential to avoid degrowth becoming a catastrophic collapse. These are (i) a system to share the benefits from using increasingly-scarce fossil fuels, (ii) new ways of financing businesses and (iii) the introduction of debt-free regional and local currencies.

Section snippets

Limiting the price paid to fossil fuel producers

When a price goes up because something is scarce, economists call the extra money the producers make over and above its cost of production a “scarcity rent”. If the world economy recovers and oil prices move up strongly again, a way needs to be found to prevent money that leaves a country as income returning to it as capital. This means that a system has to be found to capture most of the scarcity rent and distribute it as income rather than having it end up as capital in a sovereign wealth

The end of debt-based money

Output in today's economy gets a massive boost from the high level of energy use. If less and less energy is going to be available in future, the average amount each person will be able to produce will decline and real incomes will fall. These shrinking incomes will make debts progressively harder to repay, creating a reluctance both to lend and to borrow. For a few years into the energy decline, the money supply will contract as previous years' debts are paid off more rapidly than new ones are

New ways to borrow and finance

The regional monies mentioned above will not be backed by anything since a promise to pay something specific in exchange for them implies a debt. Moreover, if promises are given, someone has to undertake to see that they are fulfilled and that means that whoever does so not only has to control the currency's issue but also has to have the resources to honour the promise should that be required. In other words, the promiser would have to play the role that the banks currently perform with

Conclusion

Up to now, the commercial banks allocated a society's money supply — they decided who could borrow, for what and how much. This determined what got done and thus the shape of the economy and society. In the future, that role will pass to those who supply its energy. Only this group will have, quite literally, the power to do anything. Money once bought energy. Now energy, or at least an entitlement to it, will actually be money and energy firms may become the new banks in the way I outlined.

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