Following the Token Economy post, I want to preface with the acknowledgement that I am not a technosolutionist, presupposing that blockchain, the broader Web3 ecosystem or frankly any technology could be a panacea for our climate crisis. But for the first time, I feel that we have tooling available to us that can help us rewrite the rules of the game, to leverage programmatic incentive engineering and tokenomics-based game theory to incent regenerative practices and the protection of public goods in a way that no historical economic or social coordination paradigm could have done in the past. What the Token Economy allows for is the ability to predict, model, and guide behaviours, assuming of course that does not rely on the hope of moral integrity, but actually expects self-interested rationality. By employing tooling that rewards or punishes certain behaviours transparently, predictably, and equitably, we might just cultivate different outcomes.
I’ve previously discussed the problems of coordinating the players of the game, and the tools to streamline the process, but here I zoom out to understand the game itself. We investigate the guiding framework for operating in a 21st century world, and how the leading economic philosophy, that of a free-market state (branded as Capitalism) might be reaching its expiration date. We explore how perpetual growth demanded by capitalism has entrapped us in an endless cycle of dependency on natural resources, steered us to the edge of planetary boundaries and fueled social unrest. In this post I extrapolate the Growth Imperative of Capitalism – why it is important, and what it means for our planet.
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The monster that ate itself
The famous approach to scientific inquiry known as first principles implores a investigation into root causes. Asking “why”, enough times, and eventually you get to the true cause of a problem. In almost all meta and macro problems, the cause comes back to the system, and climate change is no different. Applying systems thinking to climate, I have concluded that when discussing matters of ecological exploitation, we are often asking the wrong questions, and solving the wrong problems. I am convinced that climate catastrophe is a symptom, rather than a cause, of the economic guardrails that bind us to dysfunctional destruction, commanding infinite growth in a land of finite resources.
A classic coordination failure, not a country or company or citizen failure, the condition of the game is clear: convert resources into currency. This condition is why governments cockfight with nuclear weapons, despite the Mutually Assured Destruction they guarantee. It is also why we can’t kick our addiction to fossil fuels, in spite the overwhelming scientific consensus that we need to keep them in the ground. A game-theoretic dystopia that is almost comically obvious when you take a God’s eye-view, but impossible to exit when you’re in the game. And we are all co-conspirators in this game.
In Allen Ginsburg’s epic, Howl, Moloch – a mythical Carthaginian god representing a very costly personal sacrifice – poetically represents the horrors suffered in modern society at the behest of this game. As Charles Eisenstein writes in Sacred Economics, “looking out upon the strip mines and the clear-cuts and the dead zones and the genocides and the debased consumer culture, we ask, what is the origin of this monstrous machine that chews up beauty and spits out money?” An ancient Chinese myth of a monster called the Taotie also illustrates this phenomenon. Possessed of an insatiable appetite, Taotie consumed every creature around it, even the earth itself. Still hungry, it turned finally to its own body, eating its arms, legs, and torso, leaving nothing but its head. This is what the Growth Imperative of Capitalism is doing to our planet. Devouring nature and transmuting into “things”. Moloch, a practically certain outcome in a land governed by perpetual growth.
Golden (or Gilded) Age of Capitalism
The period following WWII became known across the Western World as the “golden age of capitalism”. Growth, a value system born out of the economic race of the ‘60s between Communism and Capitalism in which Capitalism fiercely dominated, became sacred. Observing that 2% growth in US national output corresponded to a 1% fall in unemployment – a pattern known as Okun’s Law – “growth” quickly became synonymous with prosperity. Portrayed as a panacea for social, economic and political ailments, it was considered a “cure for public debt and trade imbalances, a key to national security, a means to defuse class struggle, and a route to tackling poverty without facing the politically charged issue of redistribution”. Growth, it was believed, was the silver bullet to post-war recovery.
Nations promptly mobilized policy to encourage economic growth under the assumption that more was actually, more. Centering around the philosophy that a bigger pie is better for everyone and that the market knows best, cautious pragmatism became un-trendy, and political interference, villainized. The story was told that the people would benefit most, the everyday citizen sold the “American Dream” of looming fortune, if only, we let the market make it happen. The “business of business is business”, they said. Economic ideologies transmuted into loyal belief systems, and capitalism, enshrined. The Growth Imperative became deeply entrenched in our collective psyches as a prerequisite for success, and thus, a decentralized incentive system of unanticipated consequences.
The Cold War score was kept in GDP, leading to the triumph of Capitalism (growth).
GDP – Gross Domestic Product - became the primary metric to win. Defined as the total economic value of goods and services produced in a nation’s borders per year, we were hoodwinked to believe we were all better off if we made more “stuff”. Of course, we want things produced to also be consumed, or there is no official transfer of money. Thus the money system evolved to necessitate growth. A credit-based, interest-driven model, an exponential money system was adopted. But this economic system that created such prosperity back then, has now become the culprit of increasing inequality and debt-ridden indentured servants. Like too much of anything, too much capitalism has a consequence, a shadow. Growth’s shadow is quite a scary one – one of competition, polarization, and greed. As self-interested actors seek to convert social, natural, spiritual, and cultural capital into anything that produces money, we have become victims of our own design.
But why does this matter now?
Simply put, the economic machine, like an animal, can only keep growing if we feed it. And the food that this machine needs comes in the form of energy, which comes from nature. Growth is directly correlated to the amount of energy and material production it is fed. It requires transforming raw materials – trees, rocks, crops and earth – into consumables. Trees become timber, rocks become minerals, crops become biofuels, earth becomes hydrocarbon. Applying chemical engineering to the biology of our planet, we convert nature into numbers.
This was all working fine for us for a while. We bulldozed our way through the planet in pursuit of the food for growth. Mathematically-speaking, perpetual growth becomes exponential. If you need a percentage increase on returns year-over-year, consumption rapidly takes on a hockey-stick curve. But you see, in natural systems, there is no such thing as either exponential growth or exponential repair. Power is rigorously and evenly distributed in ecologies. The types of exponential growth and power asymmetry we see facilitated by economics is unprecedented in ecology. Meaning that while we march steeply upwards and to the right to the holy grail of growing GDP, the planet remains consistently linear. A classic Malthusian Trap. Even a high-school math student could identify the problem we are now facing.
It all comes down to incentives
As legendary investor Charlie Munger says, “show me the incentive and I’ll show you the outcome”. Capitalism’s incentives are explicitly clear – more money equals more growth, and more growth equals more prosperity. A simple and convincing equation, growth at all costs is the natural schelling point, and it’s only rational that we signed up for this program.
Classic economics assumes that humans are predictably rational in their pursuit of self-interest (evolutionarily equated to “survival”). It is valuable to analogize capitalism to evolution. If you subscribe to Darwinism, fit people survive. Fit companies – defined as those with a paying customer – survive and expand, and unfit companies – defined as those that fail “product-market-fit” – go bankrupt and die, along with their company DNA. So if survival in a capitalist economy equals the accumulation of money, it can be expected that humans will optimize for that outcome. And in a competitive, win-lose context, anything that increases competitive advantage will win and be selected for. Power will evolve until the power required by any side to win is more than that of the limitations of the playing field (natural resources). Even if it’s using unrenewable planetary savings accounts or externalizing harm elsewhere, natural selection is based on what confers competitive advantage in the now. Capitalism as a proxy for money accumulation, is an automatic incentive system that orients people towards making more. We don’t have incentives to build better worlds because we’re incented towards growth – the compulsion of more-ness. The growth imperative is a multipolar trap within which, we are all stuck.
The by-products of this trap are called “externalities” (also known as a predictable side-effects). A market that optimizes for “moving fast and breaking things” incents myopic action. The first-mover advantage incents speed over due diligence, in a world where both efficiency is rewarded and externalities go unpunished. Any company that does not accept this as law, is quickly outcompeted by those that do. And what this ultimately means is that there are no incentives to take careful, sensible steps, modeling for worst-case scenarios, future-proofing, or true cost accounting. Instead, willful ignorance of externalities is rewarded by market monopolization and more money. This perverse incentive is quite literally, structurally ordained. With the exception of perhaps, ethical integrity or consumer demand, there is almost no reason for a business responsible to shareholders to concern themselves with consequences. Consider the example of fast food – a highly competitive industry – profit-incentives lead to a race-to-the-bottom. Winning companies are cheaper and more compelling than their peers, compelling them to toss sustainable practices and organic ingredients in favour of addictive additives and Frankenstein foods. Manipulative marketing, deliberate disinformation, and sham science all lands more paying customers. The point is to optimize for whatever keeps the customer coming back, even if it is knowingly harming them. Morals have no place on the balance sheet.
The Paperclip Maximizer
Artificial Intelligence philosopher Nick Bostrom ascended to fame in his seminal book Superintelligence, on the risks of boundary-less AI. Introducing a theoretical exercise called the “paperclip maximizer”, he posited that if a machine were to be endowed with super-intelligence such that it could indefinitely optimize for a specific outcome (in this case, creating paperclips), it would eventually destroy all living matter including its creators in pursuit of substrate for paperclips. This dystopia is the result of a system with enough intelligence and power to optimize its ability to execute a function, but devoid of the type of existential and ethical intelligence that can properly assess the meaningfulness of that function. Perhaps still apocryphal in AI, the paperclip maximizer exists very much in real-time via the Growth Imperative. Consider why, for example, America is still funding wars, many of which they have no business in to begin with: the military industrial complex is profitable. Selling weapons pays big dollars. And commandeering natural resources pays. Even if it means making a few moral compromises in the process.
Capitalism is a paperclip maximizer; a system that abstracts the complexity of the natural world into the simplicity of consumables. As Daniel Schmachtenberger writes, “like the paperclip maximizer that theoretically converts the whole world into paperclips, thereby winning and dying from the win simultaneously, the collective intelligence of capitalism keeps converting the antifragile complexity of the natural world into an increasingly fragile built world. And the humans that do the bidding of the system (those who extract and accumulate) rise in power within the system and in turn help advance the system. The humans that oppose the system (generally those who interfere with the extraction) are seen as threats by those winning at the system and are thus disempowered”. Incapable of thinking long-term, this system is predicated on instant gratification and half-baked models. A discrete example, the European energy crisis reveals this mechanism in action, with Big Oil’s dominion further entrenched. Appealing to the survival instincts of the little guy, Big Oil crusades as a solution to the war. Political compliance becomes almost non-negotiable, for fear of civil rife. That OPEC+ has the power to raise oil prices in a moment of extreme despair, profiting from the people’s pain, is alarming. Second-and-third-order consequences (“externalities”) deemed irrelevant by the system, nations cower to resource owners, even if admittedly, in everyone’s worst interest.
Pathologies of Limitless Growth
The game of limitless growth is being like stuck in the Matrix with no red pill option. Remaining the uncontested holy grail of economic policy, Growthers are fooled by the insatiability of more. Operating under the assumption that humans can be counted on to act in their rational self-interest and that this self-interest corresponds to Benthamite “utility”, the implication is that money exchanged equals an increase in “goodness”. Two people will make an exchange only when it benefits both to do so. The more exchanges happening, the more benefits had. So when the economy grows, the world’s goodness-level rises. But this philosophy assumes that the need an exchange is now meeting, was originally, unmet. As in the realm of public goods (or commons) which were historically ownerless and open but have now become commoditized and closed, if we are merely paying for something once provided through self-sufficiency, gifting, or nature, the logic of transaction utility is flawed. Stealing someone’s land, claiming ownership, and renting it back to them, does in fact create an economic exchange, but is certainly not a mutual utility. Correspondingly, as Growth-ism dictates that only money-denominated goods and services qualify for a place on the GDP ledger, things which were once free or abundant, must eventually, be converted into commodities. Community and social services are disqualified as irrelevant. Gifts of reciprocity deemed wasteful, if they cannot be converted for a fee. This logic motivates the conversion of forests into timber, water into bottles, ideas into intellectual property, social good-will into paid services. GDP rises and society has become “wealthier”.
Even more bewildering, since economics is defined as “the study of human behavior under conditions of scarcity”, the expansion of the economic realm is therefore the expansion of scarcity. Governed by the condition of artificial scarcity, capitalism creates an imperative of intensifying productivity and maximising output, all of which must be converted into currency. For something to become an object of commerce, it must be made scarce first. This means, similar to GDP’s compulsion to convert nature into goods, what was once abundant and free had to be made scarce and expensive. Private riches acquired at the expense of public wealth; commons sabotaged for consumables, abundance sacrificed for accumulation. Unprecedented commodification gave rise to privatization, leading to the win/lose dynamics of capital ownership. Scarcity demands that some have what most want. The money creation process maintains a systemic scarcity, meaning that one person’s prosperity is often, another’s poverty. Competition, insecurity, and greed result.
Scarcity is also artificially levied by the cost of accessing money to buy the things that were once free but are now costly. Officially called usury (or as it is euphemistically known as, interest), it is like a tax on money for those that do not have it, paid to those that do. Money created accompanies a corresponding debt, and because it bears interest, the debt is always for more than the amount of money created. It inherently ensures that wealth always flows from those laboring for the money to those who own the money.
“Interest both generates endemic scarcity and drives the world-devouring engine of perpetual growth. The imperative of perpetual growth implicit in interest-based money is what drives the relentless conversion of life, world, and spirit into money. The more of life we convert into money, the more we need money to live”. A vicious circle keeping a constant, underlying debt-pressure that literally translates to survival, on anyone who doesn’t own capital. This means there will always be some (actually, the majority) who are insecure or desperate enough to make a moral compromise – to liquidate whatever social, natural, cultural, or spiritual capital is still available and convert it into Benjamins, just to get by.
Growth-ism
A hegemonic ideology, the concept of growth has always implored colonization. Empires for millennia, by definition, ingested other cultures by means of coercion. Another form of a multipolar trap, in the times of imperialism, “either you played the game, or you were feedstock for those that did”. This practice survived through feudalism, when eventually a breaking point of inequality was reached and the serfs reclaimed power, a societal rebalance taking shape. But the private ownership model that followed promptly accelerated a new form of colonization – one which inspired a natural capital grab rather than a human capital one. In effect though, the rules were the same; always taking from another’s balance sheet.
Of course in a closed system, all stakeholders profiting is mathematically impossible. Profit on some balance sheet predicates a loss somewhere else. The imperative to grow consumables meant extraction directly from the planet’s finite savings account. No loss is recorded on GDP because nature doesn’t have a balance sheet. Nature never got a seat in the boardroom, and the commons never had its own P&L. As long as tree as a 2x4 could be sold for more than a tree in the ground (adding to the nation’s GDP), it was fated for logging. Similarly, protecting whales in the ocean adds no value to the nation’s bottom line, but their blubber can be quite profitable. Even if logging those forests means obliterating ecosystems, uprooting dwellers from their homes, hiring them on subsistence wages to labor the logging that render them impoverished, and effectively committing them to systemic destitution, the world is considered “wealthier”, because those trees were sold as timber for dollars. Ecological externalities were rewarded and cost internalization, avoided.
The “profit-at-all-costs” mentality dwarfed our formerly collectivist spirit. Now we are deep into the era of globalization; the process of stripping away natural assets to feed the money machine’s insatiable, existential need to grow. Centuries of commodification have left us so destitute that we have little left to sell. Our forests cannot sustain much more logging. Our soil is depleted, our fisheries fished out. The rejuvenating capacity of the earth to recycle our waste, saturated. Our natural rights taken away from us and sold back. We are robbing Peter to pay Paul
The execution of capitalism required a new story about nature — land, soils, the minerals beneath the surface of the earth. The narrative separated the scared kinship to nature we had evolved with and a belief of separation ensued. Possession, extraction, commodification, and ever-increasing productivity meant abandoning beliefs of the precious spirit of ecosystems, and qualifying them as less than. Exploitation can only happen via objectification. In short, the Growth imperative is the climate’s biggest threat.
But since an interest-based economy is unalterably a growth economy, what happens if the rate of economic growth is lower than the rate of interest? What happens when there is no more nature to be converted? What happens when we run up against those planetary boundaries that we thought were oh so infinite?