Ethical is Optimal

May 18, 2012

Chris Cook explores how reality based action can lead to a resilience economy

For thousands of years the toxic combination of the inexorable mathematics of compound interest on debt and private ownership of the commons (particularly land) have led to the unsustainable concentration of wealth in the hands of the few to the exclusion of the many. This has invariably led to booms and busts at best, and revolutions and wars at worst. How can we address the systemic imbalance in ownership of real wealth – particularly land – and the financial claims by the 1% over the indebted 99%?

The End of the Dollar Economy

Our current system is unsustainable. There was even a near seizure of money transmission services in 2008 when we were a few hours from cash machines running out. A sequence of defaults and breakdowns in trust on a global scale all but destroyed the banking system, which has been on life support ever since, being flooded with money by central banks, like transfusions of blood being pumped into an accident victim. The visible wounds of the system, the banks, have been stitched up and have largely healed. The problem is that the patient continues to bleed internally, and worse than that, quack Austerity-crazed doctors are intent upon applying leeches or even lopping off healthy limbs.

Hundreds of years from now historians will look back at the meltdown of Lehman Brothers in October 2008 as the moment which marked the onset of the transition. The US economy had already reached a point of Peak Credit – the point at which the monetary claims created by banks had become greater than the capacity of the population to meet them. And then, the crash.

Value: The Myths

This time, the violent conflict and disruption which has historically resolved such wealth imbalances – at least since debt jubilees went out of fashion – will not take place, despite the gloomy view of many. To understand why not, we have to understand what “value” is – because underpinning every school of economics, implicitly or explicitly, are certain foundational assumptions as to the basis of value.

Almost invariably there is an anthropocentric assumption that it is the individual’s labour which is the source of all value, and that the use of other factors of production – lumped together as ‘capital’ – simply makes labour more ‘productive’.  So a nurse in public service is an unproductive burden on the taxpayer, but in the private sector she magically becomes ‘productive’. Or when a factory is automated, the person who switches it on and off is almost infinitely productive, while the capital embedded in the factory is not.

This is pure ideology – but it is of course convenient, since it justifies the imposition of taxes only on individuals, rather than upon the productive assets they may own.

There are two additional myths we need to leave behind us for good: firstly, the banking myth, which is that banks take in deposits and lend them out again; and secondly the ‘tax and spend’ myth –  that Treasuries collect taxes and then spend the proceeds.

The truth is very different: banks and treasuries are simply credit middlemen who provide a framework of trust for the credit they create out of nothing as money. The value which underpins this credit is in fact only in small part that of the bank, but is actually based upon the capacity of productive people to meet their obligations, and it is usually backed by the value of productive assets, particularly land.

Value: The Reality

Three sources of value exist: 1) Location – i.e. three dimensional space; 2) Energy – in material or static and immaterial or dynamic forms; and 3) Intellect – in subjective form (knowhow) and objective form (knowledge). While the factors of location and non-renewable energy are finite, and subject to enclosure and dominance by elites, the emerging factor of intellectual value is subject to the direct instant connectivity of the Internet.

“The Internet” as John Gilmore has said, “interprets censorship as damage and routes around it” and it’s already routing around governments and rent-seekers to prevent them from capturing and enclosing knowledge and knowhow. The great theme of the 21st Century will be the exchange of intellectual value – firstly for the value of infinite renewable energy (MegaWatts); and secondly for the value of non-renewable energy saved (Negawatts and Negabarrels – units of unused energy).

Co-operative Advantage

I believe we will see – probably more rapidly than many will believe possible – a transition from a profit-centred dollar economy to a people-centred energy economy. The adoption of a networked collaborative model has a ‘co-operative advantage’ – the freedom from paying something for nothing to rent-seekers. Networked financial systems spread the risk and are more resilient – from enclosure, for example.

There is a useful tool of credit which I call a ‘nondominium’ agreement: a consensual framework agreement between stakeholders such as asset users, managers, and investors which brings them together collectively and individually in such a way that none has a dominant right over another, but each has negative rights to protect their interests. In this new economy, absolute rights of ownership would be replaced by rights of ‘stewardship’.

Collaborative Investment

By finding consensual solutions through the formation of community partnerships we shall see a viral spread of networked community projects. So collaboration to a common purpose and the equitable sharing of value will eventually out-compete profit-based economics. As a research fellow at the Institute for Security and Resilience Studies at UCL, I am engaged in action-based research to simplify and localise the way in which people may interact creatively using unconventional legal entities and agreements. This enables stakeholders to participate in mutual agreements to a common purpose of creating productive assets of all kinds.

Within such reality-based projects participants come together without value-extracting banks and other middlemen, but possibly alongside value-adding individuals with professional and banking experience of risk management and project appraisal who have a stake in the outcome.

One example of such a project was ‘The Art of Flirting’ LLP (Limited Liability Partnership), a film project in which actors became members with percentage shares in the partnership (as opposed to £1.00 shares in a company), and ‘capital partners’ invested cash for a 20% equity share.  Although, as with most films, it was not a financial success, the actors acted in a film; the producer produced a film; I carried out very useful action-based legal and financial research, and even the investors had a completely legitimate tax loss.

In Edinburgh, waterfront land is the subject of a proposed land partnership involving the local council, architects and others within an LLP framework. Another proposal was prepared for the Albion Trust, which created Norton Park in Edinburgh – a converted school which offers affordable offices for charities and social enterprises. The key lesson here was that the affordability of rents – there were no vacancies in 15 years due to a long waiting list for tenants – gives certainty of investment return.

New Ethics of Business

These new participatory models share risk and reward whilst circumventing the current banking model, in which you pay money for the use of money. The Limited Company structure is often toxic – particularly in its public limited company (Plc) form – and instead we need cooperatives of cooperatives and to remove ‘money for nothing rent seekers’ from the equation.

We need to understand that deficit-based modern money has come to the end of the road. Instead of allowing banks to issue our credit for us based on nothing, we could base credit on productive assets such as Land and energy. A currency unit based upon land rentals could be instrumental in resolving unsustainable property debt; while energy-based currency units could be instrumental in the transition to a low carbon economy.

In doing so perhaps the most essential safeguard against corruption and abuse is transparency. For example, in Norway, Finland and Sweden all tax returns are accessible to the public. In fact, under cooperative-based finance, it is in everyone’s own interest to be transparent: sunshine is the best disinfectant! In other words: Ethical is Optimal.


Chris Cook is a former director of the International Petroleum Exchange. He is now a strategic market consultant, entrepreneur and commentator.