My capital manifesto

Over the course of this quarter I’ve learned about the theory behind various forms of capital - financial, social, human, natural, etc. And I realized that not only do we interact with capital everyday, but we also create capital, we use capital, and in some ways we are capital. It sounds eerie and reductionist at first, but I wonder if there isn’t some way to feel ownership (pun intended) over the construct of capital. How can we make it ours and make it work for the communities and environment we care about?

Traditional economics speaks to the ways in which capital does “work”. As Investopedia explains, “Capital...is used to generate wealth through investment...Capital itself does not exist until it is produced. Then, to create wealth, capital must be combined with labor, the work of individuals who exchange their time and skills for money… [and] Capital has value because of property rights.”

So the traditional definition of capital is linked to wealth creation. It must be created, and owned. How can we re-imagine wealth, creation and ownership then?

Wealth - It is excess that you don’t use immediately, resources that we can stored or saved. Depending on who you are talking to, wealth is manifested in the form of money, possessions, knowledge. Yet, interestingly it can be used to described people and things. It is more than possession it can also be a descriptor: a wealthy family, city, and nation.

Creation - Bringing something new into existence. But is anything new ever really “created”, or is it just repurposed, a shifting of ideas, atoms, and elements. Charles Eisenstein certainly feels that most things that are sold was once an object and services that humans provided for themselves and their community without exchanging money for it.

Ownership - It is to possess, rule, control. Those words are very different from service or stewardship, yet all three can look the same in action. I own my dog, but that just means that I have to pick up his poop and make sure that he doesn’t get hurt or hurt other. In fact, it seems that he controls me.

Now, just for fun, with this new look at wealth, creation, and ownership let’s look at what financial, social, human, and natural capital we interact with, use, live and create on a daily basis. There is the obvious physical environment that surrounds us. Each building serves use-value and transaction-value. It is owned by someone and created by someone. It is probably making wealth for someone (the bank, the landlord) as well. What about the people walking around and working? They all have capital, which is to say knowledge and skill that they own, created, and are driving wealth from (or at least we hope there is an excess of resources taking place). In fact, I am using mental capital right now. I am building my writing skills, and deepening my understanding of economics. I own these new skills and I hope to profit off of them in the near future.  What about trees and parks. They create wealth because they improve quality of life (who doesn’t like excess quality of life?). They are “owned” by taxpayers and are created by nature and human intervention.

It seems that with a broad sense of capital, wealth creation, and ownership we can apply the label capital to almost everything we come in contact with.

Yes, the world is unjust. Yes, there are many institutional, systemic, and structural barriers that keep people from achieving the mythical “American Dream”. But, we all have some capital.

How are you going to use your’s?

The New Econ-o-what?

What is this “new economy” all about? People talk about sharing economies, complex economies, Ecological Economics, self-reliant bio-regional economies, the New Economy, the sacred economy. How are we to imagine a new reality when there are a number of people voices saying different things? How do these different ideas work together or pull the movement apart?

It seems to me that all these names, new paradigm, or suggestions boil down to three fundamental changes - change the rules that set the system in motion (and allow for self organization), change how value is measured (change the goals), and transform which stories are chosen to be glorified (shifting the paradigm).

Allow for self-organization

Marjorie Kelly, Mirran Raphaely and Jeff Mendelsohn both talked about clever ways to lay strong foundations that affect whole systems. As Kelly so eloquently said in our webinar, “Structure is purpose expressed through design.” As with the nature world, there are simple rules that have long lasting effect. These natural laws result in a multitude of combinations and self-organization. What on the surface may seem like a boring project - coming up with a business’ articles of governance - actually lays a foundation and sets into motion the complex and exciting organization that will birth something new and innovative into the world. It is worth spending the time to make sure that the governance and ownership structure are in line with the ethos of the company. Doing so, means that business models are not extractive, instead the focus on supporting  life. As a result, not only does the business product or service positively impact customers, but also the environment and all stakeholders within the system.

Mendelsohn  and Raphaely talked about the ways that organizations are living beings. They are not something to be bought, sold, or traded. They exist independently of people that make them up. Why should some people own parts of it and not others? What does it mean to give away equity in exchange for capital? Will we soon see that to be similar to giving away your first born during a financial transaction?

Change the goals

David Korten clearly stated the ways in which increasing GDP is a poor goal for a healthy economy. He argues that GDP and Market Indexes as economic indicators favor the rich and does nothing to improve life for all (Korten, 2013a), and that Money measures value and making more of it is the purpose of firms and economies. When these are our goals and values, they can have disastrous effects. For example, when focusing on increasing GDP, the result can be that sustenance farmers leave the farm to to make money (which contributes to GDP) at the expense of growing food. So, money goes up, but food security goes down. (Korten, 2013a).

The solution from many authors - for example David Korten and Charles Eisenstein - suggest a change to the means of measurement. GDP sets the wrong goals and the wrong focus.

Shift the Paradigm

Perhaps the most radical argument against the current system looks closely at the narrative that perpetuates it. Both David Korten and Charles Eisenstein take issue with the story that gives meaning to our world.

Korten talks about the three meta-narratives of our time: Distant Patriarch - “most important relationship is to a distant god who bestows agency and meaning”; Grand Machine - there is no meaning and agency in the world, we are just part of a machine going round and round; and Mystical Unity - relationships and meaning are all illusions, we are one. He urges us to move beyond these stories that legitimate the extractive economy that we live in.  Korten argues that in order to move into a place of healing for the Earth, Humanity, and all living beings, we must change the narrative the connects us to the world around us. That narrative needs to be based on a new story - the Integral Spirit. This story celebrates humanities ability to be self-directed interconnected beings on a “journey of creation and discovery.” (Korten, 2013 pg 9)

Eisenstein encourages us to change the way we interact with money as money was once sacred and key in bring people together. Similar to Korten, he suggests that the narrative of divide, conquer, sell and commodify has changed our relationship to one another and the Earth. To move beyond that reality, money has to take on new meaning and occupy a new place in the world.

Breaking these concepts down into bit-sized pieces helps me understand that just as our economy is multi-layered, so are the problems and potential solutions. I may not agree with all of them, but they remind us to question what we know and explore that which we do not. If we stop taking the system as a given and support alternatives (varied as they are) when we see them, perhaps we can kick-start some change.

(Endnotes)

Eisenstein, Charles. 2011. Sacred Money: Money, Gift, and Society in the Age of Transition. Evolver Editions.

Korten, David. Taking Ecological Economics Seriously.

Korten, David. 2013a. Defining a New Development Paradigm.

Korten, David. 2013b. Religion, Science, and Spirit: A Sacred Story for Our Time.

Capitalism and Colonialism - what's the relationship?

For years I have wondered about the historical context is that has created the world in which we live. I’ve explored it from the context of maritime history and anthropology, but this the first time looking at it through the lens of economics. Having said that, it is often difficult to know what the causation of events are. We humans are very gifted storytellers and create wonderful narratives to draw correlations between events. Then those stories propel us forward, seemingly providing legitimacy for our future choices.

This leads me to something Jill said in one of our first classes. She posited that there was a relationship between colonialism and capitalism. In Capitalism: A Very Short Introduction James Fulcher talks about 3 stages of capitalism in Britain. I can't help but notice that the first stage, Anarchic Capitalism (pg. 38), began as Britain became a naval superpower sailing around the world claiming land, resources, and people.

During the second stage of capitalism, Managed Capitalism (pg 41), most of the world's land was controlled by a powerful nation-state with a military to defend borders and trade. And the third stage, Remarketed Capitalism (pg 47), took place post-WWII when many former colonies gain independence.

In the 1970’s and Remarketed Capitalism old colonizers shifted from Keynesian ideas of big government and unions, low unemployment rates, and high taxes to new ideals of free-markets, low taxes, and low inflation. They then took these ideas and infused them into International Monetary Fund (IMF) and the World Bank lending practices. As told by the documentary Life and Debt, these newly independent countries needed money to pay bills, but had little money to do so. The only institutions willing to lend them money required countries, such as Jamaica, to undergo huge social and economic changes based on neoliberal policies. To be eligible for IMF loans Jamaica was forced to open their markets to foreign trade, increase inflation rates and stop subsidizing local goods and services. As a result potatoes, milk, and meat grown in Jamaica cost more to purchase than American subsidized potatoes, milk and meat imported from the US. England gave Jamaican bananas preferential treatment so that they were cheaper to purchase in England.

As a result, the infrastructure to grow milk cows, chickens, and potatoes were taken over to growing bananas. Bananas were the only Jamaican food that the old colonizers wanted to eat, thus Jamaica’s agricultural diversity was crippled and ability to effectively feed themselves abolished.

In Globalization: A Very Short Introduction Manfred Steger discusses the ways in which globalization itself has been converted into a commodified ideology. One of the main tenets of this ideological argument is that globalization (the process) and free-markets benefit everyone and spreads democracy. According to Steger, in 1989 more than half of all imports to the US from the global South were from democratic countries. Yet in 1999, ten years later with more democratic countries in the world, the US trades with fewer democratic countries from the global South. Almost two-thirds of all imports from the global South come from dictatorships where wages are lower, unions are less prevalent, and environmental laws are less stringent (pg. 111). This brings up the question, how do free-markets and globalization really support democracy and who is really benefiting?

Another main tenets supporting globalization is that it is inevitable and irreversible. This has the effect of de-politicising the conversation and perpetuating colonialist mindset that justified stealing land, resources, and people. When globalization is described as unstoppable it ends up furthering the erroneous 19th-century notions that there are “inexorable laws of nature favouring Western civilization, the self-regulating economic model of perfect competition, the virtues of free enterprise, the vices of state interference, the principle of laissez-faire, and the irreversible evolutionary process leading up to the survival of the fittest” (pg 101).

A number of big changes happened in the global North during the 1970’s. There was high inflation, low economic growth, national deficits, energy crisis and a number of major political shifts (Globalization, pg 39) and there was increase international competition (Capitalism, pg 48). Both books seem to agree that these crises lead to changes which ultimately transitioned away from Keynesianism and towards neoliberalism. These changes in the global North, which required the heavy hand of government to implement, were also forced on to countries in the global South looking for IMF and World Bank loans.

The question I keep coming back to why did the global North think that what they thought was the best economic path forward for the North, would also be good for the global South? What are the correlations that policy makers mistook for causations? Did they think that by resorting to a kind of “free-market” cowboy mentality of 18th-century Anarchic Capitalism would jump start national and global economies, which was based on a time when unrestricted growth was fueled by theft and poverty in so much of the world? Or were policy makers hoping that by controlling economic policy in independent countries they could control international competition in a way that benefited them?

It seems to me that erroneous mental models set into motion centuries ago are still playing out today. And their effect, as seen through colonialism, neoliberalism, and free trade are just perpetuating old power relationships. It is necessary for us to understand these mental models if we are to find powerful leverage points to make profound changes.

What do interest rates, inflation, and unemployment all have in common? I'm not entirely sure

This post is my attempt to draw the connections between all the bits of information we’ve been reading and the very real effects these ideas have on people around the world. I’m not entirely sure that I’ve got a solid grasp on these concepts, but I need to start somewhere to see how these ideas are interconnected.

Let’s start with money. According to Chris Martenson money (US Dollars) is loaned into existence. This happens a few different ways. One way is at my local bank. When I deposit $100 into my local bank they can loan out a certain percentage of that money, let’s say $90, to my sister. Bam, they just created $90. Now there is $190 in existence. I have $100 in savings and my sister has a $90 loan.

Building off that idea is the next concept, interest. Interest is the cost of borrowing money. When money is cheap (interest rates are low) people “buy”, or borrow a lot of it. When money is expensive (interest rates are high) people don’t borrow very much of it.

Inflation happens when there is more money in the marketplace than there are goods and services. What is one way that money is made? Loans from banks. So it stands to reason that when money is cheap (low interest rates) inflation will be higher. When money is expensive (high interest rates) inflation will be lower. Regardless, money is usually being created either at a faster or slower rate, that means that my dollar today can buy me more things than my dollow next year can buy me. So, I should buy now while my money is worth something. As Chris Martenson says, “inflationary money regimes impose a penalty on savers. The opposite side of this is that inflationary money regimes promote spending and require that money be invested or speculated, so as to at least have the chance of keeping pace with inflation.”

Unemployment….this is where things get fuzzy for me. Manfred Steger and Ravi Roy in Neoliberalism say that a main tenet of Reaganonomics and Thatcherism was low levels of inflation was more important than achieving full employment (pg. 20). This leads me to believe that inflation (and thus interest rates) are tied to employment levels. Why? Perhaps when money is cheap (low interest rates, high inflation) it is easier to spend, so people hire more labor? So, when money is expensive (high interest rates, low inflation) money is hard to come by so people are laid off? I’ll go with “yes” for now.

Exchange rates between countries is the last piece of the puzzle. When a country’s currency has high inflation, their currency is worth less compared to a country with relatively low inflation. This means that goods and services from a country with high inflation are cheaper than in countries with a relative low inflation.

It seems like economies are on teeter-totters trying to balance growth and employment on one side and low-inflation and cheaper foreign goods on the other side. Both are enjoyable, but it’s difficult to have them both at the same time.

If all my ponderings are true, then it seems that the cycles of boom and bust, employment and unemployment, are ways in which the system is trying to find balance. I will say that it certainly sucks to be a piece of wood caught in the economic tide as it moves back and forth, but I am happy that I am learning to see the broader system and how it moves.

I look forward to seeing how these concepts tie into trade deficits and national debt. Then I look forward to taking that knowledge and diving in deeper to the question Jill raised in one of our first classes - what is the relationship between capitalism and colonialism. Which brings me to my final question for the evening - what is the relationship IMF policies and economic policies-du-jour in old colonial powers.

“They” say knowledge is power. Bring it on.

Casual Causal Loop Diagrams

Donella Meadows book “Thinking in Systems” explores complex relationship and discusses them in an easy to understand language. She examines why oil fields are not completely drained before companies move on to the next one (dynamics of depletion), what incentives make illegal drugs obtainable even with strict government policies that discourage drug-use (balancing loops), and why pest attacks on fir forests reak widespread havoc (non-linear feedback loops).

This weekend I learned that Ms. Meadows is a gifted storyteller and that systems thinking is not straightforward. I’ll be honest, my first foray into actually diagramming systems was tough. It’s one thing to read a story and see a systems diagram and a whole nother thing to make one. What is a stock and flow? Where do the little faucets go? How are bad loans from Washington Mutal like a bathtub?

I think one of the main reasons it was hard to get a handle on systems diagramming is that is part of a larger process. In fact it is step 5 of a 6 step process.

Going over Marsha’s slides again I tried to understand what is going on. This is what I figured out thus far:

Systems Thinking focuses heavily on exploring and framing the problem.

Step 1 - Tell a story and frame the issue. What’s happening? What’s observable? Who’s involved? Who’s impacted? How can we frame the issue without couching it in a biased solution?

Step 2 - Sketch the trends. How is behavior changing over time? Do the trends repeat every day, week, century? Do we need a short amount of time to see the trends, or a long amount of time?

Step 3 - Name the variables. What is measurable and affecting or affected by the changing behavior(s) over time? Cast the net wide!

Step 4 - Set boundaries to the problem and identify stakeholders. What are crucial elements in telling the story for the point of view and context already selected? Like a photograph, stories can always be zoomed in and zoomed out. The important thing is to capture the essence of the issue and ensure everyone (stakeholders) who will impact potential changes in the system are identified and brought into the process.

Step 5 - Make the system visible! Finally, after all that research and work distilling down issues and variables it is time to draw the boxes and arrows to make stock and flow diagrams or causal loop diagrams!

Step 6 - Determine the leverage points. Once the system is visible it is possible to see where and how solutions can create change.

Seeing it all laid out like that helps me understand what systems diagramming is about and makes me realize that during the intensive I focused much of my attention on step 5. No wonder I was frustrated. I jumped into the middle of a process without setting the groundwork.

In fact, it seems that systems thinking is a step-by-step process to thinking about a problem. As Albert Einstein once said, “If I had an hour to solve a problem and my life depended on the solution, I would spend the first fifty-five minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.” If Mr. Einstein is right, then spending 5 out of the 6 steps understanding the problem is a smart approach.

This all brings me back to the mistake I made when I first saw the phrase “causal loop diagram”. I read that to be casual, not causal. After spending a weekend wrestling with these diagrams I realize that these are not “casual” diagrams that you can just sit down and quickly sketch out. You can’t start one whenever you like. They require commitment and are the fruitiation of many prior steps of work. There is nothing relaxed, unconcerned, or casual about them.

Listening to the news about government defaults, budget negotiations, and health care issues I see systems at play all around me. So many of the commentators want to make the connections within the system “casual”. We tend to want quick fixes based off quickly gathered, casual information, “Let’s put a quick band-aid on this issue and get back to it later.” Pretty soon we have impeding doom all around us with systems that have never been truly changed. As my teammate Justice Reign reminds us, “Every system is perfectly designed to get the results it gets.” So let’s spend time understanding the systems, change them and get the results that we truly desire.

I can’t wait to dive in with my team and see what interesting insights we can glean from a systems thinking process and what system changes we take on!

Let's get started!

Hello, my name is Caitlin. I am beginning a MBA program in Sustainable Systems and this is a blog chronicling my adventures in capitalism. I'm looking forward to learning about the history of capitalism and the systems that make it function, systems that have brought on crisis, and new systems that can re-imagine our shared future.

My background is primarily in the non-profit sector specifically working with youth, developing programs, and building community allies. I look forward to combining what I've learned in a mission-driven environment to a deeper understanding of how businesses operate and create meaningful value.

While I am very excited about the subject matter we will explore in this program, what really compelled me to start was the quality of the learning community. I can't wait to engage with my classmates, faculty and sustainable community as we wrestle with new ideas and create models to change the world for good.

Time to get started!