"The Eleventh Round" by Bernard Lietaer

Discussion in 'Markets & Economies' started by BiGs, Apr 11, 2014.

  1. BiGs

    BiGs Active Member

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    Once upon a time, in a small village in the Outback, people used barter for all their transactions. On every market day, people walked around with chickens, eggs, hams, and breads, and engaged in prolonged negotiations among themselves to exchange what they needed. At key periods of the year, like harvests or whenever someone's barn needed big repairs after a storm, people recalled the tradition of helping each other out that they had brought from the old country. They knew that if they had a problem someday, others would aid them in return.

    One market day, a stranger with shiny black shoes and an elegant white hat came by and observed the whole process with a sardonic smile. When he saw one farmer running around to corral the six chickens he wanted to exchange for a big ham, he could not refrain from laughing. "Poor people," he said, "so primitive." The farmer's wife overheard him and challenged the stranger, "Do you think you can do a better job handling chickens?" "Chickens, no," responded the stranger, "But there is a much better way to eliminate all that hassle." "Oh yes, how so?" asked the woman. "See that tree there?" the stranger replied. "Well, I will go wait there for one of you to bring me one large cowhide. Then have every family visit me. I'll explain the better way."

    And so it happened. He took the cowhide, and cut perfect leather rounds in it, and put an elaborate and graceful little stamp on each round. Then he gave to each family 10 rounds, and explained that each represented the value of one chicken. "Now you can trade and bargain with the rounds instead of the unwieldy chickens," he explained.

    It made sense. Everybody was impressed with the man with the shiny shoes and inspiring hat.

    "Oh, by the way," he added after every family had received their 10 rounds, "in a year's time, I will come back and sit under that same tree. I want you to each bring me back 11 rounds. That 11th round is a token of appreciation for the technological improvement I just made possible in your lives." "But where will the 11th round come from?" asked the farmer with the six chickens. "You'll see," said the man with a reassuring smile.

    Assuming that the population and its annual production remain exactly the same during that next year, what do you think had to happen? Remember, that 11th round was never created. Therefore, bottom line, one of each 11 families will have to lose all its rounds, even if everybody managed their affairs well, in order to provide the 11th round to 10 others.

    So when a storm threatened the crop of one of the families, people became less generous with their time to help bring it in before disaster struck. While it was much more convenient to exchange the rounds instead of the chickens on market days, the new game also had the unintended side effect of actively discouraging the spontaneous cooperation that was traditional in the village. Instead, the new money game was generating a systemic undertow of competition among all the participants.

    This parable begins to show how competition, insecurity, and greed are woven into our economy because of interest. They can never be eliminated as long as the necessities of life are denominated in interest-money. But let us continue the story now to show how interest also creates an endless pressure for perpetual economic growth.

    There are three primary ways Lietaer's story could end: default, growth in the money supply, or redistribution of wealth. One of each eleven families could go bankrupt and surrender their farms to the man in the hat (the banker), or he could procure another cowhide and make more currency, or the villagers could tar-and-feather the banker and refuse to repay the rounds. The same choices face any economy based on usury.

    So imagine now that the villagers gather round the man in the hat and say, "Sir, could you please give us some additional rounds so that none of us need go bankrupt?"

    The man says, "I will, but only to those who can assure me they will pay me back. Since each round is worth one chicken, I'll lend new rounds to people who have more chickens than the number of rounds they already owe me. That way, if they don't pay back the rounds, I can seize their chickens instead. Oh, and because I'm such a nice guy, I'll even create new rounds for people who don't have additional chickens right now, if they can persuade me that they will breed more chickens in the future. So show me your business plan! Show me that you are trustworthy (one villager can create 'credit reports' to help you do that). I'll lend at 10 percent-if you are a clever breeder, you can increase your flock by 20 percent per year, pay me back, and get rich yourself, too."

    The villagers ask, "That sounds OK, but since you are creating the new rounds at 10 percent interest also, there still won't be enough to pay you back in the end."

    "That won't be a problem," says the man. "You see, when that time arrives, I will have created even more rounds, and when those come due, I'll create yet more. I will always be willing to lend new rounds into existence. Of course, you'll have to produce more chickens, but as long as you keep increasing chicken production, there will never be a problem."

    A child comes up to him and says, "Excuse me, sir, my family is sick, and we don't have enough rounds to buy food. Can you issue some new rounds to me?"

    "I'm sorry," says the man, "but I cannot do that. You see, I only create rounds for those who are going to pay me back. Now, if your family has some chickens to pledge as collateral, or if you can prove you are able to work a little harder to breed more chickens, then I will be happy to give you the rounds."

    With a few unfortunate exceptions, the system worked fine for a while. The villagers grew their flocks fast enough to obtain the additional rounds they needed to pay back the man in the hat. Some, for whatever reason-ill fortune or ineptitude-did indeed go bankrupt, and their more fortunate, more efficient neighbors took over their farms and hired them as labor. Overall, though, the flocks grew at 10 percent a year along with the money supply. The village and its flocks had grown so large that the man in the hat was joined by many others like him, all busily cutting out new rounds and issuing them to anyone with a good plan to breed more chickens.

    From time to time, problems arose. For one, it became apparent that no one really needed all those chickens. "We're getting sick of eggs," the children complained. "Every room in the house has a feather bed now," complained the housewives. In order to keep consumption of chicken products growing, the villagers invented all kinds of devices. It became fashionable to buy a new feather mattress every month, and bigger houses to keep them in, and to have yards and yards full of chickens. Disputes arose with other villages that were settled with huge egg-throwing battles. "We must create demand for more chickens!" shouted the mayor, who was the brother-in-law of the man in the hat. "That way we will all continue to grow rich."

    One day, a village old-timer noticed another problem. Whereas the fields around the village had once been green and fertile, now they were brown and foul. All the vegetation had been stripped away to plant grain to feed the chickens. The ponds and streams, once full of fish, were now cesspools of stinking manure. She said, "This has to stop! If we keep expanding our flocks, we will soon drown in chicken shit!"

    The man in the hat pulled her aside and, in reassuring tones, told her, "Don't worry, there is another village down the road with plenty of fertile fields. The men of our village are planning to farm out chicken production to them. And if they don't agree well, we outnumber them. Anyway, you can't be serious about ending growth. Why, how would your neighbors pay off their debts? How would I be able to create new rounds? Even I would go bankrupt."

    And so, one by one, all the villages turned to stinking cesspools surrounding enormous flocks of chickens that no one really needed, and the villages fought each other for the few remaining green spaces that could support a few more years of growth. Yet despite their best efforts to maintain growth, its pace began to slow. As growth slowed, debt began to rise in proportion to income, until many people spent all their available rounds just paying off the man in the hat. Many went bankrupt and had to work at subsistence wages for employers who themselves could barely meet their obligations to the man in the hat. There were fewer and fewer people who could afford to buy chicken products, making it even harder to maintain demand and growth. Amid an environment-wrecking superabundance of chickens, more and more people had barely enough on which to live, leading to the paradox of scarcity amidst abundance.



    This story was written by Bernard Lietaer in his book "The Future of Money". The story illustrates how interest bearing currency in a monetary system forces artificial competition amongst its users beyond what would naturally occur.
     
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  2. BiGs

    BiGs Active Member

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    And I'd like to post a response and explanation to this story from the book "Sacred Economics" by Charles Eisenstein.

     
  3. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    This really is poor rate stuff BiGs.
     
  4. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Timber resources were never free. Nothing is free, if it ever was it was only because it required next to no capital to harvest. As the low fruit was picked, greater capital is required to extract resources, this keeps going on with ever more increasing capital requirements until it is no longer economically viable extract that resource because customers are not willing to pay the high cost for them.

    I struggle with Eisenstein's premises, I don't have a problem with his attacks on the current system it's just that the basis of his arguments are flawed and so therefore are his solutions.
     
  5. SpacePete

    SpacePete Well-Known Member Silver Stacker

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    I'd argue that timber, food and easily accessible resources were essentially free at the time when the human population was in equilibrium with the natural carrying capacity of the planet. But that ended long ago obviously.

    The fundamental problem is that there are just too many people, and governments promote policies that are based around an ideology of perpetual population growth. Its basically a giant Ponzi scheme.
     
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  6. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I'm not sure there has ever been an equal balance between natural resources and human population. There was a time when human activity did not impact the environment to a great deal but those days were thousands of years ago. As technology improved our capacity for extracting resources increased and the so-called "free" resources were depleted.

    Eisenstein's premise is that previously "free" resources were brought under the control of cartels (rich land owners, governments, companies etc) which forced people to pay for them, this suggests that if these cartels are removed, then these resources would be "free" again. This of course is nonsense, as I have stated above, these resources were never "free", they were just easily accessible.

    And as far as population goes, advances in technology will be our challenge. Depletion of resources is not the problem, depletion of advances in technology is the critical element.

    PS: as far as the government goes, I think I've made my views very clear previously.
     
  7. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    So a gift economy doesn't operate on free will, but rather a moral obligation? In other words, the citizens of such a society are coerced into giving and receiving. Coercion is the root of all evil BiGs.

    There is no such thing as a moral obligation, a moral obligation is nothing more than a majority exercising dominance over a minority. A moral obligation denies the rights of individuals. Gift economies it seems require parties involved in transactions to feel obligated to return favours - aka social reciprocity, in other words, compulsion (majority rule) is the key motivating factor as opposed to satisfaction (individualism).

    The theory of a gift economy is in denial of why humans interact in the first place, which is, in order to satisfy needs and wants and gain advantage.
     
  8. BiGs

    BiGs Active Member

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    Well that sentence definitely does not sum up his idea of a gift economy. The basis of what he is saying regarding change is to reverse usury in the sense of an economy rewarding exchange and utility rather then the current system that rewards people with the most money (interest) and promoted resource hoarding and scarcity.

    The timber is a bad example to use as we have not needed timber for most of our evolutionary history, in fact we have used it in its natural form for far longer. But what about social aspects that were once the foundation of communities, and have now be outsourced and sold back to us. Like child care.

    What Eisenstein's saying is that we have the technology and education to run an economy without the usury and competition element now. That it was great for the start of modern civilization, but it is now stifling it. We have no need to compete with each other now economically.

    When someone gives me something, unconditionally, I want to pay them back in some other way. That is human nature too, along with the competition of survival. His saying we need to transition our economy fundamentals from the latter survivalist mentality, to the former.

    And I do not see Eisenstein's gift economy as a viable replacement. I think the end result will be something like that, but there must be a huge transition period in between. And as you said, I agree with the problems he puts forward that he sees around us. I think departure from the current economic model will be inevitable, eventually.
     
  9. Pirocco

    Pirocco Well-Known Member

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    the current system rewards people with the laziest butt and promotes resource consumption, at the expense of harder working and scarcity for another part of the population, and a third part sitting on the sidelines driven into dependency whether they like it or not.
     
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  10. BiGs

    BiGs Active Member

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    Inequality. Something that a usury reversal (however is gets done in the end) will naturally iron out. As it will no longer be rewarding to hoard economic energy.
     
  11. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    You think everyone is equal BiGs?
     
  12. BiGs

    BiGs Active Member

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    Definitely not.
     
  13. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I'm confused, how does inequality get naturally ironed out if not all are equal then?

    Maybe I should have asked the question differently - should everyone be equal?
     
  14. BiGs

    BiGs Active Member

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    Waking an old thread, but I wanted to read the story again.

    No two humans are equal, so why shouldn't that reflect economically? I was talking about components within an economic system should reflect equally with their output and contribution. Someone hoarding toilet paper and hand sanitiser and selling it back to the public at a profit is a malfunctioning component to our usury economics. There is no output. Not equal. A pharmaceutical company not putting any money into a cure but only developing treatment/symptom medication research because its profitable and never ending to do so is an imbalance in our usury economic system.

    Competition between its users should not be the core motivator for a life supporting system. This virus is a perfect example of this. The solution to this virus is that we all work together as a team, yet the result is our economy grinds to a halt. Shouldn't it be the other way around? Could we have a collaborative system of economics?
     
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  15. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I'll define components as "workers", contribution as "inputs", and outputs as "goods/services". And "value" is a measure of worth and is entirely subjective.

    In a factory where two workers inputs are identical, then it would be natural to assume that the goods/services they create would be identical and would be equally valued. Discrepancies would exist say if one employer wanted to attract more staff to increase output by offering higher wages, he would value workers more highly and would be willing to pay higher wages in order to attract more staff to do the same role.

    In a society where two workers inputs may be similar, as say hours worked, but their worksites are different then the goods/services created and the price assigned by consumers to that good or service varies because measures of value are entirely subjective.

    Lets say we have a pediatrician who works 60 hours per week saving babies and Kobe Bryant who works 60 hours per week playing basketball (or at least used to). The paediatrician may earn $400 000/year whilst Kobe Bryant may have earned $5million per year. Their inputs were similar ie hours worked, skills set etc, but Kobe's inputs created far greater value than the paediatrician. The paediatrician's role is greatly valued by society as a whole, but he only supplies a small market ie sick babies and their families, Kobe's role was also greatly valued by society, but because he supplied a larger market he was able to command a higher salary.

    Kobe played basketball, a game. The paediatrician saved babies, human lives. Human lives are far important than babies but because inputs and outputs don't have to be rewarded equally, and because value is subjective, Kobe's work was valued more highly -from an economic point of view - than the doctor's.

    The diamond/water paradox.

    Back to the gift economy, both the doctor and Kobe were born talented, they didn't pay for their gifts. Ignoring the effort required to educate them and train them, the commodification of these gifts and talents has meant that our lifespans have increased and our quality of life improved. Nothing ever existed freely that had any value. It all requires a cost in order to to satisfy needs and desires, whether that's labour, money or debt.

    Obviously a collaborative economic system already exists or at least did prior to restrictions. Many workers are involuntarily now not allowed to work, businesses are involuntarily now not allowed to conduct business and the economic system has just about completely fallen apart as consumer needs now go unmet.
     
    Last edited: Mar 28, 2020
  16. BiGs

    BiGs Active Member

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    Somewhat. Bottom line is that Kobe and the paediatrician are in competition with each other. I agree with everything you said. If the economic drive becomes collaborative doesn't mean everyone will be treated equally in it.
     
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