"The Eleventh Round" by Bernard Lietaer

[BiGs]

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.

 

[BiGs]

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

I hope it is clear how this story maps onto the real economy. Because of interest, at any given time the amount of money owed is greater than the amount of money already existing. To make new money to keep the whole system going, we have to breed more chickens-in other words, we have to create more "goods and services." The principal way of doing so is to begin selling something that was once free. It is to convert forests into timber, music into product, ideas into intellectual property, social reciprocity into paid services.
Abetted by technology, the commodification of formerly nonmonetary goods and services has accelerated over the last few centuries, to the point today where very little is left outside the money realm. The vast commons, whether of land or of culture, has been cordoned off and sold-all to keep pace with the exponential growth of money. This is the deep reason why we convert forests to timber, songs to intellectual property, and so on. It is why two-thirds of all American meals are now prepared outside the home. It is why herbal folk remedies have given way to pharmaceutical medicines, why child care has become a paid service, why drinking water has been the number-one growth category in beverage sales.

The imperative of perpetual growth implicit in interest-based money is what drives the relentless conversion of life, world, and spirit into money. Completing the vicious circle, the more of life we convert into money, the more we need money to live. Usury, not money, is the proverbial root of all evil.

Let's examine how this happens in a bit more detail. Just like the man in the hat, a bank or any other lender will ordinarily agree to lend you money only if there is a reasonable expectation you will pay it back. This expectation could be based on expected future income, collateral, or a good credit rating. Serious consequences for default enforce this expectation. The repayment of debt depends not only on the ability to do so, but on various forms of social, economic, and legal pressure. Courts can order the seizure of assets to meet contractual debt obligations, and, while we don't have debtors' prisons any more (2), delinquent debtors suffer endless harassment at the hands of collection agencies, as well as denial of apartments, employment, and security clearances. Many people also feel a moral obligation to repay their debts. This is natural: in gift economies as well, those who have received are under social and moral pressure to give.

The money to repay principle and interest comes from selling goods and services, or it could come from further borrowing. Any time you use money, you are essentially guaranteeing, "I have performed a service or provided a good of equivalent value to the one I am buying." Any time you borrow money, you are saying that you will provide an equivalent good/service in the future. In theory, this should be to everyone's benefit, because it allows the connecting of gifts and needs not only across space and profession, but across time as well. Credit-based money exchanges goods now for goods in the future. This is not inconsistent with gift principles. I receive now; later I give.

The problems start with interest. Because interest-bearing debt accompanies all new money, at any given time, the amount of debt exceeds the amount of money in existence. The insufficiency of money drives us into competition with each other and consigns us to a constant, built-in state of scarcity. It is like a game of musical chairs, with never enough room for anyone to be secure. Debt-pressure is endemic to the system. While some may repay their debts, overall the system requires a general and growing state of indebtedness.

Constant, underlying debt-pressure means there will always be people who are insecure or desperate-people under pressure to survive, ready to cut down the last forest, catch the last fish, sell someone a sneaker, liquidate whatever social, natural, cultural, or spiritual capital is still available. There can never be a time when we reach "enough" because in an interest-based debt system, credit exchanges not just "goods now for goods in the future," but goods now for more goods in the future. To service debt or just to live, either you take existing wealth from someone else (hence, competition) or you create "new" wealth by drawing from the commons.

Here is a concrete example to illustrate how this works. Suppose you go to the bank and say, "Mr. Banker, I would like a $1 million loan so I can buy this forest to protect it from logging. I won't generate any income from the forest that way, so I won't be able to pay you interest. But if you need the money back, I could sell the forest and pay you back the million dollars." Unfortunately, the banker will have to decline your proposal, even if her heart wants to say yes. But if you go to the bank and say, "I'd like a million dollars to purchase this forest, lease bulldozers, clear-cut it, and sell the timber for a total of $2 million, out of which I'll pay you 12 percent interest and make a tidy profit for myself, too," then an astute banker will agree to your proposal. In the former instance, no new goods and services are created, so no money is made available. Money goes toward those who create new goods and services. This is why there are many paying jobs to be had doing things that are complicit in the conversion of natural and social capital into money, and few jobs to be had reclaiming the commons and protecting natural and cultural treasures.

Generalized, the relentless pressure on debtors to provide goods and services is an organic pressure toward economic growth (defined as growth in total goods and services exchanged for money). Here's another way to see it: because debt is always greater than money supply, the creation of money creates a future need for even more money. The amount of money must grow over time; new money goes to those who will produce goods and services; therefore, the volume of goods and services must grow over time as well.

So it is not just that the apparent limitlessness of money, observed since ancient Greek times, allows us to believe in the possibility of eternal growth. In fact, our money system necessitates and compels that growth. Most economists consider this endemic growth-pressure to be a good thing. They say that it creates a motivation to innovate, to progress, to meet more needs with ever-increasing efficiency. An interest-based economy is fundamentally, unalterably a growth economy, and except for a very radical fringe, most economists and probably all policy makers see economic growth as a demonstration of success.

The whole system of interest-bearing money works fine as long as the volume of goods and services exchanged for money keeps pace with its growth. But what happens if it doesn't? What happens, in other words, if the rate of economic growth is lower than the rate of interest? Like the people in the parable, we must consider this in a world that appears to be reaching the limits of growth.

 

[mmm....shiney!]

This really is poor rate stuff BiGs.

 

[mmm....shiney!]

The principal way of doing so is to begin selling something that was once free. It is to convert forests into timber, music into product, ideas into intellectual property, social reciprocity into paid services.

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.

 

[SpacePete]

The principal way of doing so is to begin selling something that was once free. It is to convert forests into timber, music into product, ideas into intellectual property, social reciprocity into paid services.

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'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.

 

[mmm....shiney!]

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.

All commodities: mineral commodities, fossil fuels, whatever you have -- it is the same problem everywhere, because we have been mining for tens of thousands of years. But in the past one or two centuries, we stepped it up, the speed of extraction. Right now we have extracted the easy resources. Now we will start having troubles because we have to access the difficult resources. These resources are expensive. And if it is expensive then it means that you have to allocate resources to pay for these results. So that is having bad effects on the economy.

My impression, and not just mine, is that many of the problems which we see today in the world, economic problems, political problems, strategic problems, geo-political problems, are due to the fact that resources everywhere are becoming scarce in the sense that they are becoming expensive. And at this point, you have to fight for what is left.

Ugo Bardi

http://www.peakprosperity.com/podcast/85158/ugo-bardi-banquet-consequences

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

 

[mmm....shiney!]

Many people also feel a moral obligation to repay their debts. This is natural: in gift economies as well, those who have received are under social and moral pressure to give.

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.

 

[BiGs]

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.

 

[Pirocco]

the current system that rewards people with the most money (interest) and promoted resource hoarding and scarcity.

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.

 

[BiGs]

the current system that rewards people with the most money (interest) and promoted resource hoarding and scarcity.

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.

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.

 

[mmm....shiney!]

You think everyone is equal BiGs?

 

[BiGs]

You think everyone is equal BiGs?

Definitely not.

 

[mmm....shiney!]

You think everyone is equal BiGs?

Definitely not.

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?

 

[BiGs]

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

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?

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?

 

[mmm....shiney!]

I was talking about components within an economic system should reflect equally with their output and contribution.

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.

Shouldn't it be the other way around? Could we have a collaborative system of economics?

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.

 

[BiGs]

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.