Human Spirit

The Human Spirit in a Global Economy

by Frances Milne

Humankind is at a turning point. The changes we now face are of a different order from anything which has gone before, bringing us to the brink of social, environmental and financial disaster. These crises will intensify unless we achieve a social and economic system which is in alignment with living processes on the planet. The fundamental problem is that we are consuming the world's natural resources and polluting the environment at rates which are unsustainable and threaten the life-support systems of the earth itself. The globalisation of our economic and financial systems with their reliance on ever-increasing growth and indebtedness is holding the earth and its people to ransom. The result is a slow collapse of the social fabric and the natural environment.

However, the movement towards global economies started with the best of intentions. After World War 11, 44 nations met at Bretton Woods in the USA to set down the rules of a new international economic order aimed at "the creation of a dynamic world economy in which the peoples of the world will be able to realise their potentialities in peace...and enjoy, increasingly, the fruits of material progress on an earth infinitely blessed with natural riches" (from Roosevelts's opening speech to the Bretton Woods Conference in 1944). None of the nations present had any concept of limited finite resources, massive population increases and the levels of affluence which our generation aspires to.

The panacea of `free' trade between nations to achieve prosperity for all led to the `globalisation' of the world's economic systems - `globalisation' being a euphemism for the withdrawal of government regulation from the economy. The result is the loss of economic and financial sovereignty by national governments, the exploitation of poor nations by rich financiers and multinationals, and unpayable levels of debt for many countries. For example, Australia has accumulated a massive $180 billion foreign debt over the last decade and a half, only now tempered by the privatisation of almost all public assets. Ted Wheelwright and Abe David scathingly refer to both Labor and Liberal governments as `foreign debt junkies' in their book The Third Wave. They point out that "it is the bankers, be they in New York, London, or Tokyo, who control finance and the way our politicians act, laying down the guidelines for government policy, especially economic and social policy".

The cost in terms of the human spirit is even greater. The impact of globalisation and erosion of national sovereignty has led to a growing sense of individual powerlessness to affect economic and social decisions. Faced with such evidence of the futility of the democratic process, and the fact that politicians have taken their hands off the wheels of government, individuals and families feel under threat. The fight for economic survival pits person against person in the education system and workplace, creating stress and social alienation. To-day we cannot even guarantee our youth an automatic place in adult society.

ERA (Economic Reform Australia) and TOES (The Other Economic Summit) have worked together to highlight the destructive effects of current economic policies and to propose solutions which are socially just, environmentally sustainable and democratically accountable. ERA has taken a major role in organising the first Australian TOES in Sydney in 1993, then Melbourne in 1994 and this year in Adelaide. These have stressed the need to establish economies which are subservient to the needs of humanity and which recognise that the finite nature of the world's resources are now an ultimate limiting factor on all economic activity.


Since international money markets now dominate all economic activity and national policies, the faults and abuses of the financial system need to be exposed and redressed as a priority. Three elements of our present debt based financial system are unsustainable - the use of money to make money, compound interest, and a faulty structure. Deregulation exacerbates the impact of each of these.

The first unsustainable element is that money is no longer primarily used as a token of exchange for goods and services, but instead is used as a means of producing more money. When money is used as a tradeable commodity in its own right to earn interest or speculate on foreign exchange markets for instance, it is removed from use for the production of goods and services needed by the community. Speculative activities, including the rapid turn-over of investments in the chase for quick profits, are so widespread that producers feel under constant siege. In Australia speculative financial transactions have been estimated to exceed the value of financial transactions used in production by 20-30 times. The same situation applies to all other countries.

The payment of interest on loans is a more subtle but pervasive use of money to make money and in the case of banks becomes part of the profits paid to shareholders. But this causes worsening inequality, and as Margrit Kennedy points out in Inflation and Interest Free Money, "within our monetary system we allow the operation of a hidden redistribution which constantly reshuffles money from those who have less than they need to those who have more money than they need".

The second unsustainable element is that of compound interest which causes debt to grow exponentially when poorer countries cannot even pay the interest on their borrowings. It is this exponential function which is so destructive because an exponential rate of growth is virtually limitless growth. When Albert Einstein was asked what he considered the greatest invention of all time he answered "compound interest". He would undoubtedly be shocked that compound interest had now resulted in many nations being enslaved in a deadly debt trap of their own making.

Margrit Kennedy's very readable little book shows why an exponential growth of debt is deadly, and always exceeds the growth of natural products on which much economic growth depends. Exponential growth of debt also exceeds the linear growth in production made possible by using more machines for longer periods. The problem is that exponential growth functions like compound interest are ultimately non-finite entities and can never be matched by natural growth rates. The tragedy is that world debt levels are now well beyond the production and consumption levels needed to repay those debts, as the appalling situation of many Third World countries demonstrates. World and national debt levels exceed the total amount of money in existence several times over.

The third element concerns actual structural faults in the financial system which are little understood, because the credit creation role of banks is little understood. Yet it is these which are major driving forces behind the relentless pursuit of growth economics. Like any other structural fault in a building or bridge or aircraft, they threaten the collapse of the entire system.

In order to understand the problem, it is essential to first recognise that governments have licensed banks to create credit on which they are allowed to charge interest. At present, in Australia, over 94% of the total money supply of $323 billion first entered the system when someone borrowed credit and became debtor to a bank. Only 7% are notes and coins created by the Government. The first aspect of the problem is that when debts are repaid the principal is completely withdrawn from circulation by the banks thus reducing the overall money supply. The second is that while private banks create credit, they do not create the interest which is also required as repayment of the debt. For example, if you borrow $100,000 for a house at 10% interest to be rapid over 25 years, the total repayment will be $240,000 of which $140,000 is interest. This $140,000 can only be repaid using existing money which also entered the money supply as credit borrowed by some-one else, and so the situation snowballs.

The problem of contraction of the money supply in this way is further exacerbated by the fact that interest payments on bank loans end up as shareholders' profits which are increasingly used for short-term investment, or for speculative financial activities. Either way money is being withdrawn from the cycle of production and consumption. Yet it is the credit borrowed to sustain the production/consumption cycle which creates the money supply in the first place.

The net effect over the lifetime of loans is that banks are continually draining many times more money from the money supply and the productive cycle than they issued into it. This must be compensated at all times by further lending of credit to save excessive contraction of the production/consumption cycle and the ultimate collapse financial system. This can only be achieved by growth rates which exceed natural environmental limits on resource use. It also produces an artificial monetary scarcity which adversely impacts on the whole society.


When problems are of the magnitude of to-day's economic system, the human mind seeks to reduce the detail to a meaningful whole. Where many of the facts are not well understood or remain concealed as in the financial system, no meaningful whole emerges and individuals turn to ideologies to fill the gap. The complexity of human motivations and behaviours in the field of economics and the failure to understand the structure and function of the system has led to the acceptance such ideologies as `deregulation' and `free' markets'. These have become enthroned as official doctrines with an `invisible hand' to guide our global destinies. Governments, now captive to the whim of international money markets and speculators, have become far more concerned with debt and deficits than sustainability.

Yet, as Professor John Hotson of the Committee on Monetary and Economic Reform said to our 1993 TOES in Sydney - "Could anything be more insane than for the human race to die out because we couldn't afford to save ourselves". He went on to elaborate some mechanisms including Ken Bohnsack's Sovereignty Loans, to turn the situation around and fulfil the old wisdom that whatever is physically possible and necessary to the wellbeing of humankind is always financially possible.

However, the challenge to disentangle the financial and other economic faults and illusions is daunting. The immensity and complexity of the problems facing modern economies are so great, that the attempt to achieve a complete understanding from which to put things right generates a sort of social paralysis. Compounding these problems is the level of ignorance and concealment about banking and finance which leads to an individual sense of powerlessness and futility. This is apparent in the reaction of politicians who have removed economic and financial controls in the belief that `free markets' can achieve what they have been unable to do, namely to organise the economy for the social good.


This inability, which most of us share to some extent, reflects a fundamental lack in human awareness - awareness both of the nature of our own being and process, and the structure and operations of the present economic system. The problem is that deregulation is not so much a system as a series of knee-jerk responses to an increasingly dysfunctional economy. What is needed is a quantum leap in human awareness to achieve the fundamental re-ordering of the economic and financial system that is required. For, as Einstein has stated, "no problem can be solved on the same level as its creation".

But far from redressing the faults and ideological illusions which pervade the financial system, the truth has remained concealed in the indecipherable jargon of international banking and finance. The eminent economist J.K. Galbraith observed in his book, Money : Where it Came From and Where It Went, "the process by which banks create money is so simple the mind is repelled. When something so important is involved, a deeper mystery seems only decent".


The tide is now turning, and nations are beginning to overthrow the ideologies and regimes which inhibit the expression of their humanity. The nineties have seen massive political changes including the collapse of communism, the overthrow of apartheid and Nelson Mandela installed as President of South Africa, and an uneasy peace in Yugoslavia. As well, there is continued turbulence as tribal and village cultures around the world catapult into the technological and information age with all the culture shock that entails. In the last days of this millennium the pace of change is unprecedented with nation after nation rejecting the worn-out ideas of the past. Many are coming to realise the panacea of free market capitalism will not deliver an adequate living, and the struggle for new ways of organising the social and economic system is emerging everywhere.

The question is `shall we have time to turn the situation around ?' Indeed, the planet is now under such strain that its climate is changing and unleashing natural forces of untameable fury. Our politicians and economists will not be able to tinker much longer with blunt tools like interest rates as the primary tool of economic management, while the earth is destroyed. It is time to end the culture of economic growth and competitive individualism which leads to massive social dislocation and environmental crisis. For example, in each of the last four decades economic growth has been greater than for the last 3,000 years (Time To Change - David Suzuki). But the result is :

- the world's temperatures are now the highest ever recorded
- carbon dioxide levels are the highest for 100,00 years
- the ozone hole is twice the size it was 7 years ago
- 7% of the world's topsoil is being washed away each year by overcultivation
- tropical rainforests are disappearing to meet debt obligations

However, the economic activity which has caused environmental and social disaster has failed to produce the expected growth and prosperity. On the contrary, while the world national product (GNP) grew fourfold (4x) between 1981-91 :

- world debt grew twenty three times (23x) in the same period.
- Australia's foreign debt has increased 24x in the same period.
- the debt, and even the interest, of many poorer countries is unpayable.

The most obscene manifestation of financial exploitation is in Third World countries which have been lured into borrowing `development' loans from western financial institutions. Many of these debts have now been written off as unpayable and been given tax breaks in compensation. Yet international financial institutions are still demanding their interest. This cruel situation is intensified by the Structural Adjustment Programs imposed by the International Monetary Fund and World Bank. The result is :

- 800 million people live in hunger (New Internationalist May 95)
- 12 million to die of starvation every year ( " ")
- the death of 500,000 children (UNICEF State of the World's Children1992)
- 2 billion to suffer malnutrition resulting in deficiency diseases
(New Internationalist May 1995)


The primary limitation in humankind achieving its full spiritual or psychological potential is that the economy sets up a win-lose situation in which people's survival is at stake. Even affluent countries are engulfed by endemic anxiety and stress based on the uncertainties of employment, growing inequality and profound social alienation. Such deeply embedded anxiety about basic survival destroys personal and social relationships, and stifles confidence and initiative. Where people fear for their economic survival, they lose the confidence and energy to grapple with the issues. Fear dominates awareness and erodes the relationships and vibrant social networks which enrich our lives.

Also, deregulation has strengthened the dominance of economic goals of competition and personal advantage over individual, familial and social goals which espouse co-operation and mutual benefit. But competitive goals can only dominate social goals in conditions of scarcity (or in games). As argued earlier, that condition of artificial scarcity is imposed by the current financial system, because scarcity is inherent in the process by which money is issued into circulation and distributed as interest bearing debt.


At the root of the economic insanities we tolerate, is not only a lack of awareness of how the economy works, but also psychological factors stemming the all too human tendency to seek instant gratification without expenditure of energy and effort. Whenever we avoid effort we sidestep the very process which extends our understanding, and generates the insights and skills which enable us to transcend our existing limited awareness.

Yet engagement with energy is the very essence of the life process, and it is through the challenge of overcoming difficulty that we activate our full human potential and increase our awareness. Inevitable errors of judgement act as an automatic feedback system, so we can learn to avoid self-defeating pathways to achieving our goals. Although the resulting increase in awareness and skills is by no means a smooth or painless path, if we avoid engaging with the difficulties of our life situation, our awareness stagnates and our energy and confidence decreases. Eventually we lose all joy in life.

Instead of increased confidence and a sense of achievement from our efforts, we convince ourselves that the difficulty is too great and our habitual avoidances feed our anxieties and fears. When anxiety and fear dominate our lives, our confidence is eroded and with it, our personal autonomy. As our autonomy diminishes we become dependent on external authority. Giving away control over our own lives and social destinies, threatens the basis of democracy itself.

Many people try to compensate for lack of control over their own lives by what Manfred Max-Neef, Chile's barefoot economist, referred to as pseudo-satisfiers. These generate a false sense of satisfaction of a given need, their main attribute being "that they are generally induced through propaganda, advertising or other means of persuasion". To challenge these illusions and avoidance tactics we have to confront who we really are and what we need for deep and satisfying lives.


Without awareness of the structure and operation of the financial system, we cannot effectively expose it, challenge it, and reform it. Our impotence is further exacerbated by our preference for instant rewards in place of sustained engagement with energy. This human failing becomes enormously magnified in scale and impact at the global economic level. Speculation based on the use of money to make money is now entrenched throughout the financial system and is the basis of the money markets which rule our national policies. Such activities as the charging of interest, excessive profit taking, speculation, and business takeovers and mergers are parasitic and produce personal wealth for the few while contributing nothing to the society. Not only does the use of money to make money destroy its function as a token of exchange for goods and services, it constantly reshuffles money from those who have less than they need to those with money to spare.

Will Hutton, the economics editor of the Guardian since 1990, has just published a brilliant analysis of Britain's economic ills called The State We're In. Hutton sees the use of money for short-term profit-making over long-term productive investment, as the central dynamic of increasing instability. "What is so distinctive about Britain" he writes "is that liquidity (the ability to reverse lending or investment to instant cash) has become a fetish and that attempts to counteract this desire for instant gratification have been minimal...The more liquid the financial asset, the less committed the owner must be to the longterm health of the underlying investment. There is a permanent bias in the British system to lack of commitment - and from this all else flows". Needless to say, Britain is not alone in its commitment to instant gratification without effort. Indeed, Australia's track record is deplorable.

The fact is that "the enemy is within". Unless we stop avoiding difficulty we shall fail to become aware of the whole of our existence. But without adequate awareness of the complex interactions between our personal, social and environmental systems, we shall never be able to distinguish between real scarcity of natural resources and the artificial scarcity of a faulty financial system. Only then will we be able to alleviate poverty, restore the environment, and provide nations with the knowledge base to limit, feed, house and educate their populations. Only then will we achieve a viable socio-economic system which meets our spiritual and psychological growth needs, and is subservient to the living systems on the planet.

Frances Milne
Economic Reform Australia
December, 1995