I think that we have already begun a burst of growth on a scale never before seen. The key to this is the "peer to peer" connectivity of the Internet, coupled with the massive growth in intangible "Intellectual Property" and "Intellectual Capital".
The problem lies in achieving such massive "growth" in the absence of the resources of consumable materials, particularly liquid fuels, to support it. The solution must lie in developments in renewable energy and energy efficiency, coupled with a reordering of society, and particularly in the modes and costs of travel.
The enabling step is IMHO the imminent reordering - "bottom up" - of the financial system through the widespread adoption of mutualised "peer to peer" credit and new means of investing in productive assets.
Such a reordered and networked financial system carries two "costs", which are associated with growth.
Firstly, there is the cost of credit: I reckon that is probably of the order of 2%, consisting of a combination of system costs and a "natural" level of "defaults" ie the guarantee cost.
I back this up empirically by reference to the (interest-free)JAK Bank which charges a 2.5% admin fee., and the rates of interest common in "Trust Banking" before the credit bubble (typically 1.5 to 2.5%, I think)
Then there is the cost of Capital. As I have pointed out ad nauseam, we confuse "Capital" with "Credit" because we use Money as Debt. To me, "Capital" consists of property rights - "ownership" - over productive assets.
Capital assets (using this definition, which flies in the face of conventional economic definitions which conflate land with other forms of capital)) have historically consisted largely of land and buildings, but through the Industrial Revolution expanded to encompass machinery of all types.
The Intellectual Capital revolution has derived from the massive scale of the amounts of "money's worth" people are prepared to exchange for the use of "Intellectual Property" eg Microsoftware, Big Pharma and the rest.
The world is awash in Capital, ie the accumulated stock of productive assets in private and public "ownership".
This "cost" comprises a market price which has steadily reduced from about 25%pa in Babylonian times through 10% in the Middle Ages to maybe 5% at the dawn of the Industrial Revolution, and rapidly downwards since.
I reckon the actual "market price" of "risk free" capital (eg land/location rentals) is probably around 0.5% to 1.0% in real terms. The other aspect of Capital "cost" is entropy ie depreciation/ maintenance. Maybe 1 to 2%pa ?
The point I am getting to is that the explosive growth we are seeing is in large part based upon the massive growth in "Intellectual Capital".
As a case study, you only have to look at the mobile communication revolution in the developing world.
Grameen Phone is a joint venture of Norway's Telenor and Dr Yunus's Grameen Bank micro-credit operation.
The Bank made hundreds of thousands of small loans to buy "village phones", and this movement of self employed mobile phone providers employs over 250,000 people, and constitutes one of the most significant economic actors in Bangladesh today.
Telenor hoovers out far too much of the value generated (they were privatised after the JV began) but we still see the scale to which people's willingness to exchange things of value for the right to communicate at a distance is capable of causing massive "economic growth". "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
"peer to peer" credit--I give you credit directly, no bank hierarchy? e-bay/paypall...but that is to buy assets--asset transferance? "Investing"...for what reason? For everyone's benefit? For the benefit of both investor and the productive asset? If the asset is productive, why does it need an investor? And why does the investor invest--to what end? Those are probably the wrong questions, but your sentence isn't creating an image for me--not yet.
Yeah, 1.5% is what I understood: the difference between Nationwide's mortgage rate and their saving's rate. So, the banking cost--the cost of "looking after the money and the transactions" is @ 2% of the cost of any money-business?
Okay, I don't understand this. Capital--e.g. land. I want some land to grow some vegetables. It is in a prime site, centre of town, south facing, excellent soil. Someone else owns it. How does me using that land cost me only 0.5-1.0%? And 0.5-1.0% of what? Or rated against what? Maintenance costs--some items have unlimited life (if maintained), such as a brick structure. Some have short lives--certain fabrics (a pair of jeans)...but okay, average maintenance costs might be 2%--that sounds low to me, though. 10%? To maintain my bike costs over a tenth--per year--of its original value (cost of bike £180; yearly service including parts--brake pads, tyres, cables, spokes, labour costs--all for say £30)...
I don't see how the phone example...I had a look at the site, but...heh...this bear has an even smaller brain...how does Grameen demonstrate 1.5% admin costs, 1.0% asset costs, 2% maintenance costs...and then the profit--it was the profit that I thought was historically 4-6%--the profit as natural growth (not necessarily growth in resource usage--can also be growth in things we can do with the same resources)...Telenor you say hoovers out too much. I thought "the right amount" was somewhere between 4-6%--didn't HiD once say that no investor would consider 4-6% a worthwhile rate--and that was the problem with the LLP model? (And you pointed out that certainly some businesses--some organisations rather--are happy with 4-6% plus there are the benefits of membership--profit is "take away", but mucho busy-ness--much invention can happen "on the inside"--"for free!"--but everyone has to use money to obtain what they can't get on the inside--or even to get things on the inside, so productive asset = work = money (credit) = value over subsistence (slaves aren't paid--they are fed and housed but have no spare "profit"...ach okay...either there's some sense in what I've asked or not...and an appy crerse moose to you and Solveig! Don't fight forces, use them R. Buckminster Fuller.
the widespread adoption of mutualised "peer to peer" credit and new means of investing in productive assets.
I have succeeded in confusing you again as between Credit and Capital! Credit is "time to pay": Capital is investment in productive assets.
By "Peer to peer credit" I mean a seller of something giving a buyer "time to pay" by accepting his IOU - as opposed to a Bank's IOU.
The "Guarantee Society" facilitates this by applying a collective Guarantee which both buyer and seller contribute towards. The Bank no longer acts as middleman - taking his cut from between deposit rate and loan rate - but as a "service provider" who manages the creation of IOU's by the members.
Members do not pay "interest" but they do pay for the use of the system, and for the use of the collective guarantee. The result is essentially mutualised Banking "at cost" or on a "Not for Loss" basis.
Investment is totally different from credit, because in an investment there is no obligation to repay (although there is the possibility of "buying back" investment)
By "new means of investing in productive assets" I mean that an investor may (for instance) invest directly ("peer to peer" again) in a new wind turbine by buying (say) 50 Mega Watt/ Hours from its future production at an agreed price of (say) £50.00 per Mega/Watt Hour.
Or he may put up £10,000 and in return receive 20% of the gross revenues from a short film - if there are any revenues. The former is a new form of "Energy Debt": the latter is a new form of "Equity Share".
Re Capital etc the rate of return ON Capital and/or return OF capital (ie accumulated money or money's worth) should be commensurate with risk.
I have no problem with investors getting massive rates of return on investment, provided they are taking a risk. As with the example of a film, above, there is no reason why the investor who puts in £10,000 shouldn't rake in £100,000 or £1 million in the unlikely event of the film being a big commercial success.
But investing in a building rented by the government is a very different thing. The return is much more certain, and therefore the reward commensurately less.
My point is that people's expectations of risk-free returns have become divorced from the reality of oceans of money chasing limited investment opportunities, and the reason for this has been inflation - itself directly caused by a deficit-based economy.
The market in land - and the economies built upon it - is an incipient disaster zone in the US and UK. We need an entirely new approach to land and property finance IMHO. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Telenor hoovers out far too much of the value generated (they were privatised after the JV began) but we still see the scale to which people's willingness to exchange things of value for the right to communicate at a distance is capable of causing massive "economic growth".
That's an increase in economic activity, and in that particular context that is an exchange of something of value for something else of value ... and that something else of value that was not readily available in the village before.
That's economic growth.
Of course, economic growth is not an intrinsic good in and of itself ... though it is widely portrayed as such as a result of the current economic system's growth addiction ... and whether its a contribution to economic development or not is another question. However, it is certainly economic growth. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Communication is a new form of fungible "money's worth"/currency denominated in time units: I remember a former Director of Orange (UK mobile telco) telling me that their stored value cards became commonly used as currency in some countries because they held their value in a way that the official currency did not: to the extent that the Central Bank cracked down... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
What is not only dubious but simply flat out wrong is the presumption that economic growth is an intrinsically good thing.
As in the issue of the "need" of 2% or 4% growth to oil the wheels of accumulation of productive equipment and "intellectual property". There's no intrinsic need for that. Rentals and interest are a claim on national income, with no necessity at all for them to come out of increases in national income.
Of course, in the SNA we draw a distinction between incomes drawn from ownership rights created over pre-existing natural resources, which is recorded in the national income accounts as rents, and incomes drawn from ownership rights created over produced resources for production ... plant, equipment, "intellectual property" ... which is recorded in the national income accounts as interest incomes.
However, in either case, the payments settling rental and interest obligations come out of the income flow without somehow requiring that income to have been newly created that year.
What economic growth does is simplify the payment of newly created rental and interest obligations, by allowing them to be paid without shoving to one side levels of incomes previously received by others.
Since that shoving to one side is normally accomplished by inflation, and inflation reduces the economic power of holders of contracts for the receipt of incomes of given dollar amounts, the financial sector opposes recourse to that ... and in the crudest sketch, uses their influence over central banks to threaten everyone else with recession if there is too much loss of economic power by creditors. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
