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Infinite Money in a Finite World

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⏱ Today's Read: 5 Minutes

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This week, I want to question infinite economic growth and how it may be more illusory than we think.
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Defining growth: Growth refers to the process of increasing in size, quantity, value, or strength over a period of time. In an economic context, it often refers to a sustained increase in a country's production of goods and services, measured by metrics like Gross Domestic Product (GDP)

The Inherent Constraints of Growth

Infinite growth is impossible. Growth is constrained in the physical world at the cellular level, atmospheric level, and ecological level, as the finite resources and intricate balances of these systems naturally limit unchecked expansion. The only thing (that we know of) that is expanding constantly is the universe itself. Even this axiom is theorized as we can't physically view the outer limit of the universe.

Everything is resource constrained. Amoebas, for example, are constrained by the availability of nutrients in their environment, such as sugars, proteins, and minerals, necessary for energy, growth, and reproduction. They are also dependent on optimal environmental conditions such as temperature, pH, and humidity, which if unfavorable can limit their ability to function and reproduce. Additionally, amoebas must contend with pressures from predators and competition from other microorganisms for the same resources, all of which can limit their population growth and survival.

Cities are constrained by geography. They're constrained by the physical space of their jurisdiction and constrained by engineering upwards.

Companies are constrained organizationally. They aren't infinite. There is a fixed leadership team with a specific number of employees. These things don't grow forever.

While it's true value changes over time. In 1960, software wasn't valued the way it is today. Tech companies didn't have the valuations because the use of software throughout the economy was less prevalent. Innovation certainly changes value and can unlock new value over time. But even this can't go infinitely. Humans are constrained by our mental capacity. There are limits on everything.

The Illusion of Infinite Economic Expansion

So how can our economy grow forever? How could that work if we only have limited inputs into our goods and services?

Why does the United States want GDP to increase forever? Why do businesses want to increase their revenue each year? Is this a function of an increase in value or a broken unit of account?

Said in other words, the money is broken. Our measuring stick for how we measure growth changes every year. The value of the dollar, yen, euro, and lira changes every year. This is due to an increase in the number of monetary units in circulation as government needs to constantly expand the money supply to make up the difference between their spending and incoming tax receipts. This simply creates the illusion of growth. As dollars become less valuable, revenues appear to increase year on year when in reality they've been stagnant.

Inflation is just another way to think of this monetary debasement. While official numbers target 2% each year, more accurate calculation have this calculation at 4-5% each year. Inflation erodes the purchasing power of money over time- but how much does it erode over a lifetime? If you had $100 today and experienced a consistent 5% inflation rate every year for 90 years, your $100 would be worth approximately $0.32 in today's dollars at the end of the period. This means that the purchasing power of your wealth would have effectively decreased by approximately 99.68% due to the impact of inflation.

Keynesians argue you need money expansion to account for economic growth. This is one of the biggest falsehoods in economics. Technology is inherently deflationary (i.e. better technology makes things cheaper), so prices in theory should be falling over time. If we had a fixed money supply (the same number of monetary units simply trading hands) real value can be established and maintained. Supply shocks would be more clear and wars that impacted grain would be short-lived. A fixed money supply means that money would actually increase in value over time, not decrease by over 99% over a lifetime. This encourages saving and investment, less consumption and speculation, and more efficient use of resources on our planet.

It's a paradigm shift that seems counterintuitive but when unpacked, leaves a clear path to the future. If we're serious about living in harmony and in conjunction with the natural world, this leap must be made. The axioms we were taught and hold to be true must be reframed. Deflation isn't catastrophic- it is only catastrophic in a debt based monetary system that has no limits. Deflation in a deflationary monetary system works harmoniously.

Takeaways:

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Infinite economic growth is an illusion fueled by monetary expansion, undermining the real value of money due to inflation.
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Embracing technology's inherent deflationary nature in a fixed money supply system can lead to sustainable resource use and true wealth increase.

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