My comments are part of a conversation with my colleagues on the Advisory Board of the Capital Institute,  founded by our Ethical Markets Advisory Board member John Fullerton, about the limits of markets in moving humans toward sustainable forms of living. – Hazel Henderson, Ed.

By Hazel Henderson  ©   2010

The important paper on the limits of markets, “The Financialization of Nature” by Sian Sullivan at the University of Lund, Sweden, that Doug Tompkins forwarded gives us all an incredibly valuable “teachable moment” before we jump any further into the global casino, which I have always identified as the flywheel of social and environmental destruction on a planetary scale.

I thought first about all our deeply held values and determination to transform finance …essentially by helping humans expand their awareness of the vital functioning of the biosphere in which we are embedded.   This does require humility, rather scarce among financial people who are still under the illusion that they create “capital,” “wealth” and “money,” rather than accepting that financial trading, up to a point, serves a useful intermediary function in bringing savers, borrowers, entrepreneurs, buyer and sellers  into a communications matrix.   But if this matrix continues to be driven by limited consciousness, and false prices, it will continue replicating unsustainable practices.   The paper is an important update on how far astray financial markets have gone with their efforts to create new markets for carbon, offsets, and other  derivatives  of Nature’s intrinsic values.  I warned of  the insanity of cap and trade carbon  emissions markets in my Building a Win-Win World (1996)  and on a PBS TV special  “Profit The Earth” to commemorate Earth Day 1990  (still on DVD from PBS).

Part of  the error comes from the Arrow –Debreu theorem mathematizating  a nation’s “economy”  (second order errors of abstraction, which I also critiqued  in  Arrow’s General Impossibility Theorem  in my Creating Alternative Futures (1978 ).   Arrow won the Bank of Sweden Prize for this in the 1960s.  This  helped propagate the idea among financiers, with  its assumption of the importance of a  goal of “market completion,” and  meant that they should keep expanding markets  to overwhelm all the “commons” that existed  around the world, based on small communities sharing resources cooperatively with collectively–derived RULES !

I pointed out in Building a Win-Win World and in  The UN: Policy and Financing Alternatives ( Eds. Henderson, Cleveland and Kaul, Elsevier Scientific UK 1995)  that there were TWO regimes of exchange:  markets and commons  ( see diagram 1 ).   My article, “Defending the Global Commons”  in Whole Earth Review  (Fall 1998)  and my use of the term the Love Economy ( diagram 2) spelled out this dual nature, based on my reading and friendship with Karl Polanyi’s widow,  Ilona Polanyi  who taught at York University.   Polanyi always emphasized this in his Archaic Economies  and The Great Transformation(1946), pointing out that markets, as Adam Smith taught, were indeed part of our human “propensity to barter”.  But when governments legislated  national markets, as in Britain, that changed everything  for the worse !

Not until Elinor Ostrom’s work refuting Garrett Hardin’s Tragedy of the Commons  (derived from neoclassical economic thinking  that only turning commons into “markets” could protect them via “property rights” )  did the movement for defending the Commons get going.  My colleagues at the Heinrich Boll Foundation will have a huge conference on this in Berlin this fall.   I was one of the judges for their Petra Kelly Prize in the 1990s which was awarded to the Mapuche people of Patagonia  whose land was confiscated by the government of Chile!   This expanding markets uber alles  has continued and morphed into the excesses of trading carbon, wetlands, species, etc.,  described in Sian’s paper.  You will find on  on our Books and Reviews page a book, Carbon Trading,  which I reviewed and participated in developing by the Dag Hammarskjold Foundation, Uppsala, Sweden, in our joint meeting here in 2004.  This is the best overall refutation of the whole idea of extending “market completion”  into ecosystems.   Trading for trading’s sake is an addiction, no different from gambling. (80% of Goldman Sachs profits in 2010 were from prop trading).

I chose the name of our company, “ETHICAL MARKETS,”  because it subjectivizes that markets are created by people, not God.  The Invisible Hand has always been our own…at different levels of human consciousness, using different semiotics, taxonomies and metrics. (see Jordan Macleod’s   New Currency, and my Foreword, 2009 ) .  All of the germinal works by feminists take this view.   Markets, money, and capital are projections of humans’ collective states of consciousness …abstractions, which often lead to serving ego, power and aggressiveness leading to empire-building  typical of capital markets.

I never found it useful to rely too much on Marx, because so many others  delved more deeply into our recent past:  Nobelist Frederick Soddy, Georgescu-Roegen  and his brilliant student, Herman Daly, Arne Naess and Thomas Berry ( both of whom I have had the honor of doing dialogues), all the feminist theorists, and of course, E.F. Schumacher, who got to the heart of it all:  abstraction, particularly in finance, can become evil:  if it’s too big to fail, break it up and decentralize markets to their village and ecosystem level.   Get rid of economics and all its  powerful but false abstractions, or as I always say  to my Silicon Valley friends : “Have you tried  driving your car on a virtual gallon of gas?”

The world is now rapidly moving out of the corrupted money circuits into pure information-based trading  (craigslist, freecycle, prosper, zopa , etc.)  and the new  KWH currencies based on kilowatt hours (Evolution of Money Systems).  We see  at last how money is created out of thin air  and how central banks’ “quantitative easing”  prints  money for their allies in the  old banking centers.  Our current TV special on PBS stations is all about the politics of money – creation and credit allocation.  This is why Ron Paul, Barney Frank, Bernie Sanders, Dennis Kucinich, Maria Cantwell and Susan Collins are getting onto the same page!  Eric Schmidt understands this better than Larry Summers and Tim Geithner!  (see diagram 3).

Markets, at the human scale and local livelihood level  are not primarily conducted in cash, but in barter and mutual aid and exchange. (see diagram 1  Two Ways of Transacting).    The official  money-denominated half  is the GDP . The equally large Love Economy, is also the info-sharing, cooperative half, Don Tapscott described in Wikinomics, and Yoichi Benkler in The Wealth of Networks.  So we are back to the proper role of money, as useful invention  to track and keep score of our interactions,  not “wealth”  (see our  Money as Debt and The Money Fix at   Wealth lies in the real world: ecosystem assets and the wealth of human creativity and  work  (becoming more valuable as our consciousness expands).

Here we see what  I, my dear friends Matt Kiernan,  Pavan Sukhdev, Maurice Strong , Alice Tepper Marlin, Amy Domini, Susan Davis, the late Joan Bavaria who founded CERES,  and others  have been  trying to do with crafting various messages to reach financiers and re-educate economists. Allan Savory has created a deeper teaching tool with his work.  We must engage the old financial sectors trying to dominate the globe with whatever messaging we can devise to get their attention.  Then we try to play judo with their money systems!  We must create “dashboard” quality-of-life indicators to replace single discipline GDP abstractions.  We must go on creating new accounting as GRI  and all  of you are doing .  It’s all about  education, raising awareness, challenging ego and power models  and replacing them with resilient  models that conform to natural systems, the primary reality for us humans!

This will now be part of our debates on  TRANSFORMING FINANCE   here August 29-Sept 1st, 2010.   We can move some of the earnest, sincere efforts to reform finance by many wonderful writers: Simon Johnson, Paul Woolley, Laurance Kotlikoff, et al and move in the direction of Ellen Brown, Susan Witt, Ann Pettifor, and other “outside the box”  approaches!   A really great opportunity to expand all our consciousnesses!