Less wants mean more abundance

Working Paper

Less wants mean more abundance

by Roberto Verzola, rverzola@gn.apc.org

If we make the realistic assumption that people can be satiated, saturated or satisficed when meeting their needs and wants, we can show that wants have a finite bound and are not “infinite”, as many economists tend to assume.¹

If wants are finite and their satisficing levels can be determined, then it becomes possible to compute the ratio between consumer demand for a good and its satisficing level for a person. We can call this ratio the state of relative abundance of a good for a particular person. By aggregating demand and satisficing levels for groups of people and entire societies, assuming that all consumers have a satisficing level for some goods, we can determine the state of relative abundance for these goods in a particular society. Since consumer demand is price-dependent, the state of abundance is also price-dependent and would show the same downward-sloping trend as the demand curve.

In fact, due to a number of factors, some societies show much lower aggregate levels of wants compared to other societies. This decreases the denominator of the demand-to-satisficing-level ratio, and suggesting a higher relative abundance level for these societies. Less wants mean more abundance. These “want-reducing” demand-side factors include:

A culture of cooperation

Cooperation among consumers raises the possibility of further improving the aggregate level abundance, given the same supply and individual demands. With common pooling of resources and cooperative consumption, a group of consumers can enjoy through sharing more goods or services and get nearer their satisficing levels, thereby improving their aggregate level of abundance. A car, for instance, may meet the daily commuting needs of one or up to five persons. Compared to books in someone’s shelf, books in a community library – or videos and CDs for that matter, can be enjoyed by many more people. A huge body of literature can be found around common pool resources and the best ways to manage them.² Perfect cooperation, which leads to more abundance, is as important an economic concept as perfect competition. A properly-managed free commons, like a freely accessible public library of books, CDs and DVDs, can help create more abundance as much as an unregulated free market often leads to artificial scarcities.

Simple living

Beyond the pooling of resources, cultural mechanisms can also bring satisfaction levels and demand down. In some societies, this can be a major factor in improving the level of abundance. Extolling simple living, highlighting voluntary simplicity, focusing on the spiritual aspects of life, or idealizing asceticism are various ways by which some societies have deemphasized material accumulation and enhanced their level of abundance from the demand side. As Gandhi put it when describing his own experiments in voluntary simplicity, “the real seat of taste was not the tongue but the mind.”³

Focusing on needs

Among the entire range of human needs and wants, it can be argued that not all of these should be treated on equal footing. Obviously, grey areas can exist. However, most will surely agree that those necessities which enable each person to simply survive and live his/her natural life span and each society to reproduce itself should be on top of any hierarchy of needs and wants. These include clean air, potable water, healthy food, protection from the elements and disease, and similar goods and services. If a society focuses on such goods and services its efforts to build abundance, the range of needs and wants that need to be satisficed is narrowed down even further.⁴

The economics of altruism

There have been societies where one’s worth is measured not in terms of how much one has accumulated, but in terms of how much one has given away. Many still admire this ideal and try to practise it occasionally or even regularly.⁵ Practised widely, altruism can help cut down the highs and fill in the lows in the income distribution. Filling in the lows, in particular, can reduce society’s failure rate, with direct impact on those who most need it. The continuing and even increasing role of charitable foundations, non-profit organizations and similar institutions reflects the persistence of altruism as a factor in poverty reduction efforts.

Economics of fairness

It is not only a sense of altruism or charity that should impel a society to ensure its members’ minimum basic needs, as these needs are called today in development circles. It is also a matter of fairness, justice and equity. We know that something is terribly wrong in the dominant economics of a society like the U.S. when, despite appropriating for itself much of the world’s resources and leading in the development of new technologies, 11% of the country’s adults and 17% of its children still suffer from occasional involuntary hunger.⁶ It is also from the U.S. where we get an example of a promising approach. The State of Alaska’s Permanent Fund is one example of an effort to guarantee a minimum income for every citizen.⁷ Many parallel efforts have been launched to develop the concept of a basic income guarantee (BIG).⁸

We have shown that abundance is a matter not only of supply but also of demand. Where societies are more cooperative rather than competitive, where a simple life of material sufficiency and intellectual/spiritual richness is instead sought after, where those who enjoy abundance are passionate about sharing it, and where the means for meeting the most basic human needs receive the most attention as a matter of right, then the members of these societies can enjoy much greater abundance.

1Verzola, Roberto. 2009. “Finite Wants Make Relative Abundance Possible”. https://rverzola.wordpress.com/2009/01/21/finite-demand-makes-relative-abundance-possible/

2See, for instance, Elinor Ostrom, Thomas Dietz, Nives Dolšak, Paul Stern, Susan Stonich and Elke Weber (eds.). 2002. The Drama of the Commons. National Academy Press, Washington, DC. See also Elinor Ostrom. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University, Cambridge.

3Gandhi, M. K. 1927. An Autobiography (The Story of My Experiments with Truth). Navajivan Publishing House, Ahmedabad. p. 52.

4 See Frank Rotering. 2008. Needs and Limits: A New Economics for Sustainable Well-Being (2^nd ed.). http://members.shaw.ca/needsandlimits/pdf_files/needs_and_limits-2nd_edition.pdf

5The term “gift economy” may not be appropriate to describe this, since gifts are often seen as signalling mechanisms with various other motivations aside from altruism.

6Food Research and Action Center, “Hunger in the U.S.”, http://www.frac.org/html/hunger_in_the_us/hunger_index.html

7Alaska Department of Revenue Permanent Fund Dividend Division. “FAQs”. https://www.pfd.state.ak.us/faqs/index.aspx. See also Alanna Hartzok. 2002. “The Alaska Permanent Fund: A Model of Resource Rents for Public Investment and Citizen Dividends”. Earth Rights Institute. http://www.earthrights.net/docs/alaska.html

8The U.S. Basic Income Guarantee Network. “What is the basic income guarantee?” http://www.usbig.net/whatisbig.html

Roots of the financial crisis: overproduction?

At a large meeting of civil society / non-government organizations last November 11 in the University of the Philippines campus, I was particularly interested in the presentation of the main speaker, Dr. Walden Bello, who thought that the root of the crisis was due to the “capitalist crisis of overproduction”. This analysis has its origins of course in Karl Marx’s critique of capitalism. Walden’s analysis was generally echoed by speakers like Ric Reyes and Frank Pascual, who like Walden are key personalities of the legal Philippine Left. Walden cited data showing how most Western countries had their production facilities running way below capacity. A number of the meeting panelists and participants thought it was time to wave once more the banner of socialism.

While we in the Philippine Greens are not socialists (see my post on the Green-Red dialogues), I have also been looking closely at the phenomenon which they call “overproduction” but which to me suggested “abundance” (see my posts on “abundance“). So I was interested in engaging Walden further in a discussion.

In a subsequent group discussion led by Walden himself, I presented my question framed in the following context:

I agreed that it was important to identify the roots of our current problems. (We’d be wasting much of our time and resources if we focused on symptoms rather than root causes. Worse, making a wrong diagnosis and directing efforts at wrong causes might even make the problem worse.) But I didn’t think the current crisis was due to overproduction, which typically refers to commodities and material goods. Rather, the crisis was due to “overproduction” of money and credit, particularly the latter. (I was stretching the meaning of “overproduction” here.) Governments — the U.S., in particular, because of its huge expenditures associated with the wars in Iraq and Afghanistan — were printing too much money and private firms like banks and credit companies were creating too much money. To me, all these money creation, without the corresponding blood, sweat and tears that we ordinary people have to go through to earn money, was pure theft. When someone can simply create money to exchange for things we worked hard to create or earn, they are stealing from us pure and simple. It is this “toxic” money, not associated with the production of real goods but simply created out of nothing, that leads to hyper-inflation and speculative bubbles.

Then I asked Walden what he thought of proposals which some of us in the Philippine Greens have raised to control the above, such as to return to a metallic (say, gold) standard for money, and to raise the fractional reserve requirements of banks (limiting their capacity to create credit out of nothing), and to restrict the operations of credit card and similar companies.

Walden focused his answer on the overproduction issue and reiterated his data about undercapacity in Western countries. He also said Central Banks are restricted in their capacity to print money. U.S. money was instead coming increasingly from Asian (principally Chinese) sources. He also said the gold standard was part of the Bretton Woods agreement, which U.S. President Nixon in turn abandoned in the 1970s. Since the Bretton Woods agreement carries a negative connotation among IMF/World Bank critics, I took this to mean Walden didn’t want going back to the gold standard. Unfortunately, we didn’t have time for a deeper discussion.

It seemed to me many participants and maybe even some panelists did not understand the implications of fractional reserve banking and therefore were unable to appreciate the proposals I raised. If my guess is right, then they would be in no position to understand the real roots of the global financial crisis either.

In a banking system with a fractional reserve requirement of, say, 10% (i.e., 10% of all deposits must be kept in reserve, the rest can be loaned out), the banking system can theoretically lend not 90%, as most people think, but ninety over ten or nine times (yes, 900%!) the total deposits. Where did the additional 810% come from? Out of nothing. The banks can earn real money in interest out of this credit money they created out of nothing. So while ordinary people like us have to devote real time and effort to earn a monthly income or to produce real goods to sell to the market, the rich set up banks that create money out of nothing which they then lend out to earn real money from the interest income, which they can use to hire real employees and buy real goods.

As I said, this is theft pure and simple.

Anyone who wants to understand the whole process must read about fractional reserve banking from any textbook on banking and finance.

The lower the reserve requirements, the more credit money the banks can create out of nothing. This is the source of most financial bubbles. Whether it is the dot.com bubble, real estate bubble, housing bubble, or stock market bubble, they are all in the last analysis funded by credit money which banks create out of nothing. These bubbles can exist and persist as long as people trust the system and keep their deposits in banks. Once that trust is lost, the bubbles burst, and those who cannot get out their deposits in time are left holding an empty bag (or the burst balloon).

I realized that many participants and some panelists did not understand this whole process because the proposal to adopt the Islamic banking system was raised and seriously discussed. While the Islamic system of not charging any interest is not bad in itself, it reflects the idea that charging interest itself is bad. This is a debatable point. When you lend real money (i.e., money you worked hard to earn), I think it is reasonable to charge some interest for the usual reasons (risk, overhead, etc.). But to charge interest on money created out of nothing, that’s theft.

This is what creates financial bubbles, and this is what the proposal of some Greens is directed against (I say “some” because it has not been officially adopted by the Philippine Greens).

If you want to understand the credit bubble, you must understand fractional reserve banking.

Political economy of abundance

I have been studying in the past few months the subject of abundance.

My interest in this subject grew out of my interest in information, information technology and information economics. I think most of us who have not yet realized it ourselves can easily believe the claim that information goods have become easily accessible and abundant, especially to those who have Internet access. Abundance in the information economy comes from the diminishing cost of reproducing information, making it easy for anyone to share information with others. If you consider the vast and incredible collections of materials on the Internet, from Google to Wikipedia, from the websites to the blogs, from the various file, audio and video exchange sites to YouTube, I think you’d agree that one term which describes all these accurately is abundance.

After my semi-retirement from software, hardware and Internet work, I did volunteer work on environmental and agriculture issues. I worked with farmers groups. After nearly ten years of doing so, I realized that a unifying thread connects my experiences in the information sector, in nature and in agriculture. What is it? You guessed it, abundance.

Like the information sector, nature also teems with abundance. The reason is simple, every species is genetically programmed to reproduce its own kind. The reproductive urge built into every living organism is the source of abundance in nature and, by extension, in agriculture.

I have also been studying economics these past few months. One fundamental assumption in economics is scarcity. Economists define their jobs as the study of efficient options in the context of scarcity. This focus on scarcity has created a blind spot among economists. Many have missed, taken for granted, ignored or rejected abundance as an interesting field for study.

That’s the study I’m currently doing.

If you are interested in this subject, please download my paper Undermining Abundance, which will appear as a chapter in a book that will be released in the next few months by Zone Books, entitled Intellectual Property Rights and Access to Knowledge.

I’m working on another paper now, entitled “Studying Abundance”, which I will also release soon.

Poverty amidst abundance

This piece, entitled “Challenging Media: Poverty Amidst Abundance“, appeared in the January 2008 issue of Media Development, a monthly publication of the World Association for Christian Communication (WACC). Check this site for a list of the articles in that issue. Since the site did not post the full articles themselves, I thought I will make my article available for download here.

The question I raised in this piece was a challenge to media. But, in fact, it should be a challenge to all of us: why should poverty persist amidst such abundance?

Is it because economists are generally blind to abundance? (Remember that the definition of economics has always been premised on scarcity.)

In a longer piece that will appear later this year as a chapter in a book on “access to knowledge”, I will be going more deeply into the phenomenon of abundance, which is a feature of most ecosystems as well as of the information economy.