Over the past weekend I spent time in my garden, working in my tiny vegetable plot which, although tiny, usually produces a lot of food (using something called the Square Foot method). I say 'usually' because the very strange weather this year has played havoc with the normal cycle of spring germination and growth of vegetable plants. As I was sowing more salads I was reflecting on what it would be like if this was all I had to eat - if what I could grow, or those in my immediate local area could grow, was all that we had. It's not so very long ago in human memory that this would have been a given - poor weather, a failed harvest, low yields, would mean hunger or starvation.
It's one of the reasons that I think 'everyone needs to know how to grow food' (as I said in my Swarthmore Lecture). Pragmatically, we need to grow food so that we can become less dependent on imports (uncertain, insecure, high food miles); but we also need to grow food to remind us, daily, of our utter dependence on the earth. In the industrialised West it's far too easy to forget this, although recent flooding and other adverse weather effects may remind us.
In the end, all of life depends on the photosynthesis of green plants, on their capacity to turn sunshine into starches. We eat the plants, we eat the animals that eat the plants, we use the timber (plants again). The energy we need, to mine metals and other minerals from the earth, also comes from plants. What we call 'fossil fuels' (oil, coal, gas) are fossilised sunshine - the results of millions of years of photosynthesis, deposited and 'fossilised' by ancient geological processes.
300-400 million years ago we were in a period called the Carboniferous – warm earth, high sea levels, lots of wet and swampy land. Trees dying fell into these swamps, they sank and were gradually transformed over millions of years – the continents continued their drift, the earth’s crust was squeezed and moved, land was buried and mountains were thrown up, intense heat and pressure took their toll . . . and here we are, several hundreds of millions of years later, using coal – coal consists of ancient trees. And, recalling their photosynthesis, they are buried stores of ancient sunshine. When coal is used to generate electricity, or directly to generate heat, we’re using up the earth’s savings account, the earth’s energy bank.
Using solar power is using our current account; burning trees is like spending what we put in a jam jar to pay the rent – we have to keep filling up the jam jar, so we can pay next week’s rent – we have to keep planting trees. Burning coal is like spending the family inheritance, accumulated over generations, and not investing it any more.
Oil (and gas) are similar, but the’re formed of sea creatures, tiny plankton and some larger creatures, that fed on green algae and sea plants, and fell to the ocean floor when they died. They were subject to the same kinds of processes as the trees – and they made not coal, but oil. Sea creatures that eat plants are further up the food chain than the plants themselves, so when they form a fossil fuel – oil – it is even denser in energy than the coal, formed directly from plants. So oil (gas) is also buried sunshine, burning it is also burning the savings account.
If we take oil and gas together, about 80% of the energy we use today comes from these fossil fuels – we’re living way beyond our means and there’s no way of putting the stuff back in the savings account – when it’s gone, it’s gone. To give you and idea of what this energy density means:
- 1 barrel of oil is roughly equivalent to 25,000 hours of human manual labour; that’s 12½ years of a 40-hour week
- a 40 litre tank of petrol is roughly equivalent to 8000 hours of human manual labour – 200 weeks of a 40-hour week
- 1 litre of petrol is roughly equivalent to 5 weeks
My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel. Saudi sayingWe are burning each year roughly what took a million years to lay down:
In evolutionary terms, we are a baby species – anatomically modern human beings have only been around for about 175,000 years – but already we dominate the real global economy. The real economy is not that of the banks and hedge funds, it is that of photosynthesis: our entire life, our food, our clothing, our buildings . . . everything depends on green plants converting the energy of sunlight into biomass. Humanity in total constitutes less than 1% of the biomass on the surface of the Earth, yet already – at our present population level, and present distribution of technology – we use up 24% of all the products of photosynthesis. As well as current photosynthesis, our use of fossil fuels means that, every year, we are burning up the results of previous millions of years of photosynthesis, we are burning our capital as if there were no tomorrow: ‘We have built an entire civilisation on the carbon deposits of the Jurassic age,’ says Jeremy Rifkin, ‘We have to change or we have to go.’ (Swarthmore Lecture 2011, Chapter 3).And all this is deeply intertwined with money, with debt, and with our current global financial problems. In his lecture, Peter Selby said:
The authority to create money was in times past no different from the authority to raise an army: a sovereign act. The passing of that power, virtually unchallenged, to boardrooms is a passing of sovereign power.Once upon a time, money used to be metal coins with the ruler's head stamped on it. Only the ruler could authorise the issue of these coins, they were made from real metal, dug from the earth, and they therefore had 'real' value - the supply was fixed, they were difficult to make, they had real scarcity value. Then we had paper money, based on this 'real' money. The £10 (or any other denomination) note in your wallet has written on it, underneath the words 'Bank of England', 'I promise to pay the bearer on demand the sum of ten pounds'. Now that Sterling is no longer tied to the gold standard, that phrase has no real meaning. There is a scene towards the end of the film Lawrence of Arabia where a tribe of Bedouin are looting a Western stronghold - a huge suitcase is opened and spills out thousands of US dollar bills. The looter throws them away in disgust as worthless - he wants only gold.
Then we had promissory notes, and cheques, and other forms of paper that stood in for paper money . . . Now we have pulses running down wires and fibre optic cables - and these pulses are 'real' money, in that they have real effects in the material world.
But as we have lost the tangibility of money, we have also lost sight of the reality of debt. Debt was originally a useful and facilitating invention. Someone with money (real money, metal coins) would lend some to someone who had insufficient, on the understanding that real coins would be returned (or real goods to the same value), with or without some extra to compensate the lender for the temporary loss of assets. This was based on both trust and on some method of enforcement. The real money and the real goods were derived from a physical economy - a 'real' economy as I've described above.
Beyond money and debt, there were other financial inventions. One of these was what we now call a futures market. The modern forms of futures trading have old roots. The Dutch tulip mania of the sixteenth and seventeenth centuries was a commodity bubble that started with an uncontrolled futures market. The vastly inflated prices were not, for the most part, being paid for actual tulip bulbs. The commodity changing hands, at ever increasing prices, consisted of pieces of paper which gave the right to purchase a tulip with a particular coloured flower if and when it was produced . . . it might not yet even exist except as an idea in a bulb breeder's mind.
Similarly today we have inflated commodity prices (food, metals, phosphate, timber, etc) because speculators buy an option on a crop, say, that has not yet even been planted. Other speculators buy and sell these options, the price of the real commodity (which might not yet exist) goes up and up - so, for instance, aid agencies can no longer afford to buy sufficient food stocks to take into a famine emergency. There was a suggestion that this form of speculation could be regulated by the requirement that the purchaser must at some point own and store the actual physical commodity . . . but the idea was abandoned because it would merely serve to create a global market in proxy-managed storage facilities!
Now we have something else altogether. At least all of the speculation and trading described so far had real, physical goods embedded somewhere in the transactions. Now we have mathematically complicated financial instruments that turn not just electronic money, but 'products' derived from electronic money, into assets that can be traded and speculated upon. If you read the financial pages of your daily paper you will come across things called 'credit default swaps' (here's a simple explanation; a more serious one; and one for geeks); or 'collateralised debt obligations' (again, here's simple, serious, geek). The details don't matter here - these, and others like them, are clever ways of gambling on a massive scale, driven by fast powerful computers that can make millions of trades (bets) in a working day, sometimes making only fractions of a penny on each transaction, but doing this so often that fortunes can be made . . . and thus, also, lost.
Each one of these layers of financial product builds on the one before like an inverted pyramid, or a giant global Ponzi scheme; each layer apparently creates more 'value' making the world 'richer' . . . but it's not real money, it's debt on top of debt on top of debt. And it appears to work as long as everyone believes in it - it's like the story of Peter Pan, where the children are all asked to clap if they believe in fairies, to keep Tinkerbell alive. If we all keep clapping, it will all be alright. It all carries on working only as long as we believe it does. This takes us right back to the start of the story of debt being based on 'trust' - these days we call it 'confidence' (and the story of the credit rating agencies wrongly and knowingly giving triple-A ratings to dodgy products is another story that would take too long to tell here). The markets are fragile, febrile things, swayed by rumour counter-rumour. If people (or institutions) start to believe there's going to be a problem, they think they won't get paid what they're owed, the panic and start to unload their debt, thus creating the problem they fear - it all comes crashing down at once. It's like the run on Northern Rock Bank - once people believed that the bank was in trouble, it was therefore in trouble.
But what happens when it all comes crashing down? All this debt has to be paid for somewhere, and in the end it has to be paid for out of the real physical economy - fuel and food and metals and timber and manufacturing and construction . . . and so on. But at its height, before the crash, the total so-called 'value' of all these constructed financial instruments being traded (gambled on) was estimated to be about six times the value of the whole world's real economy. If all the plates were kept spinning (to change the metaphor) somewhere up in the stratosphere, then it was all ok (sort of). But once just one plate had to be paid for on the earth, they all fell down. The financial crash impoverishes the whole world - you, me, us, the Chinese, Ethiopia, the local hospital, the next generation . . . everything - for years to come. The economic model says we get out of this mess by 'growth' - the world's economy has to grow, to create more real value to pay for all this virtual value.
But 'real' growth requires energy and raw materials, and we have an increasing population on a finite earth where energy and raw materials are becoming scarcer and more expensive. Growth on the scale needed isn't going to happen, and even if we had the energy and raw materials, we can't afford the climate change effects they would produce. The whole model is bust.
As the Saudi saying has it, 'my grandson will ride a camel'.
More next week on the financial crash, and more following that on the global resources issue.