The Trophic Theory of Money, Part 2

There is so much to say about the Trophic Theory of Money that we had to break the topic down into two parts! In this episode, Brian Czech fills in the gaps from last week's discussion of agricultural surpluses and ancient currencies. He then shifts the conversation to today by identifying the implications of the trophic theory of money for modern economic policy.

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Richard Tibbetts  00:01

From the Center for the Advancement of the Steady State Economy, this is The Steady Stater, a podcast dedicated to discussing limits to growth and the steady state economy.

Brian Czech  00:11

Welcome to the show. I'm your host, Brian Czech, and our episode today is The Trophic Theory of Money, Part 1. Don't worry about those words, "trophic theory." It's not going to be very academic or too theoretical, even. By the time we're done with parts one and two, though, I think you'll realize that this thing we call the trophic theory of money is really helpful and possibly essential for really recognizing limits to growth and the need for a steady state economy. Alright, let's begin part one with a quote from Aristotle who said, "he who thus considers things in their first growth and origin will obtain the clearest view of them." Now, if you've considered much about money, you have surely been challenged to obtain a clearer view. Is money just a means of exchange, a unit of account, and a store of value? Is money only money if it's legal tender? And how about this question: is money a result of production or rather a demand for production? In other words, is money nothing but debt? Yes, the topic of money gets confusing quickly, especially if we ignore Aristotle's advice about considering things in their first growth and origin. So first growth and origin. Well, where did money originate? Anthropologists have a clear answer to this. They tell us that money originated in three regions: Mesopotamia, Lydia, and China, in particular, the Yellow River Basin. Mesopotamia was where one of the most famous forms of money evolved. I'm talking of course about the shekel, which appeared as early as 5000 years ago, and was certainly well-established 3000 years ago. Lydia is usually cited as the place where the first coins were minted. These were coins of electrum, which is a natural alloy of silver and gold. These electrum coins appeared almost 2500 years ago. That said, it wasn't long after and it could possibly have been before, when copper coins were circulating in the Yellow River Basin of China. Now Mesopotamia, Lydia and the Yellow River Basin were distinct regions with very distinctive cultures. Geographically, you can picture Mesopotamia as primarily modern-day Iraq, in the lands of the Tigris and Euphrates rivers. Lydia can be considered a large portion of ancient Greece, in particular, in what would be Western Turkey today. The Yellow River stretches 1000 miles or almost 2000 kilometers across northern China. And it drains a basin of almost 300,000 square miles. Students and armchair scholars surely have heard of each of these historic regions, because each are considered cradles of civilization. But with regard to the origins of money, is there something special about these places? Yes, there is. Because if you also inquire, 'where did agriculture originate?' you will land in the same three regions, and this is no coincidence, and it leads directly to the trophic theory of money. So it's time to specify and explicate the theory. The trophic theory of money is that money originates via the agricultural surplus that frees the hands for the division of labor into the manufacturing and service sectors. Let's break that down a bit and explore the significance. The trophic theory of money is that money originates, it evolves, it comes into being it first appears via the agricultural surplus that frees the hands for the division of labor. Because if there's no agricultural surplus, everyone has their hands in the dirt, tilling, plowing, planting, cultivating and harvesting. There's no exchanging of money. Remember, mere survival takes food, clothing and shelter, and it starts with food. So unless you get your food from someone else that produced a surplus, you're stuck producing it yourself. If you're not farming, then you'll be fishing or hunting and gathering in general. And of course, the third main option is raiding or commandeering in warfare. There were tribes that specialized in each of these activities, and many tribes did some of each. Speaking of tribes, I stumbled into the trophic theory of money while working for the San Carlos Apache Tribe, which has the fourth biggest reservation in the USA. It's in Arizona, and it also has the world's biggest elk in terms of antlers, at least. Back in the early 90s, I was serving as the director of the San Carlos Game and Fish Department. And in 1992, we sold three very special elk tags for $43,000 a piece. That money was earmarked for elk habitat improvement on the reservation. So some folks were tempted to think of this as a win-win scenario, the tribal economy grew and we did something good for the environment. But what caught my attention was the fact that two of these tags, so that's $86,000 worth, went to the owner of the largest old growth sawmill in the Pacific Northwest. So that's how the money was generated, not by the elk, but rather by the liquidation of huge stands of old growth timber. Now, of course, logging isn't precisely the same as agriculture, but it's a closely related extractive sector at the trophic base of the economy. It's needed for the shelter part, especially, of food, clothing, and shelter. Now, I suspect a lot of our listeners will say "Yes, of course, the trophic theory of money makes perfect sense. Money would have to originate out of agricultural and extractive surplus." Yet, it's constantly overlooked in discussions of money, limits to GDP, and sustainability science in general, and I think I know why. There are a number of reasons, but I'll mention what may be the top two. It's overlooked because in today's so-called developed world, agricultural activity is the furthest thing from the minds of most citizens. Most of the farming in the USA, for example, at least from a production standpoint, is factory farming or industrial agriculture. And there is so much surplus gleaned from industrial agriculture, that it frees the hands of 99% of our citizens. And I mean that literally. Only 1.3% of us are farmers and ranchers. Now, of course, there's also a certain percentage of us, me included by the way, who grow or harvest a significant portion of our own food. We account for approximately 20% of the population. And that figure is growing, especially now during the Covid-19 pandemic, with a lot more people gardening. Still, the point is, the vast majority of Americans are far removed from serious agricultural activity. The second major reason the trophic theory of money is overlooked and underappreciated is because hardly anyone percentagewise has a background in ecology either. So the phrase trophic theory falls upon deaf or uninformed ears. If you are an ecologist, it's different because the concept of trophic levels is standard fare in your profession. It's right there in Ecology 101 as foundational to understanding the way ecosystems function. We will explore these trophic levels after a short non-commercial break with Rick Tibbetts.

Richard Tibbetts  09:03

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Brian Czech  09:52

Now, let's explore the basics of trophic levels. In the economy of nature or in other words, the ecosystems of non-human species, we start with the producers. These are plants that literally produce their own food in the process of photosynthesis. Without the surplus production of these producers, we don't have an economy of nature. There has to be surplus produced in order to support populations of consumers. The so-called primary consumers eat plants directly. So now we have two trophic levels, producers and primary consumers. What does that word trophic mean? It simply refers to the flow of energy and the conversion of biomass. So when a primary consumer eats plants, a certain amount of calories stored in plant material are converted in the process of digestion and go into the development of animal tissue. The conversion of plant to animal tissue amounts to approximately 10%, as a rule of thumb, so out of 10 tons of grasses, we may get a ton of woodchucks, which, by the way, is about 233 chucks. Now when we have enough producers and primary consumers in an ecosystem, we can support populations of secondary consumers too. These are predators that eat the primary consumers such as foxes eating wood chucks. Again, the 10% rule of thumb applies, so a ton of woodchucks may support about 200 pounds of foxes and that's roughly 10 foxes. So there we have it, three trophic levels, producers, primary consumers and secondary consumers. Of course, our non-human species don't line up like students in primary and secondary schools. Mother Nature is complicated and for starters, we have omnivores that eat producers and consumers. Some ecologists have gone so far as to develop a system of trophic scoring, to help us envision where a species fits among these three basic trophic levels. Don't forget, we also have service providers that don't fit so neatly into this structure. The best examples are decomposers, scavengers, and parasites, yet the economy of nature is dominated by that fundamental trophic structure. And so it is in the human economy as well. We have the producers at the base and only when there is enough surplus production, can we have the manufacturing and service sectors proliferating as well. In purely trophic terms, I think it makes the most sense to classify the manufacturing sectors as heavy and light. Similar to the economy of nature, there are plenty of omnivores or intermediate levels of manufacturing too. Also, in the human economy, given that tremendous division of labor and the plethora of technology, we have a rich collection of service sectors that operate throughout these trophic levels. Don't forget that word service, though. These sectors serve human consumers, and they serve the other sectors. Engineering, transportation, the provision of information. These and many other services go directly into agricultural, extractive and manufacturing activities. And actually, they serve other service sectors as well. So it's a complicated food web, you might say. Now, here's one of the key points for grasping the trophic theory of money: Economic growth doesn't occur unless the entire trophic structure is growing. Why have more transportation, unless more goods or consumers need transporting? And sure enough, you won't. Why have more agriculture unless we have more mouths to feed and more food processing to conduct? Why have more steel smelting unless we have more demand for buildings, automobiles and sky cranes that help build the buildings? See the integration? I see the word "ecosystem abuse" sometimes in the business world. It's used in kind of a slogan-y way. However, the economy at large or the macroeconomy, if you will, is very much an ecosystem. It's an economic ecosystem and an ecological ecosystem with a trophic structure, just like the trophic structure we find in the economy of nature and money. Yes, money is the means of exchange, that allows for the efficient transferring of goods and services among those trophic levels, among those sectors, and ultimately from sectors to the final consumers, such as you and I and our families. Money is also a unit of account. Ever since the shekel, it's allowed us to compare apples to oranges at the checkout counter. And yes, money is a store of value. What else would you deposit in that checking or savings account? But don't forget the trophic theory of money. The trophic theory of money is that money originates via the agricultural surplus that frees the hands for the division of labor unto the manufacturing and service sectors. Well, that about wraps her up folks, at least for part one. In part two, we will explore some of the significance and nuances of the trophic theory of money. We'll start with the primary corollary. We will explore the implications for inflation, too. Also, in part two, we'll see if the trophic theory of money squares (or not) with conventional economics, and the more recent, so-called "modern monetary theory." I'm Brian Czech with The Steady Stater podcast. See you next time.