Entropic Monetary Rate. Monetary Solution to Environmental Challenges

By Federico José Camargo

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Introduction

In the face of environmental damage or climate change, solutions are proposed aimed at changing our consumption and production habits, but no changes are proposed for the monetary system. Probably, because it is simply considered an instrument, however, money is not neutral in the face of climate change.

Few eyes are on the monetary system. Perhaps the most important of all is Pope Francis's call (2013) to think of a money that serves the common good. In this sense, he is inviting 500 young people to attend the event of the "Economy of Francesco" in 2020 to think of a more sustainable, inclusive system with no one left behind. Another significant fact occurred in September when the most important business newspaper, the Financial Times published on the main cover "Capitalism. Time for a reset" to present its new agenda.

Even the looks are few, because the majority of the population cannot respond briefly, simply and accurately What is the money? So, much less they'll be able to answer ‘How does each monetary system work’? What behavior does it generate? How can we reconcile our monetary system with environmental problems?

Monetary System

 Money is an agreement between members of a community in order to use something as a means of payment. The main features of the monetary system were established prior to the Industrial Revolution (Lietaer, 2001). In modernity, this money is issued out of nothing, through bank debt, that is, that money is created when a loan is requested, without the need for banks to hold a prior deposit (McLeay, Radia, & Thomas 2014). The cost of money created out of nothing is interest, which generates currency shortages.

This monetary system effectively encouraged and propagated the Industrial Age, which quantitatively and qualitatively transformed human life. But at the same time, it didn't protect the environment because human beings in the competitive search for the money needed to pay off their debts, established strategies to reduce their costs and stimulate consumption without analyzing the ecological impact of these actions. Because of this, the current monetary system encourages the competitive behavior of human beings as the need to meet our monetary obligations in the short term blocks our long-term environmental vision.

Entropy

Day after day our environment deteriorates, because neither technological advances nor regulations manage to reverse the trend of quality and the stock of our environmental elements, because human beings pollute rivers, deforest forests and increase the level of carbon dioxide in the air, among many other negative impacts.

In the face of this situation, Ecological Economics can provide the knowledge necessary to readapt the monetary system in the face of present and future environmental challenges. Precisely, Nicholas Georgescu-Roegen (1971) the father of the ecological economics pointed out that Entropy is the most economical of all the laws of physics because, it allows us to understand how our environment works and how we relate to it.

Entropy is an irrefutable natural law, just as is the law of gravity on Earth. Entropy is the process that generates energy dissipation and matter degradation. The entropic process is continuous and irrevocable, as it influences energy and/or matter when used, but also when not used. Therefore, entropy always generates a deficit of energy and matter that impacts on our environment, that is, entropy is intrinsic to ecological damage.

On the other hand, the monetary system is indifferent to Entropy therefore, it is illogical and incongruous that money is outside of Entropy when all energy and/or matter flows are subject to this law. So, if the next generations achieve sustainability, it will be with other monetary rules.

Entropic Monetary Rate

[1][2]

The Entropic Monetary Rate incorporates ecological damage into the monetary system to reconcile the economy with the ecological warnings of scientists and environmentalists with the aim of intrinsically promoting the ecological behavior of humans.

The Monetary Entropic Rate is an index that links the stock and quality of environmental elements with the monetary system on a regular basis. The index should exclude elements based on human action, such as regulations and sanctions, to reflect maximum objectivity about environmental damage. For example, we could use the carbon dioxide (CO2) level or the deforested hectares of the Amazon Rainforest for Brazil.

Indeed, the Entropic Monetary Rate encourages demand to readapt its consumer decisions in order to take care of the environment. In addition, it encourages the supply to change its business model and invest in products with less environmental damage.

Then, the Entropic Monetary Rate has the capacity to reduce the probability of a situation of a socio-economic tension generated by environmental overreach, because it overcome the benefits of regulatory proposals that penalize certain Individuals. Moreover, it is more effective than international agreements because it encourages greater individual commitment and immediately implements sanctions with the same scope for all.

In conclusion, the Monetary Entropic Rate is an effective monetary tool to promote the ecological behavior of human beings in order to accelerate the transition to sustainable development and achieve the sustainability of our common home.


References

  • Francisco (2013). Evangelii Gaudium: Apostolic exhortation on the proclamation of the gospel in today’s world. Vatican: Libreria Editrice Vaticana.
  • Georgescu-Roegen, N. (1971). The entropy law and the economic process. Cambridge, Mass: Harvard University Press.
  • Gesell, S. (1916). The natural economic order.
  • McLeay, M., Radia, A., & Thomas, R. (2014). Money in the modern economy: an introduction. Bank of England. Quartelly Bulletin, 54(1), 4-13.
  • Lietaer, B. (2001). The Future of Money: Creating New Wealth, Work and a Wiser World. London:  Random House.

[1] The Entropic Monetary Rate is a theoretical concept that I present through my doctoral thesis in economics. In the short term, I will present the final work to the University. Currently, I have already presented the Entropic Monetary Rate at the XX Latin American Conference on Economic Theory, at the V Argentine Econometrics Conference and I will do so at the Australia and New Zealand Society of Ecological Economics Conference in November 2019.

[2] In the early 20th century, Silvio Gesell (1916) proposed an Oxidation Rate to balance the position between the holder of the goods and the holder of money, because he observed that the simple passage of time harms the holder of goods, especially perishables, more than the holder of the money. Keynes valued his contribution, considering that "the coming will learn more from Gesell than from Marx".

In a limited way, the Oxidation Rate is a case background to the Entropic Monetary Rate, because, Gesell's contribution does not recognize the impact of entropy by the use of energy and matter, possibly because the first academic contributions between Entropy and economics came a few decades later through the contribution of Georgescu-Roegen. Finally, the Oxidation Rate has no link to the environment.

Federico José Camargo is a researcher, consultant and speaker on monetary systems with focus to Sustainability and Blockchain. He is a PhD candidate in Economic Sciences from the National University of La Matanza (UNLaM), graduated from the Amartya Sen Program (UNLaM) and National Public Accountant (UNLaM). He is a member of the Research Association on Monetary Innovation and Community and Complementary Currency Systems (RAMICS). In the past, he worked 11 years in different positions at Unilever of Argentina. (federico@camargo.com).

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