[Book] The Wealth of Nature: Economics as If Survival Mattered

[jprussell]

I outlined this post back in December 2021, apparently, but I never got around to handling it. "Luckily" this week I was struck with no idea what to write, so I went looking in my drafts folder in desperation and decided this would work. It's my thoughts on JMG's The Wealth of Nature, which packs an exceptional amount of helpful, smart thinking into a pretty neat package. As always, I'd love to hear what you think.

Comments

[thinking_turtle]

Thanks for sharing your thoughts on Wealth of Nature. When a cow dies, its corpse is eaten by predators like humans or crows. What's left becomes compost and is used by plant growth. I wonder how those dinosaurs sunk all the way into the crust of the earth!

One interesting aspect of stocks is that stocks are not really money. The pool of money is distinct from the pool of stocks. So I can buy a share for $100 and then all other shares get valued at $100. But there may not be enough money to buy them all!

I learned from Varoufakis and John Titus that money is created by commercial bank loans. Given that there is not enough money to repay both the loan and the interest, repayment of loans depends on the issuance of new loans. This keeps the economy moving!

[jprussell]

Thanks very much!

1) From my understanding, the vast majority of fossil fuels were formed not by literal dinosaurs, but more often plant material, and most often in seas and swamps. Basically, some amount of biological matter fell into places that didn't support the normal processes of decomposition, and were instead eventually buried in things like sediment. Given geological timescales, the combination of more and more sediment piling on top, along with tectonic forces like subduction, led to what might have once been the floor of a shallow sea instead being a formation of limestone (as happened to most of Texas for example). So while it's poetically evocative to talk about "burning dinosaur bones," to quote a Soundgarden song, it's mostly burning phytoplankton :)

2) That's true, but it becomes complicated when markets for stocks are easy and fast enough (or as they say in the biz, "liquid" enough) that you can effectively trade stocks for stocks at their current nominal value. It's also further complicated by the fact that modern accounting treats stocks as a "cash-like asset" on the assumption that you can always sell them for their current market value and get cash instead, so why not just treat them as the cash they're one step away from? These assumptions, of course, ignore the role that fast changes in the market can have, and even more ignore that if you have enough of them, the very act of selling them is likely to change the market price. There's more complex financial analysis that tries to model all of this, but it's rather hairy.

3) Looks like you anticipated Scotlyn's point below! That is true for current "fiat currencies," which most major currencies (very much including the dollar) are. There are strains of economic thought that argue that such fiat currencies are inherently inflationary (almost impossible to disagree with), subject to dramatic changes in value, usually in a bad way (fairly widely accepted), and overall bad for the "real" economy of human weal (much more controversial). If you want to dig more into this, check out cryptocurrency enthusiasts, most especially "bitcoin maximalists," or go straight to the source and read folks from the Austrian School of Economics like Mises, who are the folks crypto types most heavily draw on.

[thinking_turtle]

1) There are many theories! I read that Germans created artificial oil during WW2 using the Fischer–Tropsch process. The author suggested that this process is what happens in the crust of the earth, so that oil is not a fossil fuel, but something the earth continuously produces. If he's right, Peak Oil would not mean the beginning of the end of oil, but merely flattening out at a sustainable level.

2) Wow, yeah, those financial assumptions lead to a complex abstraction. Yet it is still a human construct, and in the end nobody will accept an unacceptable outcome. So if one of the assumptions fail, and there are not enough buyers for stock, the government would step in to keep the economy working.

3) Money is a claim on future goods. How can crypto provide that? It all seems so unreal. I don't think society will feel bound to respect crypto like it respects the dollar or the yuan.

Thanks for your reply, and looking forward to your next blog!

[jprussell]

1) Is that the same as the "biotic oil" theory? If true, that would certainly be good news for mankind, but I'm skeptical - oil companies employ geologists who use the mainstream theory of formation (compacted organic matter from millions of years ago) to find where to drill, and they get pretty good results.

2) You have far more faith in the government's ability to "keep the economy working" than I do - again, a place I wouldn't mind being wrong.

3) Sorry, I wasn't explicitly advocating for cryptocurrencies by bringing this up (I was very bullish on them for a while, but now I don't think their energy requirements will let them work in the long run), instead I was saying that folks in that space have thought a lot about what makes money "money" and why fiat currencies are bad at doing that, at least in the long run, and I think most of their critique is useful, even if I no longer buy their prescription. As for whether crypto could work as a claim on future goods, that all depends on whether folks are willing to treat it that way, of course, since money's day-to-day value is largely intersubjective.

And thank you! Working on it now!

[thinking_turtle]

1) After looking it up, the slow transformation of animal and plant matter into oil is called "biotic". The natural physical and chemical thermodynamic process involving just heat and pressure is called "abiotic".

I came across multiple claims that the "abiotic" theory is actually the consensus among Russian scientists. For example:

8. A Dissertation by J.F. Kenney(Joint Institute of the Physics of the Earth Russian Academy of Sciences, Moscow). Here is an extract:

ABSTRACT: For almost a century, various predictions have been made that the human race is imminently going to run out of available petroleum. The passing of time has proven all those predictions to have been utterly wrong. It is pointed out here how all predictions have depended fundamentally upon anarchaic hypothesis from the 18th century that petroleum somehow (miraculously) evolve from biological detritus, and is accordingly limited in abundance. That hypothesis has been replaced during the past forty years by the modern Russian-Ukrainian theory of deep, abiotic petroleum origins which has established that petroleum is a primordial material erupted from great depth. Therefore, petroleum abundances are limited by little more than the quantities of its constituents as were incorporated into the Earth at the time of its formation; and its availability depends upon technological development and exploration competence.

From https://www.getbig.com/boards/index.php?topic=278159.0

[jprussell]

::forehead slap:: Duh, abiotic, of course. I'm going to have to give back my Classics degree.

With that embarrassment out of the way, I did not know that about it being generally accepted by the Russians. I suppose time will tell.