The System of the World (Part I)

What is the System of the World? One social scientist defines it as follows:

“…a social system, one that has boundaries, structures, member groups, rules of legitimation, and coherence. Its life is made up of the conflicting forces which hold it together by tension and tear it apart as each group seeks eternally to remold it to its advantage. It has the characteristics of an organism, in that it has a life-span over which its characteristics change in some respects and remain stable in others. One can define its structures as being at different times strong or weak in terms of the internal logic of its functioning.”

This definition comes from the world-systems school of global social science. It is not the purpose of this article to advocate this or any other approach to the social sciences (including economics), but rather to examine the ‘System of the World’ such as it currently exists and according to the definition above, and to place the current system in the context of other long term trends in human existence.

The current world system is Money. Money, and more specifically debt, or credit. In the 21st century some 97% of the supply of circulating money is in the form of electronically created bank loans. This is interest-bearing money created from thin air backed by little or nothing of any intrinsic value. So today, nearly all money is also debt.

Crazy as it seems, this system has by and large served humanity well for the past 500 years [1] from it’s origins with Italian and German proto-bankers of the 14th and 15th centuries. It has taken many forms and names, such as monarchism,imperialism, mercantilism and capitalism, all of which represent incremental improvements in the social efficiency of production, but which are all based on the same fundamental world-system.

The world-system of debt-money is stable only when the money supply (essentially the value of goods and services available at any time, as represented by the volume of the accepted medium of exchange) grows such that it becomes possible to pay back both the principal – the original loan-money issued by the banks – and the interest on it. With a fixed money supply and no (or low), money supply growth the only possible outcome for the debt-money system viewed as a whole would be be a default on the interest owed, or default on a number of loans roughly equal in value to the value of the total interest borne by the money supply, and thus for the systems collapse

How then has the system remained stable? The answer lies in the astonishing productivity growth of the human race over the last half century. This productivity growth has in general been sufficient to sustain this world system for an impressive period of time. In fact productivity growth has been symbiotic with the debt-money system in the sense that the debt borne by society impels it to develop the productivity gains required to fund interest payments on the principal, thereby repaying the original loan and thus facilitating further expansion of credit to fund yet more development.

The key components of productivity growth required to sustain the current world system are technology growth and population growth. Technology growth improves the productivity of each human in general. When the increase in productivity of one man or woman due to technology is multiplied by the increase in population we arrive at the total productivity growth for the economy. As long as this combined increase can generate new economic value sufficient to cover the interest owing on the money supply, the system is both stable and self perpetuating. This has remained the case for a good half century during which technology growth and population growth have both been explosive when compared with earlier epochs of human history. As long as people continue to innovate and procreate, it is reasonable to assume this system will continue to deliver. Unfortunately however, the fundamentals are not encouraging at the start of the 21st century.

Population growth, contrary to popular understanding is actually now declining. This is not to say that the population per-se is shrinking, merely that the rate of positive change is slowing. Recent reports from the UN population division predict that the global population will peak around 2050, after which it will begin a gradual decline, reaching a steady state of around 9 billion in 2300.

As the crucial population element of the productivity growth equation approaches zero, productivity growth can come only from two sources – direct technological innovation, and improvements in how humans organize themselves to produce. If the UN forecasts are in the right ballpark, then in fact a declining population will require that productivity growth from these two sources must not only make up for a lack of positive population growth, but must increase to compensate for a declining population. In all liklihood this heralds a decline in global GDP growth with respect to the last five centuries.

This series of articles will investigate the details behind the population dynamics, and what that means for technology and social organization improvements and ultimately overall growth, followed by a discussion of some likely outcomes of this scenario in terms of a world-system that might be able to adequately serve a prolonged period of low, zero or negative growth. Some of these discussions will touch upon environmental and ecological issues, however these will be tangential to the main argument, since it is possible based on current demographic data to show that population growth is likely to slow and ultimately to decline without significant recourse to ‘environmental limit’ arguments.

In summary, we can return to the definition of the world systems approach as follows:

“Apart of these, Wallerstein defines four temporal features of that. Cyclical rhythms represent the short-term fluctuation of economy, while secular trends mean deeper long run tendencies, such as general economic growth or decline. In the theory the term contradiction means a general controversy in the system, usually concerning some short-run vs. long run trade-offs. For example the problem of underconsumption, wherein the drive-down of wages increases the profit for the capitalists on the short-run, but considering the long run, the decreasing of wages may have a crucially harmful effect by reducing the demand for the product. The last temporal feature is the crisis: a crisis occurs, if a constellation of circumstances brings about the losing of the system’s structure, which also means the end of the system.”

Cyclical rythms we are already familiar with in terms of business cycles or even kondratiev waves. Secular trends we can see in the form of 500 years of population growth. Contradictions we can see in the form of both business cycles and in the debate over the environmental commons, and crisis we can see as the coming end of the debt-money, growth based paradigm primarily as a result of population growth fall-off and secondly as a result of human population approaching and exceeding the social carrying capacity of the environment.

In the next article, we begin with the crisis – the likely demographic trends over the next few centuries.

[1: Footnote] 500 years is only moderately impressive in historical terms – the Roman, Imperial Chinese and Byzantine empires lasted considerably longer.