Friday, May 7, 2010

Decline and Fall of Civilizations

John Michael Greer in The Twilight of Money explains why civilizations fail:

The further you get from the concrete realities, the larger the chance becomes that the concrete realities may not actually be there when needed. History is littered with the corpses of regimes that let their power become so abstract that they could no longer counter a challenge on the fundamental level of raw violence; it's been said of Chinese history, and could be said of any other civilization, that its basic rhythm is the tramp of hobnailed boots going up stairs, followed by the whisper of silk slippers going back down. In the same way, economic abstractions keep functioning only so long as actual goods and services exist to be bought and sold, and it's only in the pipe dreams of economists that the abstractions guarantee the presence of the goods and services. Vico argued that this trap is a central driving force behind the decline and fall of civilizations; the movement toward abstraction goes so far that the concrete realities are neglected. In the end the realities trickle away unnoticed, until a shock of some kind strikes the tower of abstractions built atop the void the realities once filled, and the whole structure tumbles to the ground.

We are uncomfortably close to such a possibility just now, especially in our economic affairs. Over the last century, with the assistance of the economic hypercomplexity made possible by fossil fuels, the world's industrial nations have taken the process of economic abstraction further than any previous civilization. On top of the usual levels of abstraction -- a commodity used to measure value (gold), receipts that could be exchanged for that commodity (paper money), and promises to pay the receipts (checks and other financial paper) -- contemporary societies have built an extraordinary pyramid of additional abstractions. Unlike the pyramids of Egypt, furthermore, this one has its narrow end on the ground, in the realm of actual goods and services, and widens as it goes up.

The consequence of all this pyramid building is that there are not enough goods and services on Earth to equal, at current prices, more than a small percentage of the face value of stocks, bonds, derivatives, and other fiscal exotica now in circulation. The vast majority of economic activity in today's world consists purely of exchanges among these representations of representations of representations of wealth. This is why the real economy of goods and services can go into a freefall like the one now under way, without having more than a modest impact so far on an increasingly hallucinatory economy of fiscal abstractions.

Yet an impact it will have, if the freefall proceeds far enough. This is Vico's point, and it's a possibility that has been taken far too lightly both by the political classes of today's industrial societies and by their critics on either end of the political spectrum. An economy of hallucinated wealth depends utterly on the willingness of all participants to pretend that the hallucinations have real value. When that willingness slackens, the pretense can evaporate in record time. This is how financial bubbles turn into financial panics: the collective fantasy of value that surrounds tulip bulbs, or stocks, or suburban tract housing, or any other speculative vehicle, dissolves into a mad rush for the exits. That rush has been peaceful to date; but it need not always be.

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