CAPITALISM AND PERPETUAL GROWTH A DOCTORAL … · measured by the Gini Coefficient, put the U.S. right below Rome’s inequality at its peak (Yates, 2012). Empirical research points

CAPITALISM AND & SUSTAINABILITY 1

CAPITALISM AND PERPETUAL GROWTH

IN A FINITE ENVIRONMENT:

by

Dennis Thomas

A DOCTORAL CAPSTONE PROJECT

submitted to the faculty of

CALIFORNIA INTERCONTINENTAL UNIVERSITY

in partial fulfillment of the requirements

for the degree of

PROFESSIONAL DOCTORATE OF BUSINESS ADMINISTRATION

in

Global Business and Leadership

Diamond Bar, California

May, 2013


CAPITALISM AND PERPETUAL GROWTH

IN A FINITE ENVIRONMENT:

by

Dennis Thomas

A DOCTORAL CAPSTONE PROJECT

accepted and approved by

The Graduate Review Committee (GRC)

on

May 30, 2013

Donald Amoroso, Ph.D., Chair

Kenneth Phillips, Ed.D., Committee Member

Amarjit Singh, Ph.D., Committee Member

Dr. Donald Amoroso

Dr. Kenneth Phillips

Dr. Amarjit Singh

Troy Roland, Ed.D.,

Chief Academic Officer

California InterContinental University


Dedication

This project is dedicated to my son Mason, my wife Marla, and my family and friends

who have helped shape me into who I am today. It is also dedicated to humanity as a whole as I

feel that a great awakening is needed before we damage the delicate and needed balance that is

the precursor to life. It is through my experiences, education, and open-mindedness that I am

able to bring forth this knowledge and hopefully enlighten others on this dangerous path we are

headed. While the message may be completely opposite of what our parents taught us, and

society promotes, we needn’t be bound by herd mentality and should embrace God’s greatest gift

of free will. I love all of you and thank you for your support and life lessons you have provided.


Abstract

This paper looks at the overall sustainability of Capitalism in terms of Financialization,

ecological breakdown, and social inequality of humanity. Past macroeconomic successes of

Keynesian economics and Monetarism are used to gain an understanding of how policymakers

have turned Capitalism from production of goods and services into Financialization. Because of

this large move into Financialization, Capitalism has become a grow-or-die economic system

through deficit spending and debt, risk concentration, and over-leverage within the financial

industry. Ecological Economics is then used to detail the economy into 3 layers consisting of:

finance, the real economy, and Earth’s natural resources and their exhaustion rates. A research

model is brought forth that posits that the 3rd

layer of the economy, Earth’s natural resources, is

finite by nature and has a limited capacity to support our rapacious appetite for growth and

consumption. This constraint creates a paradox as Capitalism’s pursuit of unlimited growth

cannot ultimately be achieved. The paper then argues that due to this physical constraint and our

economic pursuit of unlimited growth, unintended outputs are being observed through social

inequalities and environmental degradation. A theme is presented throughout the paper that

underlines the importance for humanity to see nature and the environment as essential for life

versus commodities to be used for short-term economic interests. Until this existing paradigm of

the environment being a subsystem of the economy is broken and actually reversed, our species

will face catastrophic consequences sometime in the future. Recommendations for our current

situation are given and presented as a movement towards sustainability and de-growth.

However, such recommendations will not work under the current form of Capitalism. The

research states that the only way change towards sustainability will occur is through a crisis,

which creates the necessities for change.


Table of Contents

LIST OF FIGURES AND TABLES ............................................................................................ 6

INTRODUCTION: PERPETUAL GROWTH IN A FINITE ENVIRONMENT .......................... 7

A REVIEW OF THE LITERATURE....................................................................................... 18

FINANCIALIZATION OF CAPITALISM ..................................................................................................................... 19

EMPLOYMENT AND REAL ECONOMIC GROWTH ................................................................................................... 37

CAPITALISM AND SUSTAINABILITY ........................................................................................................................ 39

ECOLOGICAL ECONOMICS ..................................................................................................................................... 43

THEORETICAL FRAMEWORK ............................................................................................ 61

MACROECONOMIC POLICY .................................................................................................................................... 63

FINANCIAL LAYER .................................................................................................................................................. 64

REAL LAYER ........................................................................................................................................................... 66

REAL-REAL LAYER ................................................................................................................................................ 69

ENVIRONMENTAL & SOCIAL OUTCOMES .............................................................................................................. 70

RESEARCH MODEL ................................................................................................................ 73

ASSUMPTIONS .......................................................................................................................... 75

LIMITATIONS ........................................................................................................................... 75

DATA COLLECTION METHOD ............................................................................................ 77

ANALYSIS METHOD ............................................................................................................... 79

DATA ANALYSIS ...................................................................................................................................................... 82

RESEARCH QUESTIONS ........................................................................................................ 85

DEFINITION OF TERMS ......................................................................................................... 87

SUMMARY AND TRANSITION ............................................................................................. 89

RESULTS & DISCUSSION....................................................................................................... 91

CONCLUSION & RECOMMENDATIONS ........................................................................... 95

REFERENCES ............................................................................................................................. 99

APPENDICES ........................................................................................................................... 105


List of Figures and Tables

Figure 1 - Global Suicide Rates .................................................................................................... 13

Figure 2 - Price Index of Tulips .................................................................................................... 19

Figure 3 - Finance as % of GDP ................................................................................................... 20

Figure 4 - Total Firms & Total Assets of Banks ........................................................................... 21

Figure 5 - U.S. Public Debt 1910 to 2010..................................................................................... 28

Figure 6 - U.S. GDP Calculated w/ Debt ...................................................................................... 34

Figure 7 - Effects of Unlimited Growth ........................................................................................ 39

Figure 8 - Carbon Dioxide Emissions ........................................................................................... 48

Figure 9 – Productivity (GDP) vs. Median Income ...................................................................... 57

Figure 10 - Income Inequality ....................................................................................................... 58

Figure 11 - U.S. Food Stamp Usage Since 1970 .......................................................................... 59

Figure 12 – U.S. Currency in Circulation ..................................................................................... 65

Figure 13 - U.S. Federal Debt-to-GDP ......................................................................................... 67

Figure 14 - Theoretical Framework Variables .............................................................................. 72

Figure 15 - Research Model .......................................................................................................... 73

Figure 16 - Data Collection........................................................................................................... 78

Figure 17 - Theme and Code Development .................................................................................. 79

Figure 18 - Data Matrix A ............................................................................................................ 81

Figure 19 – Word Cloud ............................................................................................................... 82

Figure 20 - Americans Living in Poverty ................................................................................... 105

Figure 21 - Data Matrix B ........................................................................................................... 112


“The world will not be destroyed by those who do evil, but by those who watch them without

doing anything” – Albert Einstein

“We are crossing boundaries we cannot see and violating deadlines we do not recognize. Nature

is the timekeeper” - Lester Brown

Introduction: Perpetual Growth in a Finite Environment

Kovel (2007) states, “Growing numbers of people are beginning to realize that

Capitalism is the uncontrollable force driving our ecological crisis, only to become frozen in

their tracks by the awesome implications of this insight” (p. xi). To Kovel’s point, a renewed

focus has been placed on our monetary and macroeconomic policies as they relate to Capitalism

and economic growth due to the Great Recession. Central banks and governments have all been

actively engaged in economic stimulus to help prop up a failing financial system, avoid deflation,

and try to kick-start the ‘real’ economy (Thorne, 2010). The thought behind such aggressive

policies can be traced back to Keynesian economics and its debated successes after World War II

when heavy deficit spending was attributed with bringing the U.S. out of the Great Depression

(Pressman, 2009). Successes such as this were attributed to Keynesian economics. They laid the

groundwork for a deficit spending society and the use of Financialization to soften economic

downturns with liquidity stimulus and accommodative monetary policies. However, society now

faces the scars of staggering debts left by these policies and a growing financial layer of the

economy in which some have given the moniker ‘too big to fail’. Moreover, we are beginning to

witness unintended consequences of such a growth at any cost economy through adverse

implications to our environment and social well-being. As such, some economists are beginning

to question the legitimacy and sustainability of a ‘growth-or-die’ Capitalistic economy (J. B.

Foster, 2011a). This research seeks to provide a roadmap through past macroeconomic policy

and the Financialization of Capitalism since circa 1970. The research looks at the impact


Financialization has had through the lens of degradation to the environment and social well-

being of humanity. The research assumes that the Earth’s levels of natural resources are finite in

nature and cannot fully be replaced with substitution. The research also assumes that renewable

resources are becoming non-renewable because of an ‘overshoot’ of usage leading to depletion.

The Financialization of Capitalism began with the ideas of John Maynard Keynes and his

argument that some depressions were too severe to let consumer demand adjust itself and it

needed to be artificially stimulated by government through deficit spending (Keynes, 1936).

Keynes was a believer in the ability of central authorities to deliberately control macroeconomic

forces to bring about full employment (Thorne, 2010). Keynes believed that deficit spending

would increase overall consumer demand which in turn would increase jobs and lower

unemployment. But, it wasn’t until the early 1970’s when then U.S. President Richard Nixon

removed the peg of the U.S. Dollar to gold that opened the door to unprecedented deficit

spending via fiat currency. Fiat currency allows governments and central banks to boost

spending and ignore prior constraints against the over-issue of currency thus increasing the

potency of Financialization (Dowd et al., 2012). Ironically, throughout history these types of

systems have always failed and have been mostly used by governments to finance wars and

expenditures (Dowdy et al, 2012). Due to slowing secular growth since the 1970’s, Capitalism

has changed from its original form of production of real goods and services into Financialization

where growth is centered on finance and financial instruments such as: interest rates, stimulus,

options, futures, and derivatives (Foster, 2010). Whereas real economic growth in the economy

has all but stopped, monetary officials have supplemented the lack of growth with continued

credit expansion through stimulus injections into the financial layer of the economy to inflate

asset prices.


The troubling effect of such growth based policies, as pointed out by Ecological

Economists, is that growth in the financial sector of an economy must also coincide with growth

in the real economy or asset prices will again deflate due to lack of demand (Kallis, Martinez-

Alier & Norgaard, 2009). The lack of demand then creates a vicious circle in which

governments and central banks are forced to re-inflate assets through monetary injections or face

defaults on loans because of decreasing asset prices (Kallis et al., 2009). Most importantly, if

real growth in the economy were to occur, the amount of growth needed to balance out the

enlarged financial layer would place extreme stress on ecological and environmental resources

(Kallis et al., 2009). A sobering fact out of all of the increased deficit spending is that it becomes

less and less effective as a country’s debt level increases (Reinhart & Rogoff, 2010). Given the

already high debt levels of developed economies, these same monetary policies which were once

very successful at bringing down unemployment, are having less of an effect on employment and

demand while having a larger impact on social and environmental degradation.

Research and frameworks put forth by Ecological Economists (EE) point to a direct

relationship between the amount of economic growth and the degradation of the environment

through pollution, carbon levels, species extinction, and the ever increasing social well-being of

cultures (Rull, 2011). Contrary to Capitalists, Ecological Economists place the economy as a

subsystem of the environment. EE see the environment differently from its current Capitalistic

form where nature is viewed as a commodity which is to be exploited to the benefit of mankind.

Also, Capitalism doesn’t account for environmental and social well-being and are completely

ignored or unaccounted for through popular economic measures such as GDP. Further, EE argue

that Capitalism discounts the future liabilities of environmental damage by market pricing

practices, accounting methods, and completely ignores the biophysical element of humanity


(Mason, 2010). Leading scientists have already proposed nine planetary boundaries which mark

safe operating levels for the planet. Three of these boundaries (climate change, biodiversity, and

nitrogen cycle) have already been crossed while several more like fresh water and ocean

acidification are in danger of being crossed (Foster, 2011). These same scientists point to human

activities as the main driver for crossing over these thresholds and implore that immediate

change is necessary in order not to further damage the environment.

Income inequality is at an all-time high in the United States. Income inequality levels,

measured by the Gini Coefficient, put the U.S. right below Rome’s inequality at its peak (Yates,

2012). Empirical research points to disturbing trends when income inequality rises to such

levels. When inequality rates rise, so do unemployment rates, mental illness, government

assistance, incarcerations, and other measures detrimental to society (Yates, 2012). Also, when

income inequality is at its highest levels, consumer spending decreases as the masses don’t have

the capital to buy goods and services. This puts even more pressure on the financial layer to

support asset prices as consumer demand is weak.

Promotion of an economic system pursuant to unlimited growth within a finite level of

natural resources is now causing unintended consequences being seen in the environment and

social inequality of all. Whilst the so called smartest species on Earth continues to try to find

new ways to increase growth out of a planet which has proven to be finite in resources, we have

to pull into question the far reaching consequences of Capitalism and be cognizant of the long-

term prospects and well-being of our own species. Before one quickly dismisses the theory

brought forth by this paper through cognitive dissonance and rationalization1, please keep in

mind that this same rationalization (for many) is driven from what was taught throughout school,

1 See Festinger, L. (1957). A theory of cognitive dissonance. Stanford, CA: Stanford University Press.


shown in the media, and presented by our large corporations which all see economic growth as

the answer. However, as the current population of the world is well over 7 billion people, maybe

it’s time to re-evaluate if perpetual growth is possible within a finite environment without

catastrophic consequences for all.

This study outlined the impact of the Financialization on Capitalism and its overall

sustainability in regards to the environment and well-being of humanity. The socioeconomic

significance of the study was twofold. These were (a) the lack of sustainability of an ever

growing financial layer of the economy and (b) the social and environmental effects of continued

economic expansion under the Financialization of Capitalism. The twofold path of significance

offered insights affecting government, cultures, central banks, and every single person living in

this world.

Background of the Study

There are many scholarly articles and journals written on Capitalism, Sustainability,

Monetary Policy, Ecological Economics, and the seemingly never-ending debt spiral in which a

large number of countries are stuck. As a result, many theories have become increasingly

refined to give greater insight into each of the aforementioned areas. This research seeks to take

existing data and apply it to a 3-layer model of the economy brought forth by Kallis et al. (2009)

consisting of the financial, real, and real-real economies which all relate to and interact with one

another. The study argues that due to a finite constraint on the 3rd level of the economy, the

unlimited economic growth many economies are seeking is not possible. Continued economic

expansion will cause pollution to increase beyond what the Earth can absorb and in doing so will

deplete needed natural resources (Magdoff & Foster, 2010). As such, the use of Financialization


since the 1970’s to continue to try to economically expand can be observed as outputs seen

through the degradation of the environment and the social inequality of cultures. The ideas put

forth identify an unsustainable economic financial system while shedding light on why such

monetary policy and grow-or-die strategies can never be prolonged without extreme damage to

our environment and well-being.

The research relies on post World War II data where M. Wrenn et al. (2008) cite the

beginnings of our first financial crisis in 1971, after World War II ended, when Keynesian based

state funded deficit spending helped to bring down unemployment. The efficacy of the state

based funding to bring down unemployment post World War II solidified the use of

Financialization during economic downturns in the minds of politicians and monetary

policymakers. Although the World War II era was a recent example, G. Selgin (2010) outlines

that Financialization, specifically central and public banks have been used since the 1600’s for

wars and government expenditures so it should be no surprise we are seeing this today through

monetary policy. The increased deficit spending has created a misallocation of capital as

artificial demand is created and an imbalance lies between the real economy and financial

economy (J. Ghosh, 2010). C. Mason (2010) sees this imbalance only continuing to get larger as

there is a systematic link between money and growth which needs to be broken in order for the

economy to be freed from the need to expand or face collapse. By limiting the power that

governments and central banks have over a debt based society, the market will be able to

properly function and ensure prices fully reflect supply and demand. Without breaking the link

between money and growth, the continued growth of the financial economy will outstrip all real

economy growth as well as the natural resources required to fuel that growth (Mason, 2010).


Until this link is broken, Financialization through the use of exotic financial instruments will be

the only thing that can prop up our financial system (Thorne, 2010).

Unlimited growth, the central tenet of Capitalism, is incompatible with a finite set of

resources (Rull, 2011). Still, policymakers refuse to see the natural constraints inherent in our

world by continued use of Keynesian macroeconomics in hopes of igniting worldwide growth.

If the rampant economic growth is ever achieved to help bring down our massive deficits,

Ecological Economists contend that it will be impossible for growth in the real economy to

catch-up with the financial growth that has occurred without massive environmental damage

(Daly, 2008). Such a trajectory

for catastrophe can already be

measured in the crises of the

ever increasing rate of species

extinction, depletion of ocean

bounty, deforestation, pollution,

clean water shortages, soil

degradation, and a worldwide

food shortage (J.B. Bellamy et

al., 2008). Prior to

Financialization, Karl Marx, a

German economist and philosopher, identified human interaction with the environment as the

main cause of ecological crises in the 1900’s. Wake & Vredenburg (2008) contend that we may

already be setting the stage for the 6th

great mass extinction due to human interaction with the

environment. Futher, Rockstrom et al. (2009) see humanity as having already crossed 3 out of 9

Figure 1 - Global Suicide Rates

Source: World Health Organization


critical planetary boundaries needed for existence. Ecological Economists and scientists feel that

Capitalism, with its focus on expansion of profits, sees nature as a servant to humans and refuses

to see the dependence of humanity on nature (Foster, 2001).

The social impact of Capitalism has also not been as some may think. Increased growth,

through Capitalism, has come at increased social divide, inequality, and poor public health

(Victor, 2010). Where many developed economies will argue that increased GDP, GNP, or other

economic indicators shows a higher quality of life or happiness, data tells a different story.

Empirical data points to increased levels of incarceration, mental illness, inequality, and

unemployment where income inequality levels are highest (Yates, 2004). This would project

that many of the developed countries with the highest levels of income inequality, actually

experience the lowest levels of happiness. In poorer countries, developed economies often

deplete natural resources and diminish the ecological balance which in turn leaves little chance

for these economies develop in the future (Victor, 2010). As noted by the World Health

Organization (WHO), suicides on a worldwide basis per 100,000 have continually risen since

1950; and this rate doesn’t include attempted suicides which have also risen.

This study assessed research done on the Financialization of Capitalism and its overall

sustainability in connection with a finite environment of natural resources. The findings uncover

many environmental and social concerns for the long-term prospects of humanity while also

detailing how Capitalism has become a grow-or-die system through the use of debt, risk,

leverage, and unpaid costs. The research of the study focused on post World War II into current

day and analyzed the effects a credit driven, perpetual growth society has had on the well-being

of humanity and its environment. This research also analyzed data which posited that a perpetual

growth economy is not sustainable over the long-term in an environment of finite resources.


Problem Statement

Capitalism is being fueled by deficit spending & aggressive monetary policy to further

growth while environment degradation and social inequality are continuing rise. Because of this,

many scientists are beginning to question the sustainability of a grow-or-die framework. Despite

natural resource and environmental constraints, increased stimulus and aggressive monetary

policy have been used to promote more economic growth versus a fiscally sound and sustainable

balanced economic approach. While Keynesian based economists feel that such deficit spending

and stimulus are necessary to increase growth, Mason (2010) explored concerns about how

Keynesian economics replaced currency with intrinsic value with paper based assets that has

given banks the ability to create phantom wealth bubbles representing nothing more than digital

data in computer systems. By digitizing paper assets, governments and central banks are free to

inflate asset prices, money supply, and financial growth prior to any real growth in the economy.

Furthermore, the influx of Keynesian inspired deficit spending is the only thing that is propping

up our ailing financial system (Thorne, 2010). Through these same deficit spending policies,

debt levels of the public and private sectors have rapidly increased which is nothing more than

trying to inflate away debt while ignoring the ecological and social impact (Lamberton, 2005). J.

Gowdy (2007) summarizes our economic model of growth and consumption as a system of

radical individualism and insatiable wants which have been embedded in our belief system for

hundreds of years – the destruction already done can be seen in damaged ecosystems, species

extinction, and loss of renewable resources. This type of economic mindset leads to permanent

damage to our environment and the well being of our species (Holt, 2005). If their findings are

correct, then our current infinite growth policies need to account for sustainability and a balance


between growth, ecological, and social well-being before irreversible damage is done to our

planet.

This study addressed current literature while presenting the implications of the

Financialization of Capitalism on the environment and well being of humanity. In this study I

sought to add to a gap in existing knowledge by creating a framework which demonstrated how

short-term economic growth policies through Financialization are creating long-term problems

seen in the environment and social inequality of many.

Purpose of the Study

The purpose of this qualitative, descriptive research study is to analyze the impact of the

Financialization of Capitalism and its effects on humanity’s ecological and social well being.

The secondary purpose of this study will be to educate readers on past monetary policy, its

origins, and how past successes have given way to future failures. The future failures, the

research contends, is the unsustainable nature of a perpetual growth economic system. Data will

be obtained through scholarly journals, peer reviewed articles, and books in an effort to combine

existing knowledge into a more complete understanding of what problems we face ahead if

policies aren’t reformed. Relevant findings were managed through electronic storage and

archiving using Microsoft Excel and Word.

Nature of the Study

The nature of the study involved peer-reviewed research, articles, books, and journals

detailing some of the known facts on current monetary policy, Financialization, Ecological

Economics, Capitalism, Sustainability, and their combined effects on the long-term sustainability

of our species and financial system. The explanations presented will provide researchers a


comprehensive view covering how current macroeconomic practices are jeopardizing the

prospects of a sustained quality of living for future generations. In turn, the theories may help to

shed new light on the urgency of such matters and pull into focus what mistakes we have made

in the past, ones we are currently making, and what we can do to correct them. This study

offered a catalyst to help enlighten, motivate, and bring a call to action for a change of mindset

for all of humanity.

Significance of the Study

The socioeconomic significance of the study was twofold. These were (a) the lack of

sustainability of an ever growing financial layer of the economy and (b) the long-term social and

environmental effects of continued economic expansion under the Financialization of

Capitalism. The twofold path of significance offered insights affecting government, central

banks, and every single person living in this world.

The study could contribute to the overall awareness of the harsh consequences that lie

ahead if change isn’t implemented. However, I feel that it will take a catastrophe for many to

wake up from the chosen ignorance of our environment being a servant to humanity versus

humanity being reliant on its environment.

Research Questions

The research questions that guided this study were:

Question 1: What impact does the Financialization of Capitalism have on the

environment and social well-being of humanity?

Question 2: What are the implications of a perpetual growth based economy?


A Review of the Literature

In a journal article titled Does History Repeat? The Multiple faces of Keynesianism,

Monetarism, and the Global Financial Crisis, K. Thorne (2010) believes that Capitalism has

evolved into the ‘dephysicalized’ reemergence of interventionism. Whereas in the past growth

came from physical goods and services, Thorne described how this has shifted to digital assets in

which the financial sector has grown to over 40% of GDP by 2007. Under this model, to further

growth, Capitalism has become the tinkering of Keynesian policy to artificially increase demand

and ignore the supply side of the equation. Because of the recent financial crisis, governments

and central banks around the world have been actively engaged in Keynesian economic policy to

spur growth and demand in an otherwise deleveraging global environment. However, many

economists believe that there is a relationship between the amount of economical growth and the

amount of ecological damage we do to our environment2. If we are to provide a framework for

sustainable living for future generations, we must find a balance between over consumption and

sustainability of the Earth’s natural resources. When taken in this perspective, Capitalism and its

grow-or-die mantra is not a sustainable for the longevity of resources and our species. This

paper investigates the effects of the Financialization of Capitalism and their impact on long-term

sustainability of our species. Moreover, this paper will seek to tie together the current research

of Financialization and Ecological Economics into how they act upon each other to focus on

short-term satisfaction while ignoring long-term implications and prospects for sustainability as a

species. To best explore the Financialization of Capitalism, a select set of literature has been

selected based on its relevance and support of the following questions:

2 For instance, see J. Bellamy “Capitalism and Degrowth – An Impossible Theorem”, 2011 for current social and

environmental damage.


1. What impact does the Financialization of Capitalism have on the environment and

social well-being of humanity?

2. What are the implications of a perpetual growth based economy?

Searching the Library and Information Resource Network (LIRN) utilizing the ProQuest and

InfoTrac databases, many authors have published articles in journals and books about the need

for sustainable economic policy. Additionally, there are scholarly articles relating to the

implications of Ecological Economics and over consumption as it pertains to the environment

and the social and cultural fabric of society. A quick search on the internet finds many blogs

criticizing neoliberal or Financial Capitalism and its detrimental effects on society. While these

articles found on blogs aren’t peer-reviewed, the newly found popularity of this subject has

helped increase awareness. Nevertheless, the literature review presented will focus on

information and data from peer-reviewed scholarly articles, journals, and books in an effort to

continue to raise awareness about the unsustainable economic policies of the Financialization of

Capitalism.

Financialization of Capitalism

In the search for a definition for

Capitalism, it is good to understand where

Capitalism originated. Many believe Capitalism

found its beginnings in Amsterdam in 1636-1637

in what was called tulip mania3. Recently

introduced tulips caused a mania which created a

3 See for instance P.M. Garber “Famous First Bubbles: The Fundamentals of Early Manias”, 2000 for the

beginnings of Capitalism.

Figure 2 - Price Index of Tulips

(Kinleberger & Aliber, 2005)


spike in price and eventually a collapse. Tulip mania is considered the first economic bubble and

is often compared to the boom-bust economic cycle of Capitalism (Kindleberger & Aliber,

2005). This brought about an influence of Anglo-Saxon mentality which rapidly spread across

Europe and eventually into America. This research focuses on Post World War II and how

Capitalism was shaped by the work of a British economist by the name of John Maynard

Keynes. The research begins by looking at how past monetary policy has shaped the face of

Capitalism since the 1970’s. Next, the research then shows how Capitalism has been taken over

by Financialization through the finance industry and deregulation. This has led to growth in debt

both by the public and private sectors and a system built on leverage and risk. Further, it has

also placed an exorbitant amount of investment within the financial layer of the economy.

However, all the growth through Financialization has not come without consequences. A natural

resource constraint within the 3rd

level of the economy has caused adverse outputs when

unlimited growth is pursued. Because of this constraint, the research then shows outputs as

unintended consequences produced from

grow-or-die policies inherent in Capitalism.

Since the 1970’s, secular growth has

slowed causing those in power to seek other

ways to grow economies (Bellamy, 2010).

Because of this, the U.S. saw a major shift

towards Financialization in which economic

growth shifted towards finance and the

growth of financial instruments such as:

insurance, stocks, options, futures, and

Figure 3 - Finance as % of GDP

Consult (Philippon, 2008)


derivatives versus real production of goods and services (Foster, 2010). As referenced by Figure

3, Finance has become a major source of growth for the U.S. when viewed through the lens of

GDP. While the rise of finance can be argued to be a good thing for jobs in finance, banking,

and insurance, the statistic becomes less rosy when monetary policy, financial leverage, debt,

and risk consolidation are taken into account.

Financialization. The economic crisis of the 70’s was the first time in which traditional

Capitalism made up of real production was challenged as stagflation had taken over the United

States in the form of high

inflation and slow or non-

existent economic growth.

Scholars see this period as

the first failure of Keynesian

theory and set the stage for

deregulation and the shift of

the U.S. economy towards

finance versus real

production (Tomaskovic-

Devey, 2011). The 1970’s saw an explosion of oil prices which increased costs for

manufacturers and transportation. Simultaneously, unions were gaining more momentum which

shifted the power from the corporation to the worker and the consumer. Further, production and

manufacturing increases out of Europe and Japan slowed growth in the United States.4 This slow

growth occurring in the U.S. led to decreased profits for banks. Paul Volker, Chairman of the

4 For instance, see Harvey “A Brief History of Neoliberalism” 2005.

Figure 4 - Total Firms & Total Assets of Banks

Consult (Tomaskovic-Devey & Lin, 2011)


Federal Reserve, introduced a series of rapid interest rate hikes which helped attract foreign

investment capital to the U.S. markets (Epstein and Jayadev, 2005). Ronald Reagan also used

heavy deficit spending to spur growth which created a rich and fertile opportunity for foreign

investment. The U.S. saw a continuous stream of capital to feed its now growing debt-based

consumption by consumers, corporations and the government (Krippner, 2011). This steady

stream of capital helped to feed the Financialization of the U.S. economy.

With capital inflows already soaring, in 1980 Congress repealed regulations on the

banking industries imposed by the Glass-Steagall Act of 1933. Glass-Steagall sought to provide

oversight to the financial sector by preventing too much concentration within the financial

industry and reduce investment speculation. By repealing this act, banks were now allowed to

merge, interest rate caps were removed, and financial institutions were allowed to expand their

business models into other financial activities. With the deregulation of the financial industry,

banks introduced fees and other financial instruments to absorb the increased investment flows

from investors and diverted household savings into financial markets (Davis, 2009). More and

more individuals and corporations were beginning to invest in financial markets versus

productive assets due to the quick return on investment.

The period of 1980-1990’s saw decreased oversight and almost a reinforcement of

Financialization. The Federal Reserve and the Securities and Exchange Commission (SEC)

resorted to encouraging the creation of new financial instruments and actually pulled back from

their regulatory roles (Fligstein & Goldstein, 2010). Once strictly prohibited, these regulators

ignored combining activities such as: insurance, banking, and investments under one firm

(Tomaskovic-Devey, 2011). Pushing Financialization further, Congress passed the Financial

Services Modernization Act of 1999. By doing so, Congress essentially repealed the last


standing barrier for investment banks, commercial banks, and insurance companies to merge

operations (Tomaskovic-Devey, 2011). The deregulation caused a large concentration of assets,

in other words risk, which helped to lead to the ultimate collapse in 2008 (Guillen & Suarez,

2010). With no regulation standing in their way, a single firm could offer family banking,

investments, and insurance all from within the same company. To further enhance the profits

banks could receive from trading, the Commodity Futures Modernization act of 2000

deregulated commodity trading in the U.S. and allowed any investment firm unlimited positions

in commodities. This saw derivative contracts go from $5.58 trillion to over $12.39 trillion in

2008 (Ghosh, 2010). Evidence of concentration of risk can be seen in Figure 4, which shows the

total number of commercial banks and their total assets. The sharp decrease in institutions and

the sharp increase in total assets can be seen starting in the 1980’s. Reduced regulatory oversight

encouraged risk taking as increased return could be generated through financial investment over

capital investment for many corporations and individuals. This led to even more capital inflows

which financial institutions used to create financial instruments that profited from increased risk

such as: variable mortgages, default swaps, and derivatives (Harvey, 2010).

With increased returns being made possible through finance, corporations started to

invest more in finance than in new productive capital and innovation (Tomaskovic-Devey,

2011). These actions were further reinforced as top executive pay in many non-financial sectors

began to be pegged to stock price versus sales or production. Such short-term managerial focus

could be seen through the average length of stock ownership which decreased from 5 years to 1

year from 1980 to 2002 (Crotty, 2005). Instead of investing in innovation and production, total

investments of non-financial firms in financial instruments raised from 28% in 1980 to 50% by

2000 (Davis, 2009). This large shift in investment had a negative effect on capital investment by


firms which can be assumed caused a negative impact on productive assets (Tomaskovic-Devey,

2011). By the year 2008, the U.S. accounted for 43% of all capital imports (Guillen and Suarez,

2010).

The amount of Financialization which has occurred in the United States and Western

economies has shifted the primary role of banks lending to become investment and trading

businesses. For example, the six largest bank holding companies generated 74% of their pretax

income from trading (Wilmers, 2011). Additionally, financial sector pay is 60% higher than the

rest of the economy. The top six bank executives were paid 516 times the U.S. median

household income and 2.3 times the average total CEO compensation of Fortune 500 nonbank

companies (Dowd et al., 2012). Such distortion has caused a transfer of $5.8 to $6.6 trillion

dollars to the financial sector from 1980-2008 (Tomaskovic-Devey, 2011). To mask the overly

leveraged financial layer, current accounting standards of the General Accepted Accounting

Practices (GAAP) allows banks to use mark-to-market and mark-to-model valuations. This

allows banks to dictate what they deem to be future profits from investments and realize the

gains into current profits with disregard to current market pricing (Dowd et al., 2012).

Emboldened by these accounting measures and backstopped by the central banks of the world

through TARP, QE, LTRO, and other monetization of debt, banks are rewarded to take excessive

risks to try to make a quick profit with disregard to future implications. Before the Keynesian

era, less than 20% of U.S. corporate profit came from the financial sector. By 2007, almost 40%

of corporate profit was coming from the financial sector. In the Keynesian era, U.S. salaries in

the financial and non-financial sectors were more or less equal. By 2007, income earned in the

financial sector was almost double what was earned elsewhere. (Manne, 2010, p. 21).


The financial layer of the economy has become so large that instruments exist which

actually pay on credit events such as downgrades or defaults. Credit default swaps (CDS) have

enabled large banks such as Goldman Sachs to profit from others losing their jobs. In the case of

YRC, a trucking firm with over 30,000 truck drivers, Goldman Sachs would have profited more

from the company going bankrupt versus refinancing 1.6 billion in loans (Freeman, 2010). The

mentality of quick short-term reward versus the long-term implications of decisions has become

the essence of Capitalism when applied to business, the environment, and well-being of many.

Employment and real production in the economy will never increase while corporations are

rewarded for replacing human labor with capital and moving jobs overseas (Dowd et al., 2012).

What should come most shocking to many is that the foremost monetary authority, the

U.S. Federal Reserve, has seen a rise in its balance sheet of approximately 330% in 4 years. This

parabolic rise in total assets has created a balance sheet leveraged over 54 times to 1. What this

means is that for every $1 the Fed has in capital, the Fed has purchased $54 in assets. If these

assets were to lose 1-2% in value, the fed is technically insolvent. Startlingly enough, this is a

higher ratio than that of Bear Stearns, Lehman Brothers, or Fannie Mae when they went

bankrupt. By today’s standards, the Federal Reserve, absent of printing money, is insolvent.

Furthermore, the Fed is backed by a U.S. Government which by some measures owes over $200

trillion in unfunded and future obligations which include: student loans, Fannie Mae, Social

Security, Medicaid, and Medicare; in other words 15 times the current national debt (Dowd et

al., 2012). The parody should become clear that both the Federal Reserve and the U.S.

government are both insolvent which makes the entire financial system insolvent. Such

hegemonic systems and entities can never last indefinitely (Dowd et al., 2012).


Since the Financialization of Capitalism started in the 1970’s, the increase in the amount

of debt held by private and public entities has grown exponentially. One could question if any

real growth actually occurred when taken into the context of such large growth in debt. In the

1950’s, German-American Economist William Kapp described Capitalism as a system of unpaid

costs. This statement couldn’t be more applicable than it is today. While the Congressional

Budget Office (CBO) sees U.S. debt levels to be at a little over $16 trillion, long-term liabilities

exceed over $210 trillion or $580,000 per individual in the U.S. (Dowdy et al., 2012). Such

staggering numbers denote the severity of our unpaid future costs. The growth created through

the Financialization of Capitalism has created a situation where Financialization must continue to

grow to create enough nominal GDP growth or the whole financial system faces total collapse

due to an overleveraged financial layer reliant on perpetual growth in asset prices. By

continuously adding to debt levels for growth, Financialization is placing even more of an onus

on the economy for growth as more and more debt is piled on. This creates a scenario in which

larger amounts of Financialization are needed for growth and thus creates a vicious circle.

However, empirical research from Reinhart and Rogoff cites that once debt-to-GDP ratios

exceed over 90%, growth levels are 1-2% less than in a healthy economy. This fact alone means

that even more debt and Financialization will be needed to spur growth in the real economy to

offset falling asset prices and demand as the U.S. debt-to-GDP ratio has surpassed the 90%

level.

Monetary Policy. Monetary policy post World War II was heavily shaped by John

Maynard Keynes and an American economist named Harry Dexter White. This research focuses

on Keynes and his published economic model calling for increased government deficit spending

to soften recessionary periods and reduce unemployment. J. Keynes (1936) argued that some


depressions were too severe to let consumer demand adjust itself and it needed to be artificially

stimulated by government through deficit spending. Keynes was a believer in the ability of

central authorities to deliberately control macroeconomic forces to bring about full employment

(Thorne, 2010). Keynes’ policies sought to overcome any deficiency in consumer demand by

increasing overall aggregate demand through deficit spending in order to obtain full employment

(Marcuzzo, 2006). Through the use of deficit spending and stimulus, Keynes believed that

governments had the ability to soften economic downturns. Moreover, Keynes believed that the

more freedom governments had to administer stimulus and monetary policy, the less severe

economic downturns would be. It was through this belief, Keynes became a vocal advocate of

abandoning the gold standard and turning all currency into a fiat based system giving

government full control over monetary affairs (Thorne, 2010). Because Keynes had been an

essential part in keeping Britain afloat when Britain battled the Axis powers during World War

II, his word carried weight and he was invited to help design a new monetary system at Bretton

Woods Conference in the early 1940’s. Many cite Keynes as being responsible for the creation

of the International Monetary Fund (IMF) and the World Bank. Both of these entities would

help as economic shock absorbers and look to guide poverty stricken countries into sustainable

development. Keynesian policies were so successful in pulling the U.S. out of the Great

Depression that the Congress passed the Employment Act of 1946 which Bradford (1996b)

describes as introducing the government to the macroeconomic management business.

Keynesianism was born as deficit spending, fiscal and monetary tools were used to reduce times

of high inflation and unemployment.

It wasn’t until the 1960’s when the U.S. went through an economic boom that the

Keynesian mindset became cemented into economics and monetary policy (Clark, 2009).


Keynesian economics and its call for deficit spending was such a success in the U.S. in reducing

unemployment that Time magazine quoted the popular economist Milton Friedman as saying

‘We are all Keynesians now” (1965, p. 21). As worldwide production of goods continued to rise,

Keynesianism kept economic activity high through recessionary periods due to increased

government deficit spending during recessions. Keynesianism fit perfectly with Capitalism as

sustained and continued growth could be made possible by government deficit spending.

During the 1970’s Keynesian policies were called into question. It was during this time

that the U.S. was at war with Vietnam and the Organization of the Petroleum Exporting

Countries cartel (OPEC) formed which dramatically increased living costs and created a period

of stagflation (Faux, 2006). Faux (2006) also contends that it is widely held that stagflation

actually occurred not because of OPEC or Vietnam, but because of President Lyndon Johnson’s

refusal to raise taxes to pay for a war. To remedy this situation, Monetarism was born as

authorities believed tinkering with Keynesian macroeconomics through interest rate adjustments

would supplement lack of fiscal spending and tax policies. L. Mardas (2010) feels as though

officials knew that Keynesian based

monetary tinkering wasn’t going to be

enough to combat stagflation and a more

potent solution was needed as current tools

had failed to keep unemployment and

inflation at acceptable levels. In 1972,

with Nixon seeking reelection, Nixon and

his staff knew that his administration

needed to bring down unemployment and

Figure 5 - U.S. Public Debt 1910 to 2010

Source: St. Louis Fed Gross Public Debt


inflation if he stood a chance at reelection. With the help of John Conally, Secretary of the

Treasury, Nixon abandoned the international gold standard set forth at Bretton Woods and

massively depreciated the dollar and allowed for even more increased deficit spending (Madaras,

1998). As shown in Figure 5, showing gross public debt, it can be argued that Nixon’s un-

pegging of the U.S. Dollar to the international gold standard in 1972 paved the way for

unprecedented deficit spending never seen in the history of the United States. Once the U.S.

Dollar’s peg from gold was removed, it became a completely fiat based currency allowing

unrestrained deficit spending to keep economic growth expanding.

When the Keynesian effect of deficit spending would not produce enough growth for

Capitalism, it was Nixon and his officials who turned to adjusting interest rates and money

supply to encourage more growth. Monetarists sought to replace the deficit spending habits of

Keynesian economics with supply side implications and interest rate adjustments. Monetarism,

made popular by Milton Friedman, was rooted in the belief that there exists a relationship

between the amount of money in circulation and the prices of goods (Best, 2004). Monetarists

felt that a change in the money supply was the main determinant in spending habits and thus the

economy in its entirety (Best, 2004). In other words, by increasing money supply by lowering

interest rates, monetarists felt that they could encourage or temporarily increase consumer

spending which would spur economic growth. Emboldened by the stagflation which beset the

U.S. economy in the 70’s, Monetarism was moved to center stage to offer a prescription to

remedy Keynesian based policy of the past (Thorne, 2010).

Still not enough to create growth and bring down unemployment, it was during the

Reagan era of the late 70’s and early 80’s in which a hybrid approach to monetary policy

emerged. The Reagan era combined Keynesian based government deficit spending and interest


rate adjustments. President Reagan used Keynesian based policies to help save the U.S. auto

industry in 1981 with deficit spending and tax reductions. Also during that same time, Paul

Volker, Chairman of the Federal Reserve, made the largest interest rate adjustments in the

history of the United States to curb high inflation. Paul Volker not only raised interest rates to

the highest they’ve ever been, but tamed a once wild inflation rate to an acceptable 3%-5%

which helped put the U.S. economy back on the path to recovery (Wells & Allan, 2011).

Alan Greenspan, Chairman of the Federal Reserve from 1987 to 2006, tinkered with low

interest rates and stimulus throughout his tenure. Greenspan successfully navigated a small

recession in 1991 and again in 2001 after the dot com bubble burst. Through Greenspan’s record

low interest rates and stimulus, the Chairman achieved one of the largest economic booms in

history and potentially saved the world from financial collapse while also leaving a record

amount of foreign debt and American households with little savings and large debts (Roach,

2005). Others, such as K. Thorne (2010), see Greenspan’s policy as the sole reason for the

housing bubble collapse due to the Greenspan low interest rate ‘put’. Greenspan’s offering of

low interest rates at extended periods extended extremely cheap credit to under qualified buyers.

It was during this time that Greenspan adopted a very loose monetary stance which freed the

housing sector from having to find investment funds from other sectors (Garrison, 2012). With

housing already booming in early 2000’s, it is argued that the fed should have increased interest

rates, but instead lowered interest rates from 2003-2004 (Garrison, 2012). This turbo charging

effect only added fuel to the bubble which eventually collapsed in 2008. While many

economists point to the policies of Greenspan and Ben Bernanke as the cause of the housing

collapse, both deny it was their fault. Lewin P & Ravier A. (2012) felt that upon reading

Greenspan’s book, The Age of Turbulence: Adventures in a New World, the Chairman knew


exactly what he was doing as he understood that loosening credit terms for borrowers increased

financial risk and also distorted market outcomes. Further, Bernanke was so emboldened by his

predecessors successes, that he is noted as saying that the business cycle no longer applied due to

monetary tools available (Krugman, 2009). It seems as though monetary officials, filled with

hubris from historic successes, believed that any and all economic downturns could be easily

navigated with macroeconomic measures. Ironically, it is these same policies which have shaped

and created the environment we find ourselves in today.

Ben Bernanke, the current Chairman of the Federal Reserve, is a noted historian on the

Great Depression and believes that the root cause of the depression was lack of liquidity

(Hummel, 2011). A true Keynesian based economist, it is through Bernanke’s tenure of 2006 to

current date, that the Federal Reserve has increased its balance sheet from 800 billion to roughly

3 trillion in 4 years5. A staggering statistic is that it took the Federal Reserve 96 years to reach

$1 trillion on its balance sheet while it took only a few short years to triple this amount.

Bernanke has not only used large Keynesian based deficit spending, but has also employed

Monetarism by lowering key interest rates to 0-.25%. The book is still out on if Bernanke’s

policies will be successful or not.

Fiat Currency. Economists and politicians became emboldened with the successes of

Keynesianism and the Financialization of Capitalism. But, it wasn’t until the Bretton Woods

system collapsed in 1971 by Nixon removing the Dollar from the international gold system, that

the entire world was placed on what is known as a fiat monetary system. This was another act of

Keynesian economics as it is stated by Dowd, Hutchinson & Kerr (2012) that Keynes argued for

monetary matters to be handled by the government allowing it the freedom to do whatever it

5 See Credit and Liquidity Programs and the Balance Sheet

http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm


liked, free from any market law of constraint or morality. Fiat currency allowed for this as

governments could easily print money without having actual commodities to back its existence;

the value of the paper was guaranteed by the government. Fiat money allows governments and

central banks to boost spending and ignore prior constraints against the over-issue of currency

(Dowd et al., 2012). Fiat system advocates such as Keynes argue that this equips government

with monetary tools to battle deflation and unemployment. However, throughout history these

types of systems have always failed and have been mostly used by governments to finance wars

and expenditures (Dowdy et al, 2012).

Evidence of this failed policy can be easily discerned from a loss of 94.2% of purchasing

power in the U.S. Dollar since Roosevelt ended the gold standard in 19346. While it can be

argued that the increased deficit spending and stimulus provided by governments hasn’t done

much more than prop up our financial system and increase debt, Dowdy et al. (2012) state that

such prolonged irresponsibility has led to future long-term financial obligations consisting of

pensions, social security, and debt of over $210 trillion dollars or $580,000 per individual in the

U.S. The reason this number isn’t reported is that the U.S. government accounting reports on a

cash basis which doesn’t require reporting of long-term liabilities such as: pensions, social

security, student loans, Fannie Mae, Medicaid and Medicare. Even though this number isn’t

publicly reported, it still should be fairly straightforward in assuming we are on an unsustainable

path even given our current deficit of over $16.7 trillion.

Leverage. Leverage, in the terms of this paper, is measured by the amount of borrowed

money and derivatives used to multiply gains or losses. For example, if you only had $100,000

in assets, using leverage through derivatives, you could essentially obtain gains or losses of what

6 Using official BLS CPI datafrom BSL.gov http://www.bls.gov/data/inflation_calculator.htm


would be $10,000,000 of assets. This allows for financial firms to realize greater returns, but

they can also realize greater losses. Because of the increased use of Financialization in

Capitalism since the 1970’s to obtain growth, there has been an effort to deregulate the financial

industry to allow financial firms to further grow and promote economic growth for the presumed

betterment of all. Evidence of this can be seen when Congress passed the Financial Services

Modernization Act of 1999, in which Congress essentially repealed the last standing barrier for

investment banks, commercial banks, and insurance companies to merge operations

(Tomaskovic-Devey, 2011). Also, during the Clinton administration, the Financialization of

Capitalism continued when Congress repealed the Glass-Steagall Act which had been in place

since 1933 that promoted oversight into the financial sector by preventing too much

concentration within the industry and reducing investment speculation. With almost completely

no oversight or regulation, investment firms and banks started to use massive leverage for

investments to further increase gains. Some of these markets, such as the derivatives market, are

completely unregulated and allow firms to take massive speculative risks. This can be observed

through the total amount of derivative contracts active which has soared and dwarfed the size of

the actual world economy. Paul Wilmott, a leading expert in the derivatives markets, has

estimated the current global derivatives market to be at $1,200 trillion (Guillaume, F., &

Schoutens, W., 2012). This amount of money is 20 times the size of the current world economy.

Because derivatives are leveraged, a small loss can be amplified into much larger losses and send

aftershocks throughout the financial system. A good example of the effect of derivatives losses

was the taxpayer bailout of AIG which assumed massive losses through the derivatives exposure

in 2009. Because the derivatives market is 20 times the size of the world economy, losses


triggered on derivatives can abruptly cause a financial meltdown. Unfortunately, the derivatives

market has grown since 2008 placing even more risk into our financial system.

Debt. With increased Financialization has come increased deficit spending to ensure

continued demand in an otherwise stagnant economy. This ideology of increased deficit

spending can be traced to Keynes’ views on increasing aggregate demand through deficit

spending to decrease unemployment and overall economic activity (Dowd et al., 2012). When

deficit spending wasn’t enough, policy makers increased the supply side of the market with

cheap money which Milton Friedman described the supply of money as having a direct

relationship with price of goods (Thorne, 2010). Through higher prices, the government could

achieve inflation which then leads to nominal GDP growth and debts can be repaid. However,

interestingly enough, if the amount of

debt used to produce nominal growth

is taken into account, the picture of

‘growth’ is quite different. If the

change in debt each year is subtracted

from the change in GDP per year, we

are left with what is seen in Figure 6.

Figure 6 shows since around 1970,

growth has gone down until 2009-

2010 when the fed used

Financialization through unsterilized asset purchases and tripled the size of its balance sheet.

Simply put, unsterilized asset purchases consists of creating money, think supply of money, to

increase the overall price of goods as Milton Friedman spoke would lead to nominal growth.

Figure 6 - U.S. GDP Calculated w/ Debt

Source: St. Louis Fed


Still, this brazen approach only netted a little over 1% growth in GDP when debt is taken into

account. Ultimately, these unpaid costs as William Kapp describes, will have to be repaid be it

through continued Financialization or economic growth. Unfortunately, as pointed out by

Reinhart and Rogoff (2010), once debt-to-GDP ratios exceed over 90%, economic growth levels

are 1-2% less than in a healthy economy. Since the U.S. debt-to-GDP is over 90%, continued

economic expansion is likely to come at 1-2% less than it would in a more healthy economy.

Lackluster growth will be a problem that the United States will have to overcome as its current

deficit is slightly north of $16.7 trillion which puts it above the 90% debt-to-GDP threshold as

GDP is a little above $15 trillion. Unofficially, the U.S. has over $210 trillion in future liabilities

on its books when Medicaid, Medicare, and Social Security are taken into account (Dowdy et al.,

2012). Moreover, the U. S. debt interest payment on $16.7 trillion alone is $151 billion per year

in an environment of never before seen low interest rates7. If interest rates were to rise to

historic normal levels of around 5%, the additional payments on interest of $500 billion would

quickly erase and overcome any growth achieved through GDP. Thus, it would seem the once

successful Keynesian macroeconomic mindset of deficit financing and stimulus may now be a

major contributing factor slowing our future growth because of large unpaid debts.

Risk Concentration. The Financialization of Capitalism can also be seen in the

centralization of assets amongst a few powerful corporations. Whereas finance is supposed to

spread risk, it has done the exact opposite through deregulation of capital markets, leverage, and

speculation (Freeman, 2010). For example, in 1990, the 10 largest financial institutions

accounted for just 10% of total U.S. financial assets. However, by 2009, this number rose to

70% of global banking assets. Such massive centralization of assets was pointed out by Richard

7 For instance see Treasury.gov http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm


Fisher of the Dallas Federal Reserve in a recent speech8. In his speech Mr. Fisher pointed out

that small banks accounted for 98.6% of all banks but only 12% of total industry assets. A

medium sized group of banks numbering nearly 70, with assets of between $10 billion and $250

billion, accounted for 1.2% of banks, while controlling 19% of industry assets. However, the

megabanks, with assets of between $250 billion and $2.3 trillion, were made up of a mere 12

institutions. These 12 banks accounted for roughly 0.2% of all banks, but they held 69% of

industry assets. Further, only 4 of these banks own $212 trillion of the total $227 trillion in

outstanding U.S. derivatives9.

Deregulation of the financial industry has led to increased concentration of large amounts

of assets in the hands of only a few financial institutions. These same institutions have also used

massive risk taking made possible by deregulation, leverage, and deficit spending which can be

attributed to what Kallis et al. (2009) said in that banks have always lent under the premise that

asset prices will always continue to rise in value and there will be infinite growth in the

economy. Still, without growth or an actual contraction of asset prices brought about by a

normal functioning market and cyclical nature of an economy, losses triggered by derivatives

would cause a systemic crash unable to be repaid due to their large leverage. Also, current debt

levels by mature economies cannot afford to have slowing growth or rising interest rates, or

future liabilities and continued deficit spending will engulf any chance at debt repayment and

lead to an eventual default on debts. While governments continue to run up staggering deficits to

prop up a failing financial system, real growth in the economy is not occurring and is only a

façade of financial Monetarism. Illusionary growth through the use of financial derivatives and

8 See Federal Reserve Bank of Dallas: http://www.dallasfed.org/news/speeches/fisher/2013/fs130116.cfm 9 For instance, see OCC’s Quarterly Report on Bank Trading and Derivatives Activities

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq312.pdf


shadow banking, has led to only nominal growth and any real growth in economies should be

questioned (Thorne, 2010). Hence, Capitalism is now in a state which must seek continued

growth or face the ultimate collapse brought forth by the overuse of financial instruments and

risk taking. With Capitalism established as a constant growth or die system, we can now turn

our attention to what this means within the context of the research model.

Employment and Real Economic Growth

Warnings came as early as 1972 when The Club of Rome published their book called The

Limits to Growth questioning the sustainability of growth trajectories set forth by Western

economies. It would seem that many were aware of the long-term implications of Capitalism’s

insatiable thirst for resources and called it into question. C. Mason (2010) points out, in his

research article called Economics of Ecological Enlightenment, Capitalism has morphed from a

Karl Marx view of representing the value produced by labor and being equated with economic

and political power, to a system problematic for nature and society. C. Mason (2010) believes

that increasing the amount of money is a requirement for Capitalism as it presents a medium of

exchange for goods and services. However, when money with intrinsic value was replaced by

fiat money, banks and powerful entities could use this new power of money creation to further

increase their wealth (C. Mason, 2010). With economies being lifted by essentially worthless

assets, C. Mason (2010) argues that the mirage of growth of wealth today is being driven by

nothing more than 1’s and 0’s in computers. Furthering his argument for financial reform, C.

Mason (2010) describes nothing short of a complete reconstruction of the financial system will

“remove the perversity of unlimited growth” and help to establish respect for natural limits of a

finite planet.


There is an underlying belief that through the use of stimulus and inflation, the real

economy will begin to gain momentum through employment and GDP (Thorne, 2010). While

this may provide a temporary increase in demand, it is due to a misallocation of capital which

doesn’t reflect reality (Mason, 2010). Making matters worse, the increased stimulus and easy

money policies put in place by central banks don’t address the underlying structural problems

that cause a low growth economy. Capitalism, by nature, looks to replace human capital with

technology due to the profit maximizing effect it can have. Wealth accumulation is what

Capitalism is all about. Because of this, companies are encouraged to move jobs overseas and

seek increased usage of technology to maximize profits (Dowd et al., 2012). Profit

maximization is then reinforced from the top down as more and more CEO pay is directly tied to

stock price versus actual production (Tomaskovic-Dewey, 2011). Also, Western economies that

have shifted to Financialization for increased growth only exacerbates the problem of high

unemployment because companies can earn more by investing their capital in financial

instruments versus production of real goods and services. This creates a cyclical structural

problem associated with low demand and consumption because of the high unemployment and

profit maximization tenets of Capitalism.

An environment categorized by sluggish growth in GDP almost always increases the

unemployment rate. Typically, only economic growth > 4% leads to a positive impact on

unemployment (Magdoff & Foster, 2011). However, growth at levels greater than 4% are only

seen at times of war. To offset high unemployment, governments will use currency manipulation

to try to cheapen exports to foreign countries (Kallis et al., 2009). By country devaluing their

currency, it makes goods more affordable to other countries which temporary affects

employment and demand. But, again, this doesn’t address the underlying structural problems of


a system pursuant to short-term profit maximization. The effects are only temporary until other

countries weaken their currencies. As more people lose their jobs, the overall aggregate demand

for goods and services falls. With demand falling, supply increases and has a deflating effect on

prices. To counterbalance the environment of low demand, social programs and government

assistance has had to steadily increase (see Figure 18). Food stamp usage and assistance

programs are at all-time highs.

Capitalism and Sustainability

Through millions of years of evolution, the Earth has become a natural system of

efficiency by providing nutrients, energy, and water to living things. The cycle begins when the

sun gives off food to plants which are then consumed by other species which are then consumed

by even more species. The process repeats creating a self sustaining system where there is little

waste and ecosystems are kept in balance. We

have to remember it is through our greatest

blessing, the ability to alter nature, of which

becomes our greatest potential downfall10

. It

is because of our greatest gift or downfall, the

ability to alter nature, that this natural balance

of our ecosystem has been placed in jeopardy.

As referenced in Figure 7, the constraint

on the last layer of the economy can only

accommodate so much growth. Trying to push growth outside the bounds of this constraint does

not end up as economic growth, but environmental and social damage.

10 See William McNeill Law of Conservation of Catastrophe

Figure 7 - Effects of Unlimited Growth


Given Capitalism’s need for growth and a population of over 7 billion people, increased

growth and environment modifications are being placed on our ecosystem to support our

existence. The growth impact can be easily seen in our environment through climate change,

biodiversity loss, clean water levels, pollution, ocean acidification, and deforestation. Some

scientists feel that due to our environmental interaction we are setting ourselves up for the next

mass extinction. Growth and its environmental damage are also leading to major social

inequalities amongst cultures. Poor countries are often subjected to pollution and resource

depletion causing their quality of life to diminish through sickness, lack of clean water, food, and

health services. Established economies often do not face the same set of problems which beset

poor countries, but do see other social issues related to income inequality.

More recently, G. Kallis, J. Martinez-Alier & R. Norgaard (2009) summarize Capitalism

as three interdependent levels consisting of financial services, the real economy, and the real-real

economy which can be thought of as non-renewable natural resources and their exhaustion rate.

Kallis et al. (2009) point out that the financial layer has been injected with so much liquidity and

artificial growth, that the real economy cannot catch up with the growth required to pay back

loans and debt created on the financial layer. Furthermore, the authors argue that if such growth

in the real economy were to occur, it would have disastrous effects on the real-real economy as

natural resources would be rapaciously depleted.

In a journal article by Holt (2005) called Post-Keynesian economics and sustainable

development, a clear definition of sustainability as it relates to Capitalism surfaced. Holt (2005)

believed that economic stability should be described by how you deal with unemployment

without consuming or depleting resources while preserving ecological systems needed for future

generations. Holt cites a popular study done by MIT showcasing a computerized model detailing


that increased growth cannot be sustained without adverse environmental effects while severely

limiting future growth possibilities. The article also states that modern Capitalism has created an

inequality of wealth which has caused both developed countries and developing countries to

cause destruction to their environments through over consumption and over population

respectively. Through the use of free markets, Holt thought true price discovery would dictate

supply and demand which would conserve limited resources as prices would begin to rise.

However, given the monetary policy of Keynesian based governments, monetary stimulus has

created a misallocation of capital and thus the free market. Holt (2005) argues that without a

balance between economic and ecological advancement, we risk permanent damage to our

environment. In addition, he states that globalization, through its wealth transfer, only shifts

environmental costs to the poor, future generations, and developing countries. Without proper

adjustments to our economic models, our planet could see a permanent change in our ecosystems

which could result in a loss of biological productivity.

Aside from the environmental damage occurring through overconsumption of resources,

social and cultural damage is also created through Capitalism. G. Lamberton (2005) addresses

social inequality by laying out a 3 dimensional model of sustainable development consisting of

ecological, economic, and social dimensions. Coincidentally, pro-ecological economic outcomes

can only currently be achieved at the expense of reduced performance which goes against the

grain of Capitalism (Bellamy Foster, 2000). G. Lamberton (2005) sees that our current

economical policy focuses only on economic objectives while providing little incentive for

decision makers to choose sustainability over short-term gain. This argument places a heavy

precedent on economic performance in the short-term versus conservation in the long-term. This

view has led to call into question the sustainability of Western economic systems. Cementing his


view, Lamberton (2005) feels that Western beliefs and values are often hidden from view and are

at the root of overconsumption. Western beliefs and perspectives are needed to be re-examined

while establishing values and a mindset towards a just, equitable and sustainable society must

prevail. Lamberton’s article represents an attempt to look outside the current paradigm of

perpetual growth by changing humankind’s impact on the natural environment through

conservationist principles.

Foster (2011b) suggested that ecological science has evolved out of the conflict between

the capitalistic system and the environment. In framing his view on Capitalism, Foster stated

that human purposes never take into account full consequences of their actions. These actions

often will become triggers which induce unintended results. Foster (2011b) continued and stated

that there are three stages of denial currently pervasive throughout modern Capitalism. The first

denial is the denial of an ecological problem and its human cause. Second, there is a denial of

the correlation of the ecological crisis and Capitalism. Last, a denial exists that Capitalism is

incapable of overcoming the ecological crisis. Denials of such magnitude and the prevailing

capital accumulation mindset only lead to a non-existent relationship between sustainability and

the environment (Foster, 2011b). Herman Daly has cited Capitalism as Impossibility Theorem.

Daly cites that if the world were to have as large of an ecological footprint as the U.S., there

would be a need for multiple planets11

. Foster (2011b) argued that this type of mentality of

which excessive consumption can come within the confines of a single planet is delusional and

relies on the supernatural at best. Summing up his work, he relied on a quote from the

environmental economist K. William Kapp describing Capitalism as ‘an economy of unpaid

11 See Herman Daly, Steady-State Economics 1991.


costs’. These costs, according to Foster, cannot externalize themselves and will eventually show

themselves through a breakdown in social and environmental quality.

Such views on Capitalism and sustainability have led to a growing field in Ecological

Economics (EE). Ecological Economics promotes the belief of a balance between economic

growth, environmental quality, and the social well-being of all. Ecological Economics sees the

environment and nature as the system in which the economy operates whereas Capitalists view

the economy as the system nature operates within. This is a very important point and should be

re-read if not understood.

Ecological Economics

To gain a better understanding of the crisis we are facing, one must understand

Ecological Economics. The EE field has grown due to the lack of importance placed on the

environment by mainstream economics. EE believes that the environment and social wellness

are key factors in economic analysis and positions the economy as a subsystem of a larger and

global ecosystem (Kallis et al., 2009). Placing the economy as a subsystem of the environment

is a different view from its current Capitalistic form where nature is viewed as a commodity

which is to be exploited to the benefit of mankind. Capitalism discounts the future liabilities of

environmental damage by market pricing practices, accounting methods, and completely ignores

the biophysical element of humanity (Mason, 2010). Deeply rooted in the EE belief is that the

economy and the environment are related and this relationship is continuously evolving

(Norgaard, 1994). Ecological Economists point to a fatal flaw in our current Capitalistic driven

society which states that growth should be considered progress. EE cites that GDP, which is

widely accepted and used as a broad measure for economic growth, hides social and

environmental costs (Martinez-Alier, 2002). Also, Capitalism, with its thirst for short-term


growth, disregards depletion of resources and ecological systems for future generations. Current

mainstream economists don’t seem to be able to accept that fact that today’s actions should be

responsible and appropriately managing resources and pollutants for future generations (Holt,

2005).

To many Ecological Economists the current economic crisis is easily understood by

separating the economy into 3 layers consisting of the financial, real, and real-real layers. The

interdependence and relationships between these layers are so close, that any increase or

decrease in one of the layers needs to be replicated by the other two. When such large growth is

seen on the financial layer of the economy, the only ways to pay back these debts are:

Financialization or economic growth; with Financialization only adding to the already massive

financial layer. EE economist H. Daly (2008) believed that the recent crisis was due to the

financial layer growing way too fast and large for the real and real-real economies to support it.

Daly continued by stating that there is actually too much liquidity given we are in a system

where paper is exchanged 20 more times than exchanges of paper for commodities. In a system

so laden with paper, current wealth cannot be trusted to guarantee payment of the future

exploding debt and devaluation of currency (Daly, 2008).

Ecological Economists also contend that it will be impossible for growth in the real

economy to catch-up with the financial growth that has occurred without massive environmental

damage (Daly, 2008). As the world’s population continues to grow, Capitalism and its drive for

perpetual increased consumption will reach a limit on how much new stuff people can afford and

space available to store the old stuff (Daly, 2008).

Environmental Impact. Most are fully aware of the economic consequences of

Capitalism and its boom-bust nature, but there is also another form of crisis emerging – the


expansive ecological degradation of our environment. It is through our greatest blessing, the

ability to alter nature, of which becomes our greatest potential downfall12

. In a simple view,

through millions of years of evolving, the Earth has become a natural system of efficiency by

providing nutrients, energy, and water to living things. The sun gives off food to plants which

are then consumed by other species which are then consumed by even more species. The

process repeats creating a self sustaining system where there is little waste and ecosystems are

kept in balance. However, in the mid nineteenth century, cities emerged. Large concentrations

of food were then needed to be sent to expanding populations which depleted soil nutrients while

also causing massive amounts of waste and fouling rivers (Magdoff, 2002). These rifts in the

natural efficiency of the Earth caused by Capitalism were identified by German philosopher Karl

Marx and are still with us today. Capitalism, with its focus on expansion of profits, sees nature

as a servant to humans and refuses to see the dependence of humanity on nature (Foster, 2001).

Paul Sweezy, a famous Marxian economist, describes Capitalism as a system driven by small

group interests, checked only by mutual competition, and controlled by the market in the short-

term and devastating crises in the long-run. The incessant drive for continued growth and

expansion for accumulation and profits through exploitation of nature and human labor creates a

contradictory situation in which one must fail (Foster, 2008). Speth (2008) sees a system that

strives for perpetual exponential economic growth as a system in which the environment cannot

be sustained. Capitalistic economies are geared for growth at any expense. Thus, growth comes

through exploitation of the world’s population through absorption of energy and materials while

dumping wastes back into the environment at an exponential rate (Foster, 2001).

12 See William McNeill Law of Conservation of Catastrophe


Foster (2011) points out that carbon emission for the G7 was at 2,590 metric tons versus

3,554 per person for the rest of the world13

. High carbon emission is a common theme in

Capitalism as increased output requires increased fossil fuels for energy. This relationship is

deeply embedded in Capitalism and is encouraged by the large profits attainable surrounding

fossil fuels. Researchers also suggest that even if more efficient means of energy are developed

to decrease cost, this would just lead to increased usage and demand (J.B. Foster, 2011).

Capitalists will argue that technology advancements will offset environmental concerns by

increasing output and conserving inputs. But, any increase in output through Capitalism is

overshadowed by the increase in energy and materials needed for that output (Foster, 2008). As

demonstrated by William Stanley Jevons, the Jevons Paradox states that the greater conservation

of energy and resources leads to not conservation, but increased economic growth thus increased

pressure on the environment (Foster, 2011.). This was demonstrated as early as 1865 as

efficiencies in coal and steam engines only served to increase the production of bigger and larger

factories. In essence, the increase in efficiency led to a paradoxical effect of increasing

production and consuming more resources. So, the more efficiency we strive for actually leads

to increased production and increased exhaustion of natural resource levels. Some economists

also call this the Income Effect. The income effect basically states that as energy becomes more

efficient, prices decrease while demand and usage will increase due to adoption of the excess

energy into new uses of energy to replace labor intensive processes (Blackwater, 2012).

Moreover, while efficient energy equipment is produced, the amount of energy required to

produce such goods consumes any energy savings the new equipment produces (Blackwater,

2012).

13 Refers to the U.S., Canada, Germany, UK, Japan, Italy, and France


In 2009 in an attempt to make it all too clear what we should and shouldn’t be doing,

leading scientists proposed nine planetary boundaries which mark safe operating levels for the

planet. 3 of these boundaries (climate change, biodiversity, and nitrogen cycle) have already

been crossed while several more like fresh water and ocean acidification are in danger of being

crossed (Foster, 2011). These same scientists point to human activities as the central reasons

these thresholds have been crossed and implore immediate change is necessary in order not to

cross any others (Rockstrom, 2009).

Climate Change. There is currently strong evidence relating human contribution to

climate change due to fossil fuel use (Good et al., 2011). Because of this, in the 1990’s the

United Nations Framework Convention for Climate Change tried to form an agreement on

lowering greenhouse gas emissions for G-8 countries. The negotiations were called the Kyoto

Protocol and they tried to establish legally binding emission targets 5.2% below the 1990

emission levels of G-8 countries. The negotiations lasted until 2001 when the Bush

Administration pulled out of the agreement and cited a flawed protocol. The United States,

which accounts for 25% of greenhouse gas emissions, sought outside expert opinion through the

prestigious National Academy of Sciences (NAS) on data obtained from the International Panel

on Climate Change (IPCC). The NAS concluded in 2001, that the Kyoto protocol was in fact

accurate and that greenhouse gases are accumulating due to human activities causing

temperatures to rise which cemented the views of the IPCC. Further, NAS stated that human

induced sea levels rises are expected to continue with increases in weather changes. With the

NAS supporting the original views of the Kyoto protocol, the U.S. was forced to admit the true

rejection of the Kyoto accord which was that following such guidelines would hurt economic

output (Foster, 2001). The U.S. felt that cutting greenhouse emissions, particularly carbon


dioxide, was too high of a cost to pay in the form of layoffs and increased costs. Figure 5

demonstrates a world view of carbon dioxide emissions per person in population. As (Daly,

2008) describes, if several countries had emission levels equal to that equal of the U.S., we

would need a planet 8 times the size to adequately support such pollution levels. Emission

output demonstrated in Figure 8 also shows the United States leads in most emissions per person

and per metric tons when compared to other leading economies. Further down, the U.S.

emission output is roughly 20% of the entire emission output of the rest of the world.

Figure 8 - Carbon Dioxide Emissions

Consult (Foster, 2001)

Emission rates and carbon dioxide levels can lead to climate change. The increased temperatures

associated with climate change can have a significant impact on environments. Some scientists

place a 5.8˚ C increase in temperature by 2100 with each 1˚ increase in temperature seeing rice,


wheat, and corn yields dropping 10% (Brown, 2004). Still, leading economic countries

repeatedly fail to address emission outputs because it would affect their short-term economic

output.

Biodiversity Loss. During the last 10,000 years the Earth has been in phase called the

Holocene. The Holocene phase is noted for its stability and relatively balanced ecosystem.

Fresh water, stable temperatures, and ecosystems all maintained small variances. Since the

Industrial Revolution, scientists now place humanity in the Anthropocene which is characterized

by human activities and disruption of the balance seen in the Holocene period (Rockstrom,

2009). The current rate of extinction of species has disrupted the Earth’s natural biodiversity that

has developed over millions of years. Biodiversity loss is a natural phenomenon and has

occurred throughout time. However, the pace of species extinction has accelerated. A typical

rate for mammal extinction is 0.2-0.5 per million species per year. Currently, extinction rates are

100 to 1,000 times more what is considered natural (Rockstrom, 2009). This extinction rate is

the highest it has been in 65 million years and increases the chances of cascading extinctions due

to disrupted ecosystems. Concurrent with climate change, human activities have been the driver

of extinction through land use, extensive agriculture, wildfires, and introduction of foreign

species into new environments (Rockstrom, 2009). Now, it is estimated up to 30% of all

mammals, birds, and amphibious species will potentially face extinction this century. Another

example of species extinction is the overfishing of the oceans. Scientists estimate that over 90%

of large predatory fish in the oceans have been already eliminated14

. Such disregard to the

natural balance of our biophysical subsystems and ecosystems could result in abrupt and

14 For instance, see Worldwatch, Vital Signs 2005.


disastrous changes for humanity (Lenton, 2008). More importantly, such disregard causes

renewable resources to become non-renewable through overconsumption.

Deforestation. Tropical rain forests, such as the Amazon rain forest, are needed by the

Earth to remove carbon dioxide from the air. Different parts of the world such as Brazil, Africa

and Asia, where 80% of the rainforests are found, have seen massive deforestation. In addition

to exponential population growth on the Earth, the reasoning behind this is simple. In poorer

countries, burning forests to the ground is a cheaper alternative to fertilizers (Benhin, 2006). By

burning forests, the ashes act as fertilizer for the ground and in the short-term, produce high

agriculture production. These slash-and-burn ethics create fields for crops and grazing pastures.

Similarly enough to the timing of Financialization of Capitalism, massive deforestation began in

the 1960’s and has been behind the loss of 450 million hectares of forest (Benhin, 2006). At this

pace, the forests of Africa could disappear in 150 years. Agricultural use has been estimated to

account for 90% of the loss of forests in these regions (Chichilnisky, 1994). Perrings (2000)

showed that short-term reward for agriculture purposes was the greatest contributing factor for

the deforestation taking place in South America and Africa due to market failures of inadequate

pricing, government subsidies, and fiscal and monetary policy which try to improve the macro

environment without regard to sensitive ecosystems.

Where there may be short-term reward for destruction of the environment, the long-term

implications will manifest soon if proper conservation isn’t instituted. Large concentrations of

trees are analogous to air filters for the Earth constantly filtering the air we breathe by taking in

carbon dioxide and releasing oxygen. The trees and other vegetation consume the carbon

dioxide and release oxygen as a byproduct through photosynthesis. The Amazon rain forest, in


particular, is responsible for 20% of the Earth’s oxygen production15

. Capitalism, and its need

for growth has placed extreme stress on these forests; especially those in poor countries which

see their resources used up by wealthier nations. The side effect of this stress is being seen

twofold. Trees act as storage mechanisms storing large concentrations of carbon dioxide as well

as any other pollutants absorbed from the ground. When trees are cut down or burnt, these

pollutants are released back into the atmosphere thus increasing carbon emissions. Secondly,

when more trees are cut down to make room for agriculture and lumber, less carbon dioxide is

removed from our atmosphere and less oxygen is produced. Because of this, increasing

atmospheric carbon dioxide is causing a warming of the climate (Zhang, 2001).

Nitrogen Cycle. With the world’s population exceeding 7 billion people, agriculture, as

also seen in deforestation, has become extremely important to feed everyone. Consequently,

industrialized agriculture has become a major pollutant to the environment due to the exorbitant

amounts of nitrogen and phosphorus that are used to create a fertile growing environment.

Continued overuse of farmland has created a situation in which natural nutrients in the ground

that are needed for good crop yields are never given time to be replenished. To circumvent this,

farmers use large amounts of nitrogen and phosphorous to fertilize their grounds. The excess

nitrogen and phosphorous not absorbed into the ground runs off into waterways and has created

turbid waters near major farming operations. Phosphorous, mined from rocks and used for

fertilizers, continually finds its way back to oceans in abundance of upwards of 8.5 to 9.5 million

tons (Rockstrom, 2009). Past records of Earth show mass extinctions of oceanic life when

phosphorous flowing into the ocean exceeded 20% of natural levels (Rockstrom, 2009).

Scientists warn that exceeding the already high levels of phosphorous flowing into the oceans

15 For instance see Killer Inhabitants of the Rainforests. "Killer Inhabitants of the Rainforests". Trendsupdates.com.

Retrieved 2012-08-26.


and freshwater estuaries could threaten freshwater levels and oceanic life both of which are

needed to sustain life.

Environmental. Leading scientists have already proposed 9 planetary boundaries which

mark safe operating levels for the planet. Three of these boundaries (climate change,

biodiversity, and nitrogen cycle) have already been crossed while several more like fresh water

and ocean acidification are in danger of being crossed (Foster, 2011). These same scientists

point to human activities and alterations as the main driver for crossing over these thresholds and

implore that immediate change is necessary in order not to further damage the environment.

More specific examples of environmental damage include:

Increased temperatures are to blame for massive droughts. Scientists also warn

that each rise of 1˚ increase in temperature will see rice, wheat, and corn yields

dropping 10% (Brown, 2004).

Disintegration of arctic ice sheets. Scientists estimate a rise in sea level of 1-2

meters. Over 1 billion people are within 20 meters of the oceans and a fast rise in

sea level could cause destruction.

Melting of glaciers. Without a cold enough winter, the glaciers, which provide

water for billions of people, could melt and lead to floods and lack of water

resources for many parts of Asia.

Increased rates of extinction of species due to climate change and or pollution and

destruction of ecosystems. Scientists currently estimate biodiversity loss to be

100 to 1,000 times more than what is considered natural. Further, these scientists

also place approximately 17,000 animals and plants at risk of extinction. Other

estimates see up to 30% of all mammals, birds, and amphibious species facing


extinction this century. Also, indirectly, as ecosystems breakdown through

species loss, the chance for infectious disease rises as ecosystems cannot naturally

cleanse themselves.

Pollution of drinking water. In the U.S. pesticides from agriculture are being

found in humans. A survey of physician nurses who were tested for 62 chemicals

in blood in urine found traces of chemicals consisting of pesticides, organics,

polycarbonates, PBDEs, PFC, and flame retardants. See appendix for more

information.

U.S. Intelligence Community Assessment of Global Water Security estimates that

by 2030 humanity's "annual global water requirements" will exceed "current

sustainable water supplies" by 40%.

Deforestation is increasing at an alarming rate. All forests in Africa are

estimated to be gone in 150 years. The Amazon rain forest, in particular, is

responsible for 20% of the Earth’s oxygen production. Continued destruction of

forests and their ability to reduce the Earth’s carbon levels will result in increased

climate warming.

Oceans contain large islands of floating trash. The size of trash increases every

decade and scientist have estimated the size of it to be as large as Texas.

Industrial agriculture, using massive amounts of the chemical fertilizers

phosphorous and nitrogen, are running off into the ocean and waterways. Past

records of Earth have shown when phosphorous flowing into the ocean exceeds

20% of natural levels, mass extinctions occur. Currently, 8.5-9.5 extra million

tons of phosphorous finds its way into our oceans.

http://www.dni.gov/nic/ICA_Global%20Water%20Security.pdf


Percentage of Earth stricken by serious drought has doubled since 1970.

In poor regions, established economies use up natural resources in exchange for money.

The wealth acquired from the sale of resources is only temporary as once resources are depleted,

the area is left without any resources and massive pollution. Areas in Africa and South America

are seeing massive deforestation because locals are encouraged by short-term reward to clear

land for agricultural purposes. The majority of deforestation began in the 60’s and accounts for

90% of the losses of forests in these regions. Unfortunately, scientists estimate that all of

Africa’s forests will be wiped out within 150 years. Because trees soak up carbon and act as a

natural purifier of Earth’s air, our economic system trades increased temperatures and

diminished air quality for short-term economic reward.

The items listed above are only some of the environmental issues we are facing due to the

Financialization of Capitalism. Because Capitalism has become a system which must continue

to grow to survive, it has created an incessant need for more and more growth through

consumption of resources. The massive consumption of resources is leading to a breakdown of

the natural ecology which supports life. Further degradation of the environment for our own

greed will ultimately lead to a planet which cannot support its inhabitants. While we are faced

with many environmental challenges, we are also facing rising social implications caused by the

Financialization of Capitalism such as sickness, disease, and inequality.

Social Impact. In 1987, the World Commission on Environment and Development put

out the Bruntland Report which outlined a major concern between the growing inequitable

distribution of wealth between the rich and poor countries. Exploitations by rich countries were

observed through the extraction and pollution of natural resources while poor countries


contributed to deforestation and excess population growth (Holt, 2005). These same poor

countries which profited by selling natural resources to the developed world consequently

suffered socially. The globalization of Capitalism has caused 3rd

world countries economic

dislocation, destruction of social safety nets, increase conflict, and rapidly spread disease and

crime (Stanfield & Carroll, 2009). Evidence in the defects in Capitalism’s relation to the social

well-being of cultures takes the form of: lack of clean water, radioactive contamination,

overfishing, extinction of species, and overall toxicity of environment especially in poor

countries (J.B. Foster, 2001). Such massive environmental degradation and social inequality has

led many to question Western economics (Constanza & Daly, 1992). Scientists can directly

connect the global environmental issues affecting the social well-being of many to the

technological progress of the human race (Huesemann & Huesemann, 2008). Through the 1st

and 2nd

laws of thermodynamics, scientists have outlined biophysical limits to economic growth.

These limits, which cannot be 100% substituted through technology, risk adverse consequences

for humanity if breached (Huesemann & Huesemann, 2008).

Income Inequality. Income inequality, ingrained in the laws of Capitalism, has seen the

United States’ inequality rate rise to levels not seen since the 1920’s (Yates, 2004). Paul

Krugman estimated that as much as 70% of income growth has gone to the richest 1% of

families16

. Unfortunately, the main indicator of overall wellbeing, the United Nations human

development index (HDI), compares the wellbeing of countries by gross national income (GNI),

life expectancy, and education levels. Yet, evidence posits that nations with the greatest income

inequality or wealth suffer the highest amounts of social health disorders (Yates, 2004).

Empirical studies have continuously shown that well-being is little related to economic growth

16 For instance see Paul Krugman, "The Rich, the Right, and the Facts," The American Prospect 11 (fall 1992), 19-

31.


(Kahneman et al., 2006). Furthering this argument is that fact that states with higher income

inequality had higher rates of unemployment, incarceration, lower levels of adequate health

services, and a higher percentage of people receiving income and food stamps (Yates, 2004). In

the developed world where one would expect a higher level of wellbeing (U.S., Canada, UK),

suicide rates are higher than developing countries (Mexico, Brazil, Peru) with less wealth. Also,

over the last 45 years, suicide rates have increased 45% worldwide. These statistics do not

include suicide attempts nor do they account for steadily rising rate of 500 million people

suffering from mental and neurological problems. While the HDI index has been growing

worldwide due to economic expansion, overall human health and sickness data contradicts this

index. Also, the HDI does not account for social disorders caused by the abuse of the

environment through pollution and natural resource depletion (Gorobets, 2011). Further

contradictory evidence can be found in chronic disease rates such as cancer, diabetes, and

respiratory disease which are now all major causes of death and are increasingly affecting people

from all countries. These diseases account for 60% of deaths and are expected to rise to 74% by

2020 (Gorobets, 2011). Of these deaths, 9% can be attributed to the environment through water

and air pollution; albeit for children the number is even higher (Gorobets, 2011). (Costello et. al,

2009) cite the causes of such pollution as the rise of economic activity.

The social impact of Financialization is often hidden or less obvious to most. Inequality

has caused a wealth divide almost as large as the Roman Empire before its fall (Scheidel &

Friesen, 2009). Inequality is measured by the Gini Coefficient (GC). The GC measures

distribution of income within a country. The current GC of the United States is only slightly

lower than the estimated inequality present in the Roman Empire at its peak population (Scheidel

& Friesen, 2009). Such a large divide, while good for a few, has been detrimental to most. In


2009, data was collected by the Economic Policy Institute and found that the top 1% of

households held 42.4% of all financial assets. The bottom 90% owned 17.3% of financial assets.

Since 1980, the richest 1% net income has gone up from 58.1% to 63.5% while the bottom 90%

has seen losses of nearly 32% in income. Sylvia Allegretto, who collected the numbers, says that

the 1% is now 225 times bigger than the median wealth of income; this is the highest ratio on

record (Yates, 2012). Demonstrated by Figure 9, Financialization has caused a wealth divide

amongst the wealthy and the poor. This data provided by the Bureau of Labor Statistics shows

the amount of productivity within the U.S. as well as the median family income since 1947. It

wasn’t until the 1970’s, the beginning of Financialization, that these two measures have

distinctly gone separate ways thus showing that even as U.S. productivity measured in GDP has

gone up, the middle class’ income has all but stalled.

Figure 9 – Productivity (GDP) vs. Median Income

Consult Bureau of Labor Statistics, Productivity

Further evidence of income inequality can be seen in Figure 18. Figure 18 in the

appendix shows data representing income brought home by different classes as percentage of


total income in the U.S. By studying the chart, this divide rapidly started to occur in the early

80’s the same time President Reagan was using massive amounts of Financialization through

monetary policy, deregulation, and deficit spending to promote continued economic growth. The

chart backs previous statements that the top 1% continues to see a large rises in income.

Secondly, the chart shows that the next highest class, the top 2-19%, has had their wealth rise

faster than the bottom 80%. Many may argue that this is a good thing. But, evidence brought

forth on income inequality shows that nations with the greatest income inequality or wealth

suffer the highest amounts of social health disorders (Yates, 2012). Currently, U.S. income

inequality sits at its highest levels since the Great Depression. Measured in total income gained,

between 1979 and 2007 60% of all income went to 1% of individuals in the United States.

Mental Health. Income inequality has been linked to many social disorders. As income

inequality has risen, so have suicide rates in the developed world (U.S., Canada, UK), compared

to developing countries (Mexico,

Brazil, Peru) with less wealth.

Additionally, over the last 45 years,

suicide rates have increased 45%

worldwide per 100,000 (Gorobets,

2011). These statistics do not

include suicide attempts and nor do

they account for steadily rising rate

of 500 million people suffering

from mental and neurological problems. Scientists point to the fact that with inequality, social

bonds are lost and often people feel they’re denied self development thus stifled by apathy,

Figure 10 - Income Inequality

Consult Congressional Budget Office US real average income


anger, confusion, depression, and neuroses (Schutz, 2011). Also, studies continuously show that

well-being is little related to economic growth (Kahneman et al., 2006). Strictly in the U.S.,

states with higher income inequality had higher rates of unemployment, incarceration, lower

levels of adequate health services, and a higher percentage of people receiving income and food

stamps (Yates, 2004). States with the highest income inequality had the highest costs for

medical care and police protection. Also, in these states it was found that babies were born with

the lowest birth weights, increased rates of homicide, violent crime, disabilities, tobacco usage

and sedentary population (Yates, 2012).

The large gap of income inequality, caused by continued Financialization, has created a

class that is dependent on government assistance for survival. Figure 11 shows the rise in people

receiving food stamps since 1970. Again, 1970 surfaces as a year which showed a parabolic rise

in government assistance as Capitalism moved from production of real goods and services to

Financialization which left many out of jobs and ability to provide for themselves.

Figure 11 - U.S. Food Stamp Usage Since 1970

Consult USDA Persons Receiving Food Stamps


Coupled with government assistance have been poverty levels. Demonstrated by Figure 19 (see

appendix) by the U.S. Census Bureau, since the 1970’s the poverty rate has been in steady

ascendance. The poverty rate is another indicator of the growing inequality amongst classes

caused by Capitalism’s continued reliance on Financialization.

Schutz (2011) sees societies with high levels of income inequality as non-democratic in

nature. The current situation in the U.S. cannot be democratic in nature. Due to the extreme

influence exerted by the wealthiest of individuals and corporations, governments succumb to

their influences and it manifests itself through political malfeasance and negligence. The self

interest of the financial elite allows for increased inequality as rules and regulations are modified

towards their benefit. This influence only acts to widen the already large income and equality

gap amongst people creating even more social implications.

Even with such dire warnings being cast in front of us, scientists feel as though there is an

easy way to remedy our situation. Because of the majority of environmental and socioeconomic

problems being man made (pollution, resource depletion, wars, disease), these issues can be

prevented by a simple change in human mentality (Gorobets, 2011).


Theoretical Framework

The purpose of this section is to present a theoretical framework of the study. The

theoretical framework is based on findings presented in the literature review, scholarly journals,

and peer-reviewed articles. The framework created outlines that infinite growth is impossible

within a finite environment due to natural resource constraints at the 3rd

level of the economy.

Pursuing such unlimited growth policies has unintended outputs which threaten our overall

health and our ecological system which is needed to support life. Further, it is argued that

current macroeconomic policies within the global financial system are not only distorting asset

prices, creating artificial demand and supply for growth, and helping to prop up a failed system,

but it are causing irreversible damage to our environment and ecosystem by placing high

demands on natural resources to keep up with growing Financialization. While few see or even

imagine anything other than our current Capitalistic consumerism driven economies, evidence is

presented that Capitalism, and its promotion of consumerism, is wreaking havoc on our

environment while also creating a large social divide amongst cultures. This social divide is

evident in the growing amount of mental and physical illness present in the world. Further, as

overall health is declining, pollution and depletion of natural resources are at levels never seen

before. All of these variables are presented within a framework which connects them and relates

it to the premise of the paper which is that an infinite growth based economy is neither

sustainable nor possible without adverse implications for the prospects of life.

The study was based upon ecological economic observations and views of many EE

scientists. These views see the economy as a subsystem of a larger local and global ecosystem.

More specifically, I chose the studies of Kallis, Martinez-Alier & Norgaard (2009) to place an


overall wrapper around the theoretical framework due to their explanation of the economy as a

framework consisting of 3 levels all which interact and depend on one another.

Within this framework, there are synergies and dependencies among all three layers.

Any major growth or de-growth in one layer will directly impact the other 2 layers. For

example, if rapid growth occurs in the real economy, the financial economy must grow to

accommodate the need for increased capital. Also, the real-real economy must provide more

resources for energy and materials needed for such growth. This 3 layer model helps to guide

the argument of perpetual growth being unstable and unsustainable within a finite environment

of resources. It is at the 3rd

layer of the economy, the real-real layer, which the model describes

as finite in nature and assumes there are natural limits to output at this layer. Because of the

current size of the financial layer, through stimulus and policy decisions, it has placed

extraordinary demands on the real and real-real layers to balance growth. Ignoring the constraint

on the 3rd

layer of the economy will result in increased environment and social degradation.

The theoretical framework is divided into 5 sections which coincide with the research

model. The framework consists of current and past macroeconomic policies, the 3 layers of the

economy, and the social and environmental output. Within this context, it is presented that the

increased injections of liquidity through the financial layer of the economy are causing an

overleveraged financial layer which cannot be supported by underlying layers of the economy.

One of the underlying layers, the real-real layer, is argued to be finite in nature and thus unable

to support unlimited growth. Thus, unintended outputs are being observed and measured in the

context of environmental and social damage.


Macroeconomic Policy

The increased monetary and fiscal stimulus seen in today’s markets can be traced back to

the economic beliefs presented by John Maynard Keynes and their presumed success in pulling

the U.S. out of the Great Depression. F. Duncan (2010) explains that Keynes’ main thesis was

that a free market cannot always guarantee full employment due to consumer spending mentality.

Keynes was a large advocate for stimulus during times when aggregate demand needed to

improve in order to help the economy recover (Pariente, Aktan & Masood, 2011). Keynes felt

strongly that it is the job of governments and central banks to adjust monetary policy to promote

full employment and once achieved, should be left to the free market to dictate overall demand.

The idea behind the thinking was that by increasing deficit spending, the government would

artificially spur the demand side of the supply/demand equation by which unemployment would

decrease due to the increased demand in goods and services. When these theories proved

ineffective in the 1970’s with high unemployment and inflation, economists and central banks

turned toward Monetarism which sought to tinker with the supply side of the equation by interest

rate adjustments to spur demand versus fiscal stimulus (Thorne, 2010).

Monetarism was the brainchild of Milton Friedman. Friedman’s thesis was that an

increase in money supply as well as interest rate adjustments would have powerful effects on

inflation and growth. W. Wells & H.M. Allan (2011) state that Monetarism was introduced

during the Nixon presidency when Congress was highly critical of a medium sized recession.

Through printing money and lowering interest rates, the U.S. Federal Reserve unleashed an

explosion of prices in the mid 70’s which caused it to hike interest rates to levels never seen

before (W. Wells, H.M. Allan, 2011). When these moves caused a severe recession, the Federal


Reserve switched course and reverted to increasing the money supply to fuel growth. The flip-

flop nature of these moves caused big moves in contraction and growth and it wasn’t until Paul

Volker assumed his role as Chairman of the Federal Reserve that practical and balanced

Monetarism was born. W. Wells & H.M. Allan (2011) explore the idea that Volker wanted to

increase reserves banks needed to carry which meant that increases in interest rates were needed.

In doing so, Paul Volker not only raised interest rates to the highest they’ve ever been, but tamed

a once wild inflation rate to an acceptable 3%-5%. Such bold actions, followed by such bold

successes, further helped to cement the legitimacy and effectiveness of Monetarism in the minds

of policymakers and central bankers.

Faced with new economic uncertainty and rising unemployment, today’s macroeconomic

policies and actions by central banks and governments can be directly traced back to the past

successes of Keynes’ and Friedman’s policies. Unfortunately, past successful policy actions may

just be that; a thing of the past. Current monetary officials have already increased the money

supply by lowering interest rates to near 0% (Monetarism) and have continued to inject money

into the financial layer of the economy (Keynesianism) to only gain marginal results in the

unemployment index and overall growth of economies.

Financial Layer

The financial layer of the economy consists of loans, investments, bonds, debt financing,

derivatives, and other financial instruments used to create wealth from existing wealth. Most

recently, the increase in the financial layer of the economy can be seen through monetary

injections by central banks in Japan, England, China, Europe, and the United States. Yet, this

type of activity has occurred throughout history and more recently since the 1970’s as the U.S.

has shifted from an economy of real growth and production to a financially based economy. As


debts have risen, countries continue to seek increased growth by injecting stimulus into the

financial layer of the economy. Gros (2010) states that these injections, started by the U.S., are

nothing more than a zero sum game of currency wars to try to depreciate currency to increase

exports and spur domestic growth. Kallis et al. (2009) attribute these massive liquidity injections

to the belief that banks have always lent under the premise that asset prices will always continue

to rise in value and there will be infinite growth in the economy. This is a key point as

deregulation, speculation, and central

bank intervention have all lead the

financial industry to take large risks.

Evidence of such a risky mentality

was seen during the 2007-08 financial

crisis where significant declines in

asset values caused the U.S. Treasury

to setup the Troubled Asset Relief

Program (TARP) which set aside $700

billion to remove toxic assets, illiquid mortgage backed securities (MBS), and other poor

performing assets from banks’ balance sheets (S. Ghosh, 2010). TARP, coupled with the

American Recovery and Reinvestment Act of 2009, injected approximately 1.4 trillion dollars

into the financial economy. Since then, the Federal Reserve has embarked on several programs

of bond and mortgage backed securities (MBS) buying to drive down interest rates and spur

lending to help put a floor under the housing market with ‘unlimited’ purchases until

unemployment improves17

. This has increased the Fed’s balance sheet from $1 trillion (1913-

17 See Federal Reserve Policy Statement http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm

Figure 12 – U.S. Currency in Circulation

Source: St. Louis Fed Currency in Circulation


2007) to close to $3 trillion in several short years18

. All of the monetary injections have spurred

growth in the financial layer of the economy, but the real economy hasn’t seen the type of

growth required to keep up with the financial growth. Therein lies the problem as without

growth in the real economy, loans and investments lose value as asset prices fall due to lack of

demand (Kallis et al. 2009). Lack of demand and low GDP is an environment characterized by

higher unemployment. With less workers and companies able to pay back debts, defaults on

loans occur. Simply put, if GDP grows, debts created at the finance level can be repaid and all is

well. However, when GDP shrinks, defaults occur and borrowers have trouble paying back

loans due to falling asset prices and the increase in unemployment. The sluggish economy has

created a vicious cycle as policymakers have had to rescue banks and continue to try to stimulate

the economy by creating artificial growth on the financial layer while hoping this translates into

growth and demand in the real economy19

. As demonstrated by Figure 11, the total amount of

liquidity now injected into the financial layer has placed a very high future claim on natural

resources and required GDP growth in order to normalize the economy.

Real Layer

The real layer of the economy can be thought of what most think of when asked about the

economy. The real layer consists of: manufacturing, employment, productivity, consumption,

and real growth from goods and services. The real layer of the economy has seen an overall

secular slowdown since the 1970’s (Bellamy, 2010). Because of this slowdown, policy makers

have turned to financial stimulus and liquidity creation which have been historically successful

in bringing down unemployment and spurring demand. After World War II, when the world was

18 See Federal Reserve Credit and Liquidity Programs and Balance Sheet

http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm 19 For instance, see K. Ayotte & D. Skeel (2010) Bankruptcy or Bailouts. Journal of Corporation Law.


awash in mass unemployment brought about by war, Keynesian state spending was used to

increase overall aggregate demand and reduce unemployment (Wrenn et al., 208). Currently, the

world is experiencing elevated unemployment levels due to the financial crisis of 2008. Taking

notes from the past, governments and central banks have used deficit spending to try to bring

down unemployment. However, the most recent injections and attempts to spur demand have

brought about subpar growth in the real economy. While many Keynesian based economists are

puzzled at the subpar growth, others have done empirical research which shows growth is limited

in a debt laden environment. C.

Reinhart & K Reinhart (2010) offer

up the theory based on empirical

evidence that once debt levels

reach above 90% of GDP, overall

growth rates are cut in half. C.

Reinhart & K Reinhart (2010)

continue by detailing scenarios that

describe instances when countries

reach even a 60% ratio of debt-to-

GDP, growth rates decline by 2%.

Referencing Figure 12, which was taken from the St. Louis Federal Reserve, you can see that the

U.S. is past the 60% threshold and rising quickly to the 100% mark. While some economists and

sources already put us past the 100% debt-to-GDP mark, this study relied on data from the

Federal Reserve. Further proof of stimulus ineffectiveness is pointed out by Pariente et al.

(2011) which state that fiscal stimulus effectiveness is directly correlated with the indebtedness

Figure 13 - U.S. Federal Debt-to-GDP

Consult St. Louis Federal Reserve


of the country providing the stimulus. In other words, the lower amount of debt-to-GDP a

country has the more effective the stimulus will be. Referencing Figure 7, it is easy to conclude

why past deficit spending was so successful while current stimulus is not having the desired

impact on growth and unemployment. The startling observation is that despite lackluster growth

in the real economy through deficit spending, our policymakers continue to increase growth

through the financial layer as evident in the latest bond buying from the Federal Reserve,

European Central Bank, Bank of England, and the Bank of Japan.

Magdoff & Foster (2011) explored how economic growth measured in GDP affects

employment and growth in the real economy over the last 6 decades. Their findings cite that

typically unless GDP growth is above 4% or higher, unemployment rates do not decrease.

Traditionally speaking, GDP rates of 4% and above are only met during times of war and great

expenditures. The study found that even during economic growth of 1.2-3%, the unemployment

rate rose 70% of the time. When growth was less than 1.1%, unemployment increased in each

year. Thus, under the Financialization Capitalism, it would seem that even in times of great

economic output that unemployment actually increased. With unemployment typically

increasing unless GDP is greater than 4%, policymakers are forced to continue to use

Financialization to ensure nominal growth continues or face deflation of asset prices and

potential defaults on debt.

When applied to the model of Kallis et al. (2009), the growth currently being generated in

the real economy is not enough to keep up with the growing financial layer. Failure to produce

growth in the real economy will result in further deteriorating asset prices due to lack of demand

and put even more pressure on policymakers to continue to try to inflate asset prices by pushing

more money into the financial layer.


Real-Real Layer

The real-real layer of the economy is considered the Earth’s natural resources, their

exhaustion levels, and their replenish rates. This layer of the economy is made up of the

commodities utilized by Capitalism for growth for production, construction, and consumption.

The real-real layer consists of things such as: oil, gas, fish, clean water, fertile soil, timber, and

other resources required for economic growth. Being a planet with a finite amount of these

resources, it is at this level in the economy the paradox of infinite growth economy becomes

clear. It is also at this level where I posit that there is a constraint to how much future growth is

possible. Where Capitalists argue that resources like fish and soil are renewable, Ecological

Economists point to the “overshoot” effect which happens when businesses take larger and larger

amounts of resources out of the environment due to the short-term rewards promoted by

Capitalism (Magdoff & Foster, 2011). Thus, even renewable resources are being depleted

because of a must grow economy and the over-extraction of resources compared to their

replenish rates. Put yet in even simpler terms, the Earth’s population is continuing to grow and

projected to be as large as 9 billion by mid century. The overshoot occurring on natural

resources needed to sustain such large population growth is causing renewable resources to

become non-renewable while also being exaggerated by economic gain.

In 2007 a massive study on the economics of climate change was commissioned by the

UK Treasury Office. The report’s goal was to come up with an ideal way to stabilize the rise in

CO2 and put forth parameters of sustainable growth. Interestingly enough, one of the findings of

the report suggested that if humanity wishes to preserve the planet, CO2 would need reduced

from its current levels of 385ppm to at most 350ppm (J.B. Bellamy, B. Clark & R. York, 2008).

Capitalism and our grow-or-die economic models need to be rethought and move towards


sustainability. This type of change in thinking sharply conflicts with Capitalism and it being a

system which has an incessant drive for economic expansion for the sake of accumulation and

wealth in the short-term (Foster et al., 2008). This incessant drive for expansion overwhelms all

increases in efficiency of materials and energy and thus puts growth and the environment on a

collision course (Speth, 2008). Such a trajectory for catastrophe can be measured in the crises of

the ever increasing rate of species extinction, depletion of ocean bounty, deforestation, pollution,

clean water shortages, soil degradation, and a worldwide food shortage (J.B. Bellamy et al.,

2008). Still, most people continue unaware of the simple fact that a finite environment of

resources cannot adequately sustain infinite expansion without adverse effects to its ability to

sustain life.

Environmental & Social Outcomes

The environmental impact of Capitalism can be seen all over if one looks rather than

ignores it. Then again, our current economic models of growth and wellbeing (GDP and HDI)

do not take into account environmental or social degradation. A. Gorobets (2011) feels that this

widening divide among wealthy and poor can be seen in the increase in suicide rates, mental

illness, pressure of cultural stereotypes, and other physical ailments. This disturbing climb in

illness is rooted in a system of materialistic and utilitarian values which preach overconsumption,

mismanagement of resources, corruption, and lack of tolerance between social and religious

communities (A. Gorobets, 2011). The consumerism driven economy of the Western economies

have led to a system in which material accumulation is priority without regard to the degradation

of the environment and social impact of others (G. Lamberton, 2005).

Ecologists state that Capitalism and sustainability are incompatible. Human economic

growth will always outpace any conservative efforts in a Capitalistic society (Rull, 2011). Our


environment has become so toxic and degraded that the LPI (Living Planet Index), which

measures global species diversity, has declined 35% in the last 30 years (WWF, 2008). With

such rapid loss of biodiversity, some scientists believe that unintended consequences will cause

the 6th

mass extinction on our planet. Until nature is viewed as a necessity to sustain life versus a

commodity to be extracted, consumed, and exhausted, our current social and economic systems

are too recalcitrant and inwardly focused to ever acknowledge or abandon such caustic and

destructive practices (Rull, 2011).

In addition to our environmental troubles, evidence is present which shows a widening

income gap in the U.S. This gap has grown for the past 4 decades. The Gini Coefficient, which

measures income distribution, indicates that the United States has a more severe income

distribution than all of Africa, Europe, and Asia (Yates, 2012). More startlingly is the estimated

Gini Coefficient measured at the peak of the Roman Empire, is only slightly less than the United

States’ current calculation. Data suggests such large gaps in income inequality creates higher

levels of unemployment, less money goes towards education, increased food stamps, and lack of

medical insurance (Yates, 2012). Further, the inequality that has been created through

Financialization produces less aggregate demand for products as the less fortunate cannot afford

the products being offered.

Policymakers continue to try to stimulate growth and employment with Keynesian based

policies of the past. Ecological economists point to the long-term environmental and social

damage being caused by Capitalism due to the interrelationship of the massive financial

economy, real economy, and the real-real economy. Although not all Ecological Economists feel

that an apocalyptic event is in our near future, they do feel it is imperative that we, as a species,


start to change our mind towards infinite growth policies and move towards a more sustainable

pathway.

Figure 14 - Theoretical Framework Variables


Research Model

Figure 15 - Research Model

A qualitative research model was used for this study. A qualitative view of the

Financialization of Capitalism and its long-term implications for the environment and humanity

was proposed. Many sources of information are available on each of these topics. However, the

model proposed was to combine the existing knowledge on these subjects into a bigger workable

model of an economic system which is not only unsustainable, but detrimental to humanity and

the environment over the long-term. Data was collected from peer-reviewed journals, books, and

articles. Secondary references of information were used to fill gaps in the information. Three

processes were used in conjunction with the study: collection, interpretation, and analysis. Data

collection consisted of over 6 months of collecting peer-reviewed publications consisting of:

Ecological Economics, Sustainability, Financialization, Capitalism, and Monetary Policy.


Interpretation of the qualitative data was done through a cyclical process of sorting,

skimming, reading, and note taking. Information and notes were collected and stored within

Microsoft Excel. Excel assisted in the interpretation of the data as it provided a mechanism to

draw synergies amongst popular theories. Sorting consisted of separating each peer-reviewed

publication into its respective category. The categories were then used to make up the different

sections of the research. Following the sorting, each category of research was carefully read,

dissected, and further dismantled to check secondary sources and validate the usefulness of the

data. The categories identified through research are identified in Figure 9.

The impact of the Financialization of Capitalism has created a system where

Financialization is used to try to create economic growth. Policymakers believe that

Financialization of Capitalism through stimulus, deficit spending, and easy monetary policy,

should spur growth due to a trickledown effect from the financial layer to the real layer of the

economy. The model shows the economy as a 3-layered system in which each layer grows or

shrinks based on the layer above or below it. What the model identifies is that the large growth

occurring in the financial layer of the economy is not being seen on the real and real-real layers

of the economy. Due to the lack of growth in the real layer of the economy, more and more

Financialization is being used to try to create growth in the economy thus creating an outsized

financial layer. Because it is assumed the Earth’s natural resource levels are finite, an unlimited

growth economy poses harsh consequences to the environment and social well-being of all. It is

through the interrelationship of these variables which an analysis will be brought forth. Also, the

tight coupling which exists between these constructs provided a theoretical base for the research.

The theoretical base helped to connect the ideas, trends, and postulations which contributed to

better analysis on the issue of perpetual based growth within a finite environment.


Assumptions

The assumptions for this study originated through readings of scholarly, peer-reviewed

articles and journals discussing Financialization and Ecological Economics. There were many

journals and articles discussing the importance of a more balanced approach to economics not

solely focused on short-term economic growth. These studies related to our current monetary

approach which is using credit versus real growth to try to grow our way out of large deficits

which were ran up in the past couple decades. The main assumption in the paper is that a finite

environment of natural resources cannot withstand indefinite resource depletion without adverse

consequences to its inhabitants. This paper assumes that substitution and technology will not be

able to keep up with ecological destruction. Finally, it is assumed that increased growth policies

to rid prior debts and create growth will lead to destruction of environments and cause an

ecological disaster which would threaten humanity’s existence.

Limitations

A limitation of the study was economist’s disagreement on the long-term implications of

the ecological impact of human economic growth. Some economists argue that substitution and

technology will replace depleted resources. However, substitute items and technology are

unknown at this time and are more of a theory versus a reality. Thus, it is impossible to predict

how much of an ecological impact growth will have on our environment and social well-being if

we cannot accurately measure natural resource depletion rates, technology change, and

availability of substitute items. Also, due to the inadequacy of information on natural resource

levels, current market pricing does not reflect actually scarcity of goods because of central bank

intervention in the free market.


Further research could be done in the future once current aggressive monetary policies

reveal their effectiveness and cease to exist. Current intervention of currency and debt markets

by central banks causes discrepancies in the pricing of natural resources. To this point, this

would also give more time to see the impact the policies have had on environmental and social

systems. The same measures used in this study could be used to compare and contrast the impact

of Financialization. Given enough time, the limitations of this study may be able to be overcome

through new technology or economic measures which weren’t currently available at the time of

the study. Thus, at this time, the research can only offer projections based off the available peer

reviewed research.


Data Collection Method

The research relied on the Grounded Theory method of collecting, interpreting, and

analyzing empirical data. The Grounded Theory of data collection collects data before positing a

theory. Grounded Theory was developed by Barney Glaser and Anselm Strauss and it focuses

on developing theories through research. Grounded Theory is done in a reverse manner

compared to traditional methodologies where theories are presented and then backed by research.

The reason that Grounded Theory was chosen was that a theory wasn’t known at the time of

research. Also, according to Glaser & Strauss, Grounded Theory offered a method to develop

theories from topics which are uncharted or unclear. With data obtained in the literature review,

it became obvious that some of the projections the authors were making went into uncharted

waters. Some of the data pointed to extraordinary future events and conclusions which were

esoteric in nature.

The lack of clarity was caused by the limitations of the research and currently available

data. While many peer reviewed data sets were collected, none of the experts or research could

say for sure what the end result of a perpetual growth economy would be on a biophysically

limited planet. However, what were available were themes, concepts, and an Ecological

Economic theory to assist in creating a theoretical framework to wrap around the research.

Because of this, Grounded Theory presented a method to first collect general concepts and

themes to help organize thoughts and key points in the data before putting forth a theory.

The qualitative data was collected through use of the Library and Information Resource

Network (LIRN). Specific libraries such as InfoTrac and ProQuest were used to collect most of

the peer-reviewed journals, articles, and publications. Data collection relied heavily on

document studies and case studies to provide data on prior works.


Methodology Grounded Theory, Document Studies, Case Studies,

Articles, Journals, Matrices

Libraries ProQuest, InfoTrac, CREDOreference

Keywords Searched Monetary Policy, Capitalism, Capitalism and the Environment,

Sustainable Economics

Peer Reviewed Documents Scholarly Journals, Books, Articles, Editorials, Statistical

Reports

Figure 16 - Data Collection

Specific keywords were used to initially search each library consisting of: Monetary Policy,

Capitalism, Capitalism and the Environment, Sustainable Economics. Themes and keywords

were identified in each of the result sets which were then used to refine searches further.

Through repetitive identification of key themes, trends, and keywords, a deeper understanding of

the material emerged which fit with theories presented by Ecological Economics and Kallis et

al.’s theory of a 3-layered economy. The theories of Ecological Economics and the 3-layered

economic model were used as codes to which further data could be searched. Codes were

represented by 3 ring binders which were used to hold specific data sets. The Codes which were

formed helped to identify the key points that needed to be made and provided a general theory to

the research. Through further data collection of peer-reviewed information, a complete

theoretical base surfaced. The theoretical base served as a context to house the main codes and

assisted in the connection of the themes, trends, and keywords to form a complete research

model.


Analysis Method

Figure 17 - Theme and Code Development

Authors Themes Connecting

Theories

Codes

Monetary

Policy

Bradford(2012)

Daly (2008)

Dowd et al. (2012)

Friedman (1965)

Ghosh(2010)

Keynes (1936)

Madaras (1998)

Marcuzzo (2006)

Mason (2010)

Roach (2005)

Selgin (2010)

Thorne (2010)

Wagner (2010)

Monetarism,

Keynesian Economics,

Financialization,

Interest Rate Policy,

Central Banks,

Financial Leverage

Kallis et al. (2009)

3-Layer Economic

Model

Various -

Ecological

Economics

Financial Layer

Real Layer

Real-Real Layer

Ecological and

Social

Degradation

Capitalism Best (2004)

Clark (2009)

Dowd et al (2012)

Foster (2010)

Gros (2010)

Holt (2005)

Krippner (2011)

Mason (2010)

Perrings (2000)

Pressman (2009)

Riggs (2008)

Thorne (2010)

Tomaskovic-

Dewey (2011)

Keynesian Economics,

Economic Policy and

Capitalism

Sustainable

Economics

Anastasios (2008)

Blackwater (2012)

Farley (2010)

Foster (2005)

Foster (2010)

Foster (2011)

Lamberton (2005)

Rockstrom (2009)

Rull (2011)

Shutz (2011)

Speth (2008)

Tomaskovic-

Dewey (2011)

Yates (2004)

Yates (2012)

Ecological Economics,

Sustainable

Economics,

Environmentalism

Capitalism and Benhin (2006) Neoliberal Capitalism,


the

Environment

Brown (2004)

Crotty (2005)

Foster (2010)

Foster (2011)

Gorobets (2011)

Lamberton(2005)

Kallis et al. (2009)

Scheidel & Friesen

(2009)

Wagner (2010)

Walt (2002)

Social Degradation,

Income Inequality,

Ecology,

Deforestation,

Pollution

Codes Themes (2010-

Present)

Results Refined keyword

search

Publications

Financial

Layer Monetary Policy 143 Monetary policy

and interest rates,

monetary policy

and central banks,

Keynesianism, and

Monetarism.

Journal of Economic

Issues, Cato Journal,

Monthly Review,

Economic Record,

Business Economics.

Financialization 274 Capitalism and

global economy,

Capitalism and

securities markets.

Monthly Review,

World Review of

Political Economy,

Journal of Economic

Issues, Science &

Society.

Financial Leverage 7,266 Leverage, banking,

leverage and

capital markets,

derivatives,

options, shadow

banking, fractional

reserve banking.

Int’l Journal of

Economics and

Finance, Journal of

Business Ethics,

International Journal

of Business and

Management.

Financial Debt 11,771 Debt and consumer

credit, debt and

personal finance,

debt and economic

conditions.


of Business, Journal

of Business Ethics,

Managerial Finance,

Cato Journal,

Economics,

Management, and

Financial Markets.

Real Layer Keynesian

Economics

9,067 Keynesian theory,

Keynesian theory

and economic

models, Keynesian

Journal of Economic

Issues, Journal of

Post Keynesian

Economics, Monthly


theory and

economic policy.

Review, American

Economist, Labour.

Capitalism 12,094 Capitalism and

history, capitalism

and globalization,

capitalism and

economic theory.

The Journal of

American History,

Journal of Business

Ethics, Science and

Society, Labour,

Social Forces.

Real-Real

Layer Sustainable

Economics

15,779 Sustainable

development,

sustainable

development and

economic

development.

Journal of Business

Ethics, Management

Decision,


of Business and

Social Sciences,

Appropriate

Technology

Development.

Ecological

Economics

7,464 Ecology, ecology

and sustainable

development,

ecology and

economic theory,

ecology and

ecosystems.

Behavioral and Brain

Sciences, Journal of

Business Ethics,

Bioscience,

Environmental

Management.

Ecological

and Social

Degradation

Capitalism and

the Environment

6,501 Capitalism and

socialism,

capitalism and

business

community,

capitalism and

history.

Journal of Business

Ethics, Journal of

American Studies,

Capitalism, Nature,

Socialism, Business

History Review,

Contemporary

Sociology.

Neoliberal

Capitalism

1,621 Globalization,

globalization and

neoliberalism.

Labour, International

Labor and Working

Class History, Journal

of Business Ethics,

Progress in Human

Geography, Journal

of Economic Issues.

Income Inequality 12,608 Income and

Inequality, income

inequality and

poverty, income

inequality and

economic theory.

BMC Public Health,

American Journal of

Public Health, The

Lancet, Social

Indicators Research.

Figure 18 - Data Matrix A

*** See appendix Figure 22 for Data Matrix B**


Figure 19 – Word Cloud

Data Analysis

Data collection started by a general search on the keywords Monetary Policy, Capitalism,

Capitalism and the Environment, and Sustainable Economics. Peer reviewed case studies,

document studies, articles, and journals produced data sets used to construct a matrix for theme

and code development. The four search terms produced observable themes represented in Figure

17. By themselves, the themes just represent chunks of data. However, through continued

research of these themes, common theories emerged. The theories, also represented by Figure

17, provided a context for the themes by connecting each of them within a fuller developed


theory. Once connectivity was established via theories, codes were pulled from the theories to

separate the general themes observed from the original keywords. The refined data presented in

Figure 17 also provided popular authors within each of the general areas of interest. Using this

data, I was able to construct Data Matrix A.

The data in Data Matrix A represents a hierarchical representation of the codes, themes,

results, publications, and refined keyword searches which were distilled from the original 4

keywords. The number of search results was limited to results from 2010 to present day. The

data collected in Data Matrix A also represents information pulled from the LIRN library from

the ProQuest and InfoTrac databases. To further develop data for research, more refined sets of

data were needed. At the top level, Data Matrix A uses the codes generated by using one of the

main theories of the research which shows the economy consisting of 3 layers (financial, real,

real-real). This theory was developed and published by Ecological Economists Kallis et al.

(2009). The matrix then uses themes produced from Figure 17 to refine a keyword search used

to further breakdown the data. From this refined set of data, keywords and publications

appeared.

Data Matrix B represents a matrix of qualitative information developed and designed

from the codes generated in Data Matrix A. The model mirrors Data Matrix A in design. The

data is presented by using popular authors discovered in Figure 17 while also using the themes

presented to group related qualitative information under its respective code. Specific data was

taken from the research to add weight to the codes and themes in Data Matrix B. Data Matrix B

relies on specific qualitative data obtained from the research discovered in Figure 17and Data

Matrix A. By plotting information within the constructs of earlier development, the data can be

shown to tie the overall model together.


Figure 19 was created to represent the mix of keywords used in the literature review. The

larger the word, the more frequent the word was used. As the graphic shows, keywords such as:

growth, Capitalism, financial, Financialization, economy, environment, U.S., income, deficit,

environmental, inequality, and banks are used quite frequently. This was an attempt to gain

visual representation on the keyword frequency of the research.


Research Questions

Rq1: What impact does the Financialization of Capitalism have on the environment and

social well-being of humanity?

Exploitation of the Earth’s resources is directly related to humanity’s recalcitrant

economic and social systems of growth (Rull, 2011). Evidence of this mindset is the Western

view that nature exists to serve humanity and to be a servant to humans (Foster, 2001).

Capitalism’s roots are based on a system of unlimited human growth which sees nature more of a

commodity than essential for life. Being that Capitalism is geared towards growth at any cost

through exploitation of humanity and the environment, mass absorption of energy is needed to

fuel such growth while simultaneously dumping the left over waste back into the environment

(Foster, 2001). Capitalism has also been described as a system which is driven by single minded

groups pursuing their own short-term interests where nature and human labor are exploited

(Foster, Clark & York, 2008). It can also be demonstrated that the expansion of economic output

overshadows all bandwidth of materials and energy thus concluding that economic growth is

counterproductive to overall environmental health of the planet (Foster et al., 2008).

Rq2: What are the implications of a perpetual growth based economy?

Unlimited human growth – the tenet of capitalism – is incompatible with the environment

and the balance of ecosystems (Rull, 2010). It is pure fallacy to believe that continued economic

growth can be achieved in a world which has been proven to be finite in resources. While

Capitalists will argue that technology and substitution can be used for depleted resources via the

Hartwick-Solow rule, Ecological Economists believe they are living a fairy tale and that there is

no evidence that the environmental base is capable of supporting unlimited growth (Holt, 2005).


Computer models ran by MIT in the 1970’s clearly showed that given the levels of natural

resources, population growth, extraction levels, and pollution, economic growth could not be

sustained without damaging the prospects of future generations (Meadows et al., 1972).


Definition of Terms

Capitalism. Economic system based on production and creation of goods or services for

profit. In regards to Western Capitalism, it’s the idea of using wealth to create more wealth;

albeit digital or real.

Cognitive Dissonance. A theory which explains why people rationalize their views and

decisions in order to make them feel comfortable between reality and their expectations.

Currency with intrinsic value. Currency backed or pegged by a commodity or source of

wealth. Past examples of intrinsic value currency have been silver and gold due to their finite

property as well as the effort required in mining, refining, and coining the metal.

Debt-to-GDP. A ratio which helps to indicate the overall health of an economy. The

ratio is calculated by dividing the current debt by current GDP.

Ecological Economics. A disciplinary approach to economics which addresses the

interdependence of the evolution of the human species and the natural ecosystems they inhabit.

The emphasis of Ecological Economics is the treatment of economy as a subsystem of the

ecosystem.

Fiat Money. Money backed by nothing more than government regulation or law.

Financialization. The shift of an economy from production to finance.

Great Recession. Refers to the period between 2008-2012 in which a global recession

and slow growth was attributed to the housing market and asset bubbles.

GDP. Refers to gross domestic product representing the amount of growth of all services

and goods for a country within a specified time frame.


Hartwick-Solow Rule: Tries to define the amount of produced capital that offsets

declining stocks of non-renewable resources.

Human Development Index (HDI): Calculated by using the Gross National Income

(GNI), Education level, and life expectancy to produce a value which measures overall well-

being of a region/nation.

Keynesian economics. An economic theory which advocates an active government in

monetary policy to ensure growth and stability. This theory was developed by a British

economist by the name of John Maynard Keynes.

Leverage. A term used to describe borrowing money or using financial instruments to

multiply gains or losses.

LTRO. Long Term Refinancing Operation. Process where the European Central Bank

provides refinancing to European banks.

Monetarism. An economic theory which argues for increased role of governments in

controlling the amount of money in circulation by altering interest rates and affecting the supply

side of the supply/demand equation.

Monetarization. The idea of printing money to pay off debts. Many governments around

the world are printing fiat money to adequately meet debt requirements.

Nominal growth. A measure of growth without an inflation adjustment.

QE. Quantitative Easing. A process where the United States Federal Reserve Bank buys

treasuries, mortgage backed securities, and other securities through its primary dealers such as:

Goldman Sachs, JP Morgan, and others in hopes of reducing interest rates.


Real growth. A measure of growth adjusted for inflation.

Real economy. What is often thought of as the measure of economic activity through

employment, goods and services output, GDP, manufacturing, and consumption of goods.

Real-real economy. The measure of the level of natural resources and their exhaustion

rate through consumption.

Stagflation. A period of economic activity characterized by high inflation and high

unemployment with slow to no growth.

Sustainable Economics: Idea of an economic system that balances growth of the

economy with sustainability of the environment and social well-being of humans.

Summary and Transition

This chapter outlined the Financialization of Capitalism as a system of financial tools

being used to grow the financial layer of the economy in hopes this growth translates into real

economic growth. The economy exists as 3 interrelated layers in which authorities are using the

financial layer to try to artificially stimulate growth on the real-layer and real-real layer. Due to

the last layer of the economy being finite in nature, the side effects of an unlimited growth

economy are being seen through indebtedness, destruction of the environment, and the widening

gap of social inequality. The study sets forth a framework which describes the actions and

policies of today as unsustainable and one which is placing extreme duress on our environment

and our well-being. Chapter 1 also included a twofold significance of the study consisting of: (a)

the lack of sustainability of an ever growing financial layer and (b) the social and environmental


effects of continued economic expansion. The twofold path highlights the significance of the

study as it applies to governments, central banks, and every single one of us.

The literature review presented expanded on the call of sustainability by giving insight

into many Ecological Economists’ views on the Financialization of Capitalism. The literature

review also helps to quantify Capitalism and give readers a better understanding of how it has

become a grow-or-die framework in which constant growth is trying to be achieved through

Financialization.

In Chapter 2 it is argued that Capitalism has turned into a grow-or-die economic system

through Financialization, excess debt, and leverage of our financial layer within the economy.

Additionally, the argument is presented that seeks to replace the view of nature being a

subsystem of the economy to the economy being reliant on nature. Because of this, I posit that

the 3rd level of the economy, the real-real layer, is finite in nature and is the sole reason

Capitalism’s pursuit of unlimited growth is a fairy tale. Also, due to the resource constraints

inherent in the 3rd

level in the economy, pushing for continued growth is resulting in unintended

outputs being seen in the degradation of the environment and social inequalities of many

cultures. Finally, the discussion ends by seeking to inform readers on a couple potential

outcomes for Capitalism if change isn’t implemented. Also, it concludes with a recommendation

on how sustainability and balance can be achieved.


Results & Discussion

Data collected and analyzed helped to frame an overall model of the data. The data

produced a model consisting of an Ecological Economic theory via a 3-layer economy. The 3-

layer economy built a container which housed themes, and variables or keywords. What

emerged through the data was that there was an overlap of themes, keywords, publications and

authors. The overlap was seen through synonymous meanings, articles and journals which

crossed into each of the codes, and a common set of publications amongst all data. Figure 16

and 17 set out to provide a connection with data. As demonstrated in Figure 17, a tight coupling

exists between Monetary Policy and Capitalism by the overlapping terms evident in the

publications and refined keyword search presented in Figure 18. This led to the discovery of a

common term called Financialization. Financialization was the glue that tied Capitalism closely

to Monetary Policies of Monetarism and Keynesian Economics. Essentially, it was through the

use of Monetary Policy that Capitalism was being driven. Once this relationship was

established, Keynesian economics and overall economic policy was then connected to

Sustainable Economics through various forms of economic policies like globalization and

Ecological Economics. This section too was heavily correlated with keywords and connections

in Figure 18. Finally, the connection between Sustainable Economics and Capitalism and the

Environment was established by Environmentalism and Ecology. After a relationship between

the theories posited by Ecological Economists was confirmed, further exploration of specific

data was needed to address the research questions of the paper.

Figure 19 was used to show the frequency of keywords within the literature review. This

was done to ensure that there is an overlap of the same keywords in the literature review as there

were in the data collected. The model shows that keywords such as: Financialization, economy,


Capitalism, financial, environmental, inequality, income, social, U.S., banks, and natural

resources are all prevalent in the data. By referencing Figure 17 & 18 the keyword frequency of

the literature review further reinforces a relationship among the themes.

Once a general context for the data was put together, data was collected to answer the

research questions which were separated in Data Matrix A & B. The connectivity between Data

matrix A lays out how and what data was collected. Through Data Matrix A further connections

became evident through refined themes, and search terms. This connection can be seen in the

trade journals, publications, articles and related keyword search. Data matrix B builds off of data

matrix A by providing peer-reviewed qualitative data from case studies, journals, and articles

and applying them to the categories developed in matrix A. Further, data matrix B outlined the

variables operating within each of the layers of the economy and groups corresponding data

within it. Quantitative search results from 2010 to present for each theme were outlined

suggesting the prevalence of data within the theme.

Throughout the research, data from articles could be easily placed in most all columns in

Data Matrix B. Authors which contributed the most to matrix B were given a higher precedence

and used to research for further supporting documentation. Secondary categories were attached

to the table to better fulfill the complete model of the research which posits that unintended

outputs of the economy can be seen through ecological and social degradation. These too, show

a connection with available peer reviewed data from themes and keywords.

The data contained in matrix A & B addressed the two research questions of the paper.

Namely, through a visual aid of a matrix, a relationship is seen from the Financialization of

Capitalism to the breakdown of ecological and social systems. Qualitative data was laid out in


the matrix which showed an overlap of the themes. It was through the relationship of a 3-layered

economy model brought forth by Ecological Economists that the connection of empirical peer

reviewed data presented itself. By following the qualitative data in Matrix B, it contends that

since the 1970’s Western economies have shifted from a production based economy to a

financially driven economy. Also, it has created a new layer in the economy called the financial

layer which supports the discovery of the term Financialization. Within this layer several

variables emerged consisting of: rapidly rising debt levels, over-leveraged balance sheets, and

aggressive monetary policy. These variables interact with the real layer of the economy through

employment, GDP, income/wages, and overall consumption through supply and demand. By

tinkering with variables within the financial layer, policymakers believe that this will impact the

real layer and in-turn ‘kick-start’ the real economy. However, the data also shows that another

layer of the economy exists below the real layer. This layer, the real-real layer, is the layer

which contains natural resources and social systems needed to fuel the real layer of the economy.

The empirical evidence showed that ecologically speaking, this layer of the economy can only

support so much growth due to resource limitations and overshoot effects present within

Capitalism. Because of this constraint, it is putting a lot of pressure on social systems and the

environment through which the real economy interacts and uses for growth. Due to this

constraint, the output of current aggressive grow-or-die polices inherent in Capitalism are

causing ecological and social degradation to be observed.

The 2nd

research question set out to prove that perpetual growth within a finite

environment cannot be achieved without adverse consequences for our environment and social

systems. Data matrix B plots out a visual connection of qualitative statements by peer reviewed

researchers which does just this. This is shown by following the flow of qualitative information


from the left to right and downward within data matrix B. The overlap of qualitative data

through the different columns in the matrix reinforces the 3-layer model brought forth by

Ecological Economists. Because of the establishment of this relationship, the 2nd

research

question was addressed. The data suggests that Capitalism is a grow-at-any-cost economic

system. The data also points out that there is a constraint on the 3rd

layer of the economy which

cannot support perpetual growth. Because there is a relationship between the 3 layers of the

economy, perpetual growth can never be achieved because of a constraint that growth is

dependent on. Current efforts to achieve growth are resulting in adverse consequences being

observed through social and ecological systems. Bluntly put, an unlimited growth economic

system within a finite environment and in the context of a 3-layered economy is delusional at

best.


Conclusion & Recommendations

This chapter will review the research and summarize findings. The research sought to

prove that Capitalism has turned into a grow-or-die economic system by means of

Financialization starting in the 1970’s. Furthermore, it was argued that due to the Earth’s

resources, renewable and non-renewable being finite in nature, that macroeconomic policies

based on unlimited growth are futile in nature. The research was based on two questions of (a)

what impact does Financialization have on the environment and social well-being of humanity?

And, (b) what are the implications of a perpetual growth based economy? The socioeconomic

significance of the study affects all of humanity and could be used to enlighten many to the

destructive forces of a grow-or-die economic system.

Data was collected using peer reviewed resources consisting of journals, publications,

articles, and books. The data was obtained through ProQuest and InfoTrac libraries using the

keywords: Sustainable Economics, Capitalism, Ecological Economics, Monetary Policy, and

Capitalism and the Environment. Information was grouped into categories which formed

specific datasets used to form a thesis and theoretical base for the paper. Through dissection,

grouping, and organizing data, a research model also emerged. The data and model reinforced

evidence that our current economic system puts us on an unsustainable path.

Capitalism has become a grow-or-die framework through Financialization. Evidence

presented showed that Capitalism has shifted from production of real goods and assets to

finance. This shift has caused close to $6 trillion in assets to move to the financial industry since

1980. Because banks and financial firms have believed that assets will continually appreciate in

value, deregulation, loans, leverage, risk, and asset concentration have been used to grow an

already large financial layer of the economy in hopes that this growth ‘trickles’ into growth in


the real economy. Such disparate growth of the financial layer when compared to the real

economy, any decrease or deflation of asset prices would cause defaults and trigger enormous

losses on the financial layer. Thus, policymakers, until real growth in the economy is achieved,

face the pressure of continuing to inflate the financial layer or face deteriorating asset prices

from lack of demand in the real economy. Unfortunately, real growth relies on availability of

natural resources which have been proven to be finite in nature and often non-renewable due to

overuse.

The finite nature of natural resources is at a paradox with an unlimited growth economic

system. In Capitalism, nature is seen as a commodity or input into the growth and success of an

economy. This would mean that the planetary boundaries we live within dictate that there are

natural thresholds or limits to the amount of economic growth that can be achieved. It is through

pure hubris that we have come to believe that the delicate balance which was needed to support

life is now there to serve life in an unlimited capacity. By Capitalism trying to extend beyond

natural growth thresholds, environmental and social breakdowns are the unintended outputs of

these policies.

Social inequality and environmental damage have never been such a serious issue for our

species. Population growth combined with species extinction, global warming, carbon levels,

clean water, and pollution are threatening to destabilize the natural balance needed to sustain life.

Experts have documented studies which show social inequality leads to higher rates of

unemployment, incarceration, mental illness, higher health care costs, and increased reliance on

government assistance just to name a few. The Gini Coefficient, which measures income

inequality, puts the United States slightly below estimates of Rome at its peak. Scholars also

agree that as income inequality rises, the country becomes less democratic as power continually


becomes more concentrated. Many point to the 1970’s-80’s as the time when a shift towards

Financialization occurred which saw inequality rates widen. The environmental and social

evidence against the Financialization of Capitalism is strong. Environmental and social

breakdowns are likely to continue to occur until there is a shift in awareness, beliefs, and culture

towards sustainability.

Unfortunately, in a world geared towards short-term economic reward versus long-term

ecological and social impact, it is my belief that our consciousness will not change until the

financial system is reset and/or a psychological shift in view towards our planet and

sustainability is put ahead of profit maximization. The concentration in power has become so

large that those in power will not acknowledge the ecological or social impact of our doings as it

threatens the very system and power they have created. Also, we cannot rely on government as

Financialization and concentration of wealth has caused democracy to give way to corporate

agendas. What should alarm readers is that we haven’t learned our lesson from past civilizations

such as the Romans. We are continuing down the same path of unlimited growth through

consumption of resources, but our population now totals over 7 billion. Pushing growth through

the use of exotic financial instruments in hopes of getting around the physical constraints placed

upon us by the very thing that supports our existence could be seen as insanity. Thus, without a

change of mindset and economic reform on what healthy growth should be, we are bound to

make the same mistakes of the past, but see larger and more destructive forces due to population

size. Until this change is made, we will continue to see our quality of life actually diminish

while arguably decreasing the prospects of life for future generations through irreparable damage

to our environment.


Positively speaking, because Capitalism and Financialization are systems which

humanity chose to promote, the recommendation for our current situation could be as easy as

promotion of a more sustainable economic system. But, this type of system would focus on de-

growth and sustainability versus unlimited growth. Under Capitalism, this system would

ultimately fail because it goes against wealth and resource accumulation. As Rull (2011) states,

a change towards sustainability of accumulation would most likely not happen as society and our

cultural norms have become too recalcitrant to acknowledge or abandon destructive practices.

The norms and society we live in place a great amount of importance on material acquisition and

wealth. This forms a society which, again, falsely sees nature as a servant to humanity and

quickly neglects the fragility of life and importance of the environment containing it. Promotion

of de-growth and sustainability places the focus on the long-term survival of our species while

also adequately measuring social well-being and environmental quality.

In an anthropocentric society that rewards short-term economic performance over long-

term sustainability, many do not see or are not concerned about future generations. Humanity’s

affinity towards unlimited growth and wealth accumulation causes many to be blind to the

destructive forces at play. While it is impractical to project a date of a collapse, our current

trajectory of unlimited economic expansion disregarding environmental and social constraints

will eventually catch up to our species. Without a sincere shift in attitude and policy, one which

de-growth and sustainability is placed at the pinnacle of importance, our species will at some

point face a catastrophic collapse be it of economic, social, and/or ecological nature. This

catastrophic man-made crisis will be what is needed to shift human nature. Such crises are what

are needed for a large change. Crises arise out of necessities. Necessities are the catalysts for

which change is based.


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Appendices

Figure 20 - Americans Living in Poverty

Source: U.S. Census Bureau

Water Facts

Source: WaterFacts.org

1.4 billion people live without clean drinking water

Two-fifths of the world’s population lack access to proper sanitation

Every eight seconds a child dies from drinking dirty water

80% of all sickness and disease worldwide is related to contaminated water, according to

the World Health Organization

90% of wastewater produced in underdeveloped countries is discharged untreated into

local waters

80 of China‚ major rivers are so degraded that they no longer support aquatic life

90% of all groundwater systems under major cities in China are contaminated

75% of India‚ rivers and lakes are so polluted that they should not be used for drinking or

bathing


60% of rural Russians drink water from contaminated wells

Unless we change our ways, two-thirds of the world‚ population will face water scarcity

by 2025

Rapid melting will reduce the Tibetan glaciers by 50% every decade, according to the

Chinese Academy of Sciences

More than two-thirds of Chinese cities face water shortages

90% of the Europe‚ alpine glaciers are in retreat

Water managers in 36 U.S. states expect water shortages by 2013, according to the U.S.

Government Accountability Office

California has a 20-year supply of freshwater left

New Mexico has only a ten-year supply of freshwater left

Florida‚ rapid use of groundwater has created thousands of sinkholes that devour

anything , houses, cars and shopping malls , unfortunate enough to be built on top of

them

The U.S. interior west is probably the driest it has been in 500 years, according to the

National Academy of Sciences and the U.S. Geological Survey

Lake Mead, the vast reservoir of the Colorado River, has a 50% chance of running dry by

2021

40% of U.S. rivers and streams are too dangerous for fishing, swimming or drinking

46% of U.S. lakes are too dangerous for fishing, swimming or drinking because of

massive toxic runoff from industrial farms, intensive livestock operations and the more

than 1 billion pounds of industrial weed killer used through the country each year

Two-thirds of U.S. estuaries and bays are moderately or severely degraded

1.5 million metric tons of nitrogen pollution are carried by the Mississippi River into the

Gulf of Mexico every year


Figure 21 – Data Matrix B

Financial Layer Themes Real Layer Themes Real-Real Layer Themes

Author Leverage /

Monetary Policy

Debt Employment /

GDP

Income /

Consumption

Ecological Social

Thorne

(2010)

Financial sector

has grown to 40%

of U.S. GDP.

Monetarism and

the Keynesian

based policies

have been moved

front-and-center

which seek to

increase growth

through

aggressive

monetary policy.

Growth of

financial

derivatives create

illusory growth of

economies.

Digitization

of paper

assets and

deficit

spending is

the only

thing

keeping our

financial

system

afloat.

These

policies have

rapidly

increased

public and

private

sector debts.

Central banks

believe that

stimulus and

inflation can

‘kick-start’ the

real economy

and reduce

unemployment.

There is an

underlying belief

that through the

use of stimulus

and inflation, the

real economy

will begin to gain

momentum

through

employment and

GDP.

Central bank

monetary

policy created

the housing

bubble.

Greenspan’s

policy of low

interest rates

created an

environment

of excessive

risk taking.

Mason

(2010)

Systematic link

between money

and growth. Must

continue

increasing money

supply to fuel

growth or face

collapse.

Current

accounting

and market

practices

ignore future

liabilities.

There is a

misallocation

of capital

producing a

temporary

demand and

supply effect

which doesn’t

accurately

reflect reality.

Policies created

by central banks

and governments

have evolved into

a system

problematic or

society and

nature.

Financial

collapse is

imminent if

the connection

between

money and

growth isn’t

destroyed as

the financial

economy will

outstrip all

growth of the

real economy.

Yates (2012) The U.S.’s

current GINI

Coefficient

measures

slightly

below the

Roman

empire

before its

collapse.

High levels of

unemployment

are tied to

income

inequality and

poor

distribution of

wealth.

Income inequality

is the highest it has

ever been. This

creates an

environment which

puts pressure on

consumer spending

while forcing

banks to keep asset

prices lifted.

Overall

happiness,

incarceration

levels, and

unemployment

are highest in

the U.S. states

with the

highest level

of inequality.

Victor

(2010)

Depletion of 3rd

world natural

resources by

developed

countries leaves

little chance of

future

development of

these countries.

Increased

growth

through

Capitalism has

caused

increased

levels of social

divides and

poor public


health.

Dowd et al

(2012)

The top 6 bank

executives were

paid 516 times the

median household

income and 2.3

times the average

CEO of fortune

500 companies.

Fiat based

monetary

systems

allows

governments

to boost

spending to

pay for wars

and

expenditures.

To mask an

overly large

financial

sector ridden

with debt,

GAAP

accounting

principles

allows banks

to mark-to-

market

which

entitles them

to dictate

what they

deem to be

future profits

from

investments.

U.S. owes

over $200

trillion in

long-term

debt.

Human labor is

encouraged to

be replaced

with capital.

Jobs are moved

overseas while

executives earn

increased

salaries.

Fiat based

currencies ignore

ecological limits

as governments

and banks are

free to spend

without

constraint.

Foster

(2010)

Capitalism has

morphed from

production of

goods and

services to

interest rate

modifications,

stimulus, options,

futures, and

exotic financial

instruments.

Growth of

capitalism relies on

increased consumer

consumption of

goods and services.

Increased excessive

consumption

within the confines

of a finite planet of

resources is

delusional at best.

Scientists point

out that 3

ecological

boundaries have

already been

crossed which

threaten our

existence: climate

change,

biodiversity, and

the nitrogen

cycle.

Foster

(2011)

Financialization is

the lasts stage of

Capitalism and

while it does

temporarily

inflate asset

prices, it doesn’t

fix the underlying

Carbon

emission for

the U.S. was

1/3 the entire

world.

Increased

output and

labor requires

Growth in

Capitalism comes

from absorption

of energy and

materials while

dumping waste

back into the

environment at an

Capitalism

sees nature as

a servant to

humans to be

exploited for

resources and

profits. The

system fails to


structure of

stagnation and

aggravates it if

anything.

higher use of

fossil fuels for

energy.

increasingly

alarming

exponential rate.

Any reduction of

energy costs

through green

energy will be

quickly

overwhelmed by

the increased use

of energy via the

Jevons Paradox.

see

humanity’s

dependence on

nature.

Magdoff &

Foster

(2011)

Only economic

growth > 4%

has a positive

impact on

unemployment.

GDP growth <

4% typically

results in

increases in

unemployment.

There is an

‘overshoot’ effect

caused by

Capitalism when

businesses take

larger and larger

amounts of

resources out of

the environment

due to bounties or

pay. Continued

exploitation of

resources will

cause pollution

far beyond what

the earth is

capable of

handling.

Capitalism

teaches that

greed and

exploitation of

workers are

good for

efficient

markets and

growth to

produce

welfare for all.

Freeman

(2010)

Financialization

has caused as

shift in

investment from

productive assets

to finance

because of the

increased returns.

Deregulation of

financial markets

has increased risk

concentration and

rewarded

speculation.

Debt

restructuring

and keeping

employees

working is

not as

profitable as

CDS (credit

default

swaps)

created by

the financial

industry. In

the case of

YRC

trucking,

Goldman

Sachs would

profited

more from a

default

versus

restructuring

debt terms.


Tomaskovic-

Dewey

(2011)

$6.6 trillion

dollars has

transferred to the

financial sector

from 1980-2008.

Congress passed

the Financial

Modernization

Act of 1999

clearing the way

for investment

banks,

commercial

banks, and

insurance

companies to

merge.

U.S.

accounted

for 43% of

all capital

imports.

Increased

returns being

made possible

through

finance

reduced

investment in

human capital

and innovation.

Further

reinforcement

of this

occurred when

executive pay

was pegged to

stock price.

Corporations

started to invest

more in finance

than innovation.

These actions were

further reinforced

as top executive

pay was linked to

stock price vs.

production.

Holt (2005) Employment

and growth

without

depleting

resources for

future

generations

should be the

model for our

economic

system.

True price

discovery through

free markets would

protect natural

resources.

However,

government

policies aimed at

increasing

consumption and

demand have offset

the free market

forces.

Computer models

ran by MIT

showed that

natural resource

levels wouldn’t

be able to handle

the increased

levels of

population,

resource

extraction,

pollution, and

economic

activity.

An economic

mindset and

belief system

of infinite

growth will

result in

permanent

damage to the

well-being of

our species.

Kallis et al.

(2009)

Central banks

inflate asst prices

through monetary

injections to stave

off defaults on

loans.

Banks lend

under the

premise that

asset prices

will continue

to rise. If

this proves

to be false,

banks will be

left with

massive

amounts of

debts and

defaults on

loans.

Monetary

injections try

to cheapen

currency to

increase

exports and

increase

demand of a

country’s

product. This

has a

temporary

effect on

employment,

but doesn’t

address

structural

issues.

Lack of

consumption and

income is an

environment

characterized by

low economic

output and

consumption.

If the needed

amount of

economic growth

were to occur to

deflate the

financial layer of

the economy, the

ecological and

environmental

stress would be

overwhelming.

Rull (2011) Exploitation of

resources is

directly related to

humanity’s

recalcitrant

economic and

social systems of

Cultural

norms formed

by years of

growth is good

for all

mentality most

likely won’t


growth. be changed as

society places

extreme

importance on

material

acquisition.

Foster et al.

(2008)

A major shift of

economies took

place since the

1970’s where

secular growth

has all but stalled.

To supplement

this growth, the

Western

economies have

turned to

Financialization.

Capitalism is a

system with an

increasingly

expanding

appetite for

growth for

short-term

wealth. This

wealth is

ignored over

long-term

consequences.

It can be shown

that all advances

in energy

technology only

act to increase

demand for

energy thus

concluding that

economic growth

is

counterproductive

to the overall

health of the

planet.

Speth (2008) Incessant drive

for growth

overwhelms all

efficiencies of

an environment

to cleanse

itself. This

results in

biodiversity

loss, depletion

of bounty,

deforestation

and pollution.

The ecological

impact of a

growth at-any-

cost society puts

the human

species on a

collision course

with disaster.

Guillaume,

F., &

Schoutens,

W. (2012)

The total amount

of derivatives and

leverage has

increased to over

20 times the size

of the global

economy.

Davis

(2009)

Instead of

investing in

innovation

and

production,

total

investments

of non-

financial

firms in

financial


instruments

raised from

28% in 1980

to 50% by

2000.

Fligstein &

Goldstein

(2010)

The period of

1980-1990’s

saw decreased

oversight and

almost a

reinforcement of

Financialization.

The Federal

Reserve and the

Securities and

Exchange

Commission

(SEC) resorted

to encouraging

the creation of

new financial

instruments and

actually pulled

back from their

regulatory roles

Lamberton

(2005)

Western beliefs

and values are

often hidden

from view and

are at the root of

overconsumption.

Western beliefs

and perspectives

are needed to be

re-examined

while

establishing

values and a

mindset towards

a just, equitable

and sustainable

society must

prevail

Social

inequality can

be handled by a

3dimensional

model of

sustainable

development

consisting of

ecological,

economic, and

social

dimensions

Our current

economical

policy

focuses only

on economic

objectives

while

providing

little

incentive for

decision

makers to

choose

sustainability

over short-

term gain.

Figure 21 - Data Matrix B