The macroeconomic money-nature nexus: Are growing money supplies a relevant obstacle on the way to an ecologically sustainable global economy?

Abstract

Production, consumption and nature depletion have been growing rapidly for more than 300 years, even faster than exponential population growth. A comprehensive understanding of the causes behind this great acceleration is necessary if we are to achieve a sustainability transformation. This paper is intended to draw the attention in the sustainability debate to the amounts of money that have been growing rapidly all over the world. The money supply has not been a main focus so far, since for the economic mainstream it is not a growth driver, as according to the neoclassical view, money growth is largely neutralized by inflation, while for Keynesians it merely follows economic growth. However, the growing money supply means greater liquidity for consumption as well as for investments in production, assets and resource exploitation. An expansion of the money supply is even a prerequisite for a simultaneous increase in investment and consumer spending. At the same time, the expansion in the supply of raw materials, goods and services keeps inflation rates behind money growth globally. The paper aims to identify and illustrate the causalities of how the money supply and the use of natural resources are interconnected by means of economic activities. This money-nature nexus would explain why, due to high money growth rates, both the real economy and the depletion of natural resources and ecosystems continue to increase despite all efficiency improvements and sustainability efforts to date. It should therefore be a realistic fear that without a global limitation of exponential money growth, ecological sustainability cannot be achieved.