EXCERPT FROM “THE GROWTH SPIRAL” (2006)

By Hans Christoph Binswanger


“In the growth process, economic circulation expands to a spiral that follows an exponentially ascending path. To explain the motive and possibility of this growth path, the dynamics of money, energy and human imagination must be emphasized more clearly than in conventional economic theory. Breaking the tight corset of conventional theory focused on a timeless static balance is vital. Theory must be opened to include historical developments in which this dynamic is unfolded. Recollection of older economic insights is helpful since these insights considered the temporal dimension of economics more intensely. The theory of the `growth spiral’ offers an important foundation to everyone who wishes to deeply grapple with the perspective of growth and the tendencies to its acceleration and retardation.”

The book is divided in three parts:

· In a first part, the market process is represented as an interaction of businesses and households including money and money capital. The presentation is based on the classical dynamically oriented theory of supply and demand that is more consistent with the growth tendency of the economy than the conventional theory geared to a static balance. The dynamically oriented theory can be substantiated operationally by including the profit- and loss calculation and the balance sheet of business. By including money, the so-called dichotomy of value- and price theory, the division of theory into an explanation of relative prices and an explanation of the price level can be overcome. A special theory of money is not necessary any more.
· In the second part, the production- and distribution process is described by including energy and nature as well as the boundless human imagination. The bottom is knocked out of the conventional theory of marginal productivity by acknowledging the fact that the natural and imaginary foundations of the economy are constantly expanding. The conventional theory is replaced by the net product theory based on the distinction between restitution costs, costs that must be restored to maintain production and the net product or surplus making possible the further growth of the economy.
· In the third part based on the foundations in the first and second parts, the growth spiral of the economy is presented with the growth pressure inherent in it.
· In a summary and outlook, the chances of growth and its dangers connected with a constant growth of the economy in a limited world are described.


THE PRESSURE TO GROWTH

Interview with Hans Christoph Binswanger

[This interview published in St. Galler Tagblatt August 22, 2006 is translated from the German on the World Wide Web, www.tagblatt.ch.]

[The economy is oriented to growth ever-more strongly. But can it understand the inner law of growth? St. Gallen professor Hans Christoph Binswanger has strong doubts. In his latest book “The Growth Spiral,” he explains what growth means and how a serious criticism of growth can start.]


The term economic growth is all-pervasive and occurs in every address of politicians and economists. What does growth mean?

Hans Christoph Binswanger: Growth is implicit in everything that can be produced and sold for money, the whole social- or gross domestic product. By growth, one thinks a constant growth rate should be maintained, for example two, three or four percent. This also implies that the absolute increase becomes ever larger.

Is growth only defined through money?

Binswanger: Everything resulting from the production of individual firms that can be sold or bought is meant. Growth in this sense is a figure for the production that is assessed in money.

Is this a one-sided and narrow appropriation of the term growth that in the general usage also includes inner values?

Binswanger: The term economic growth says nothing about inner values or that external world comprised of the kingdom of plants and animals growing in a natural way. Nature has its own growth law. First, life grows quickly, and then more slowly and finally stops. Nevertheless the opinion prevails in the economy that growth is never-ending.

In your book, you sharply criticize the economic model taught in conventional economics. What do you question in the current model?

Binswanger: The basis of conventional economics is the so-called neoclassical model of balance that became the foundation of economics at the end of the 19th century, 130 years ago. Conventional economics pretends the economy is still a farming economy.

What was the traditional farming economy? To what extent is something very different happening in today’s market?

Binswanger: Farmers produce for themselves in the farming economy. They are self-sufficient and only exchange their surpluses. Three essential factors that determine today’s economic events were lacking: money in the sense of capital, energy that supplements and replaces labor by driving machines and the imagination that invents ever new products, wakens new needs and thereby expands the utility horizon.

How does your model explain the economic dynamic?

Binswanger: The modern market does not involve the exchange of surpluses of self-sufficient farmers. Rather businesses and households meet on the market. The businesses produce and the households consume. Households buy the products from the businesses with the incomes paid by the businesses for the production services (labor and so forth).

What is the advantage of this division of production and consumption in businesses and households?

Binswanger: The advantage is the division of labor. Businesses can specialize and manufacture products in ever-greater quantities with the help of energy-driven machines. This production can constantly grow… The advance payment that the individual businesses receive is their capital. Without the insertion of capital, there are no businesses, no division of labor and no increase of wealth resulting from the division of labor.

Speaking of capital is always speaking of profit. Is that right?

Binswanger: Yes. Whether capital, the advance payment, will flow back when products are sold at prices that cover costs is uncertain. A risk arises. This must be compensated by a profit that at least covers the risk. The economy only functions when businesses can expect such a profit.

What is the prerequisite for this aggregate economic profit?

Binswanger: Profit arises when products can be sold for more than they cost, when the revenues from the sale of products is greater than the expenditures in their manufacture.

How is this possible? How can the revenues be greater than the expenditures?

Binswanger: Obviously only when money constantly flows. This happens when the banks give credits with the help of money creation. Replacing gold- and silver coins with paper money made this possible. The paper money circulates through credits.

Doesn’t this lead directly to inflation?

Binswanger: No. The real gross national product, the money supply and profit, grows as the credits are used by businesses to pay for the investments and to increase production through the investments. Interest is also paid to the bank out of the profit. In this way, the growth of the gross national product becomes a process that is kept going in a constantly expanding spiral.

Can this continue indefinitely? Must the spiral constantly expand?

Binswanger: This must continue because constant profits are impossible without further growth. Otherwise the risk of capital insertion would not be justified any more. Then there would be no more investments including replacement investments. The economy would shrivel. There either will be growth or shriveling.

Your earlier publications were characterized by a critique of growth. But this gook designs a theory that explains growth.

Binswanger: My book is a diagnosis. Diagnosis must precede therapy. Diagnosis is important both for those worried about the endangerment of growth and those who point to the ecological and social dangers caused by growth.

A pressure to growth is undeniable. What is reasonable global growth?

Binswanger: Under given conditions, one could live with a global growth rate of 1.8 percent. The current global growth rates of four to five percent are not necessary. To eliminate growth, the whole system must be rebuilt.

Is there another perspective than the pressure to growth?

Binswanger: Growth is based on institutions that people have constructed. People could change the institutions again. But this means: swimming against the stream. That is hard.

We temporarily “rejoice” that the state secretariat for the economy (Seko) raised the 2006 growth prognosis in Switzerland from 2 to 2.7 percent.


BOOK REVIEW OF “THE GROWTH SPIRAL”

By Bernhard Steiner

[This review was published in: Das Goietheanum, Nr. 39, September 22, 2006.]


The book on which the economics professor Hans Christoph Binswanger labored for around 12 years represents a lifework. It summarizes two questions in a total view: the ecological question and the money question.

The book develops terms leading to an organic understanding of economic processes. Time is included as an active factor. The potential to intervene in economic life seems more inherent in the terms developed by Binswanger than in conventional mechanistic terms…

The book is a tour de force and opens up interesting perspectives for re-envisioning economic processes. If, for example, money is not neutral, it “takes sides.” The question then is: For whom? In the present economic structures, money flows firstly to those who already have much so the gulf between poor and rich widens more and more. Organizing the money creation in the future so all people of a currency area can participate in it and have an access to money is one possible conclusion that could be drawn from the non-existent neutrality of money.

“The Growth Spiral” turns to interested laity who have at least a basic knowledge of the economic terms, not only to economic professionals. Reading this book will strengthen whoever is ready to grapple with the arguments. The book gives an overview on economic processes and leads to a deepened understanding of its inner dynamic.


BOOK REVIEW OF “THE GROWTH SPIRAL”

By Christoph Fleischmann

[This 2006 book review was published in “Vorwarts Online.”]


Binswanger revisits vital questions for society. In the past, pro-growth methods were used to mitigate the collateral social damages of growth – in striving for “sustainable growth,” for example. However policy was always decided for growth in the case of conflict between growth and its negative consequences.

This book concentrates on basic categories. Therefore it is politically explosive.

“Everyone cries for growth; growth should be as high and sustainable as possible. This does not exist in economic theory. Conventional theory is based on the ideas of circulation and balance. However such an economy cannot grow permanently. If it does, the “limits of growth” are immediately threatened. A rather vague term “technical progress” is used to explain this acceleration. Whoever wants permanent growth cries loudest for innovations and better training – for the sake of technological growth.”

Hans Christoph Binswanger makes the economic circulation into a spiral – by describing the dynamic of money as a permanent growth engine. People’s idea of money and its use is dynamic; money is not dynamic in itself.

That is a new and old beginning. The Greeks already sought the soul of money. The Scot John Law triggered a boom in France guided by money and saw this boom burst. Money has its own dynamic and in this sense is a productive force and can produce growth, money as our idea of money, not money as a thing in itself.


BOOK REVIEW OF “THE GROWTH SPIRAL”

By Helmut Wolf

[This review was published in: Neue Zuricher Zeitung, 9/25/2006.]


In this late work, Binswanger summarizes his early works and condenses his different arguments to a total view. This book recapitulates his turbulent thirty-year engagement in ecological economics.

In this book, Binswanger raises the polemical political discussion of growth in the seventies and eighties to the expert plane. He leads a delicate confrontation with well-known arguments and theories. The reader learns both economic thinking and critical objections to this way of thinking. He hears forgotten arguments and authors with pioneering perspectives and is offered a multitude of helpful ideas about money, imagination (human capital), prosperity and shortage.







THE GROWTH SPIRAL: BOOK REVIEW

By Yolanda Kappeler

[This book review of Hans Christoph Binswanger’s The Growth Spiral: Money, Energy and Imagination in the Dynamic of the Market Process, June 2006, is translated from the German on the World Wide Web,  http://www.metropolis-verlag.de/Die-Wachstumsspirale/554/book.do - oben. Hans Christoph Binswanger is an emeritus professor of economics at the University of St. Gallen, Switzerland.]


“For years the author presented research work analyzing the fundamentals of economic theory. He investigated the driving forces of the economy, namely money, energy and imagination. This triad sets the tone for the dynamic of the market process: money as the most powerful symbol that can be used worldwide, nature providing raw materials and energy and the person who invents products and ways of production with his imagination. With know-how, the person appropriates the forces of nature, creates new needs and products through imagination and sets in motion the market forces with the symbol of money he created. With that, a dynamic is generated that has seized the whole earth since the times of the discoveries in the 16th century.

In his earlier works, Hans Christoph Binswanger clearly showed that we have fallen into a basic contradiction with our current economic mode. We act as though the earth and her resources were inexhaustible. This resource base constantly expands through the creation of money by the national banks and the awarding of credits by the banks. More and more human activities and more and more natural resources are incorporated in the economic realm with expansion of the money supply. The economizing of all areas of life seems inexorable.

Conventional wisdom/misconception sees the economic process as a circulation in which money flows like blood between all economic subjects and a more or less stable balance prevails. The banks awarding credits make possible business investments so goods can be made through production that are purchased and consumed by the employees of businesses. Hans Christoph Binswanger shows that a growth spiral without end really occurs, not a circulation, driven by the boundless and inexhaustible human imagination for satisfying natural and produced needs and also driven by greed, hunger for power and needs for prestige.

Binswanger refers to the growth pressure and discusses the basic problematic of an infinite growth in a finite world. He analyzes the well-known economic theories and asks whether all production forces, above all natural resources, are included as factors of production or whether the theories are blind to reality, so to speak, and therefore can hardly help in understanding the current problematic of the economy, worldwide consumption of resources and the increasing gulf between poor and rich.

In this work, Binswanger satisfies the highest scholarly demands and develops a stimulating diversity of themes. He grapples with many economists and their models. His view ranges over many intermediate stations back to Aristotle and then to the future. The great arc suggests the foundation of our culture is involved in the question of the mode of the economy. Therefore this work can be recommended to everyone. The investment of time is rewarding. The horizon for understanding the world as it is is strengthened. The diagnosis for economic theory, above all for neoclassical models, is clear. The discipline is called to grapple with this fundamental criticism of current models.