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Coconuts as money

August 22, 2009

From Ran Prieur’s blog.  The modification date on the text file is 2008-10-08 15:53, so I’m guessing this was from last fall.

You might have heard the thought experiment where we’re all on an island using a fixed number of coconuts for money, and if we start lending coconuts at interest, we create imaginary coconuts so it’s impossible for all the debts to be repaid. To make the simplest possible example, if there’s only one coconut, and I lend it to you on the condition that you pay me back two, we now have two imaginary coconuts and only one real coconut. You can’t pay me back two, so instead you pay me back one and become my slave. Now, I could give you the coconut as wages and you could give it back to me, but it’s much better for me if I loan it to you again and create more debt, and that’s what happens in the real world.

Multiply that by billions, and it’s still not as bad as the real situation, because once we have a system where someone can make money merely by lending, we get predatory institutions that don’t just lend the money they have, but money they don’t have. The really big fake money is created not as interest, but as fake principal to enable the creation of more debt/slavery. Inevitably, the lending institutions grow like cancers to consume the whole economy, and the supply of real stuff cannot match the exponential growth of money/debt, and the financial system collapses. And the foundation of the whole nightmare is the rule that if you loan someone money, they have to pay you back more.

The video gets a bit foilheady at the end, with an obviously mythical quote from David Rockefeller to the Trilateral Commission, and the naively pessimistic assumption that if the bank-masters own all our stuff on paper, they own all our stuff for real. They have to enforce their claims of ownership, and I think they’ve already passed the limit of how much ownership they can enforce with propaganda. Soon they’ll either have to give up some ownership, or enforce it with guns. Not only is that less efficient, but once they do it, they can’t go back to propaganda, and the game is nearly over.


Thanks Rob for helping me clarify my thinking on interest. I came up with another island-coconut story that makes the point better: Imagine an island with three people, Morgan, Chase, and you. Each of you has ten coconuts. Morgan and Chase agree to hold each other’s coconuts and pay interest to each other, and you think that’s silly and just keep your coconuts under your bed. Eventually, through compound interest, they have accounts worth hundreds of coconuts, while you still have only ten. Of course, if they try to withdraw their coconuts, the system collapses, so to make it more stable, they use pieces of paper that represent coconuts, and later they don’t even use paper, but just keep a ledger of how many coconuts everyone supposedly owns. They agree to rules where they can lend each other even more coconuts than they have in paper money, so they can grow their money faster, until there are tens of thousands of symbolic coconuts. Meanwhile you still have only ten, and now if you want to buy stuff, it’s going to cost more than it did before. Probably you will have to sell your actual coconuts to Morgan and Chase to afford to eat.

Your coconut example is very good. Here is how it can work out without ending in
slavery. Mr. Coconut-bags gives Coconut Farmer Joe one coconut and demands two
back. Farmer Joe plants the coconut and gets a crop of eight coconuts, he gives
two back to Mr. Coconut-bags and keeps six to plant next year. In the real world
money can be loaned out and wealth can be created. I could loan someone paint and
a canvas and she could make a painting and trade it for paint and a canvas and
some rice and pay me back with interest and still profit.

The problem is, for real stuff to keep up with the money supply, more and more stuff that was previously outside the realm of money has to be dragged into it. Every year Farmer Joe has to cut down more of the rain forest to grow more coconuts, until there’s no rain forest left. And more and more of the activities we used to do as part of the gift economy, like art, have to be done as part of the money economy. And when we start running out of stuff to monetize, we have to create new paid activities that are neither useful nor fun, like most of what people do in cubicle-land. We have to manufacture false needs, like leaf blowers, and design products to wear out sooner. Eventually, the supply of stuff people want to buy falls behind the supply of money, and prices go up. For a while, the rising prices can be diverted into speculative bubbles, like housing, but when those prices are corrected, the imbalance has to go somewhere else.

2 Comments leave one →
  1. jleeger permalink
    October 8, 2009 5:39 pm

    Only true if you can find a way to brainwash the other inhabitants to look at coconuts as “money” instead of as food (delicious, at that!).

    • October 9, 2009 1:31 am

      Ha! That is a good point, but the analogy is still good at showing how insane/totally divorced from reality the current money economy is.

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