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The Age of Responsibility

An Overview

by Olaf Ehrenreich & Hans-Walter Schmidinger

The free market has been the method to distribute resources and incomes, the system that has given us amazing degrees of prosperity over the past century and which we use to this day.

But this style of economy is based on certain conditions. The first and most important thing is the shortage of resources. This is the basis of the “economic” incentive of exchange for scarce materials, in which every consumer is willing to pay for his necessities out of his own abundance. In the end, this means that it is the spare resources, i.e., the factors of production, that determine whether an economy is able to grow or stagnates. In other words, human activity and its standards of living are basically dependent on natural resources. (This has been the basic insight of the Roman welfare state, which understood that supply and consumption were inextricably linked.)

If natural resources become scarce, there is a huge incentive to produce for what is in limited supply. In fact, this is the basic idea behind the claim by Alan Greenspan, former chairman of the US Federal Reserve, that “[g]rowth is easy. It’s the economy that is hard.” Due to the low price of borrowing money, people have an incentive to keep the economy going by increasing consumption. The result is an endless race to the bottom in which the demand for growth increases with each year, which in turn fuels ever more activity.

What happens now? According to the old model, we should have reached saturation point. This is why most economists claim that debt has to reach a new level in order to stimulate the economy. The subsequent credit crunch is the result of the new situation: We have over-produced and over-borrowed. This applies to the Western economies and to those parts of the world undergoing an economic transition from development to industrialization, including China.

The Limits of the Model

The primary problem with this model is that natural resources are not the only

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