Custodian Capital

File:Timor Coral Reef.jpg

How can the preservation of the world’s ecosystems be financed? The solution might be simple: by selling them to future people. How could that work?

We are used to think of an account balance with a plus sign as money we have, i.e. assets, and an account balance with a minus sign as money we owe, i.e. debts. But we may also think of an account as a stream of money through time. If the account balance is positive, money is paid in at an earlier time and removed at a later time, which means money is sent from the past into the future. If the account balance is negative, money was first taken out at an earlier time and is paid in at a later time, so here the money flows from the future to the past. So the sign indicates the direction of the flow of the money through time.

We are used to think of debts as something negative, but if we think of them as money flowing backwards in time, we might also use it as a tool to solve problems. As we will see, we don’t even need to call this “debts” in some cases. I have already outlined the idea in Trading with the Future. Let me elaborate it a little further here.

Let’s take an example: a group of people is currently searching for ways to save the world’s oceans. One idea would be to buy up parts of the ocean and build custodian organizations that would then manage its resources in a sustainable way (see for example http://www.newscientist.com/article/dn24418-biologists-call-for-part-privatisation-of-oceans.html#.Ul7oK1C-2m4 – that article mentions the area between Mozambique and Madagascar as an example, an area with coral reefs and a biodiversity hotspot).

We could create an organization for this purpose – Let’s refer to it in this article as OCO, for Ocean Custodian Organization – that would have to buy up parts of the oceans to put them under protection. It could be a kind of foundation.  But how could this be financed? Well, people of the future will definitely have an interest in protecting parts of the ocean. They will prefer to receive this area intact instead of getting an undersea desert where all the reefs have been destroyed and most of the species have become extinct. So we can assume that the people of future generation would be willing to send us money for this purpose.

So in order to get the necessary money, we have to create a stream of money from the future to the present. This could take the form of an account the OCO opens at, say, the World Bank. The money is taken from that account. This creates a negative balance, indicating a flow of money from the future to the present. Technically speaking, this is a credit, but, as I will now discuss, it will never have to be paid back, so we can think of it as something else. Let me coin a new term for this and call it “custodian capital” (CC) (suggestions for a better term are welcome).

The OCO uses the money to buy up the ecosystems to be protected. It can then make contracts with governments and businesses to make sure that that piece of ocean is used in a sustainable way only .

Let’s say the bank granted the capital only for a limited time, e.g. 30 years. So the next generation has to pay it back. So how will they do it?

If the ecosystem bought by the OCO has been used sustainably, it is still there 30 years later. So the people then could just found a new organization, “OCO2″. “OCO2″ takes a credit again for the next 30 years, buys the piece of Ocean from OCO and takes over. So by founding OCO, we have sold that ecosystem to the next generation and now, the next generation sells it to the next generation again.

Instead of doing it this way, we can just extend the original credit for the next 30 years, and so on. So The OCO2 of our thought experiment is not needed. As we see, as long as the value or asset bought for the money is not destroyed, the “credit” does not need to be paid back. The asset (a piece of ocean in the example) moves into the future and the money for it comes from the future. Since the credit does not have to be paid back, ever, we don’t need to think of it as a credit. It is just a continued stream of money from the future to that point in time where the money was used to buy the asset. Only if the asset is destroyed the money would have to be paid back.

Since the money is never paid back, we need not think of it as a credit. We can think of it as “custodian capital” instead.

Where does the bank (in our example: the world bank, which might play such a role in the future) get the money from? Actually, it creates the money. What is needed for this purpose is an international contract that allows the bank to issue any amount of credit necessary for such purposes. The rich nations of the world would have to change the laws for their central banks for this purpose. The central banks would be instructed by law to issue custodian capital in any necessary height. This may be done whenever it can be demonstrated that future people would have an interest in preserving a certain resource (the question how to decide this is crucial but beyond the scope of this article, but not of this blog – I assume here that the preservation of ecosystems and biodiversity IS in the interest of future people). The central banks (like the European Central Bank, the Fed ect.) would actually create new money here (essentially by creating an account and taking the money out) and give it to the bank (like, in the example, the world bank) where the “credit account” of the OCO is opened. Instead, the OCO might have an account directly with the central bank (and the laws would have to be designed in a way to allow this).

In this scheme, the custodian organization (here the hypothetical OCO) operates as a proxy for the people of the future. It is an organization acting on behalf of the people of the future, based on the assumption that the preservation of a resource (by allowing only sustainable, that is, non-destructive, use of it) is in the interest of the people of the future. The custodian organization is organized as a foundation that does not operate on the basis of exploitative short term interests of today’s people and businesses but is obliged by its constitution to preserve the resource. In today’s economy, it operates as the owner of the resource. This way, we effectively sell the resource to future generations. Future generations own it and are the stake holders. However, each generation has to pass it on to further generations still. Since the capital comes from the future, the amount appears as a negative figure, but this has to be viewed not as a credit (to be eventually paid back) but as own capital of humanity that each generations in turn receives from the next in return for the resource administered and preserved by the respective custodian organization.

The balance on the custodian capital account can be seen as the width of the stream of money from the future. It is counterbalanced by the value of the resources preserved. If the resource is valuable, it might be very large. This is no problem. We can view this balance as the amount of turnover of our trade relationship with future people. A large amount of trade with the future means that we are preserving a large amount of resources and reach a high degree of sustainability, so it is something positive, not something negative. Unlike the case of classical public debts, it is not necessary to put this amount in relation to the volume of any economy, e.g. of the GDI of a country or the world, since it does not need to be paid back. It does not have to be limited to any fraction of the GDI. Instead it is limited by the value of the resource covered by it.

It is not necessary to put any interest on this “credit”. Its purpose is not to make money but to sustainably preserve a resource for the future. As long as there is inflation, one might add a nominal “interest” to compensate for inflation, but this added amount would also not have to be paid back but would only reflect the constant value of the resource.

To make this scheme work, we would only need the political will to do so, and we would have to change a few laws concerning our money and the way it is created by central banks.

(The picture is from https://commons.wikimedia.org/wiki/File:Timor_Coral_Reef.jpg?uselang=de)

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4 comments

  1. Reblogged this on The Asifoscope and commented:

    An elaboration of my ideas about preserving ressources by selling them to future generations.

  2. You will have to forgive me Nannus, I only ask these questions because I love the ideas, and whenever I come upon ideas that are conducive with my own values, I want to help bring them to fruition. Part of helping is providing constructive criticisms, so please be patient as I peruse these articles. I love the ingenuity in this, and I think it’s a great idea, but I’m failing to see how it would be implemented. People are too cynical for an ideological shift of this size to occur… at least I think they are. What would be the first step (or second step, granting that your idea is the first step)?

    1. One more thought, one that is a bit too metaphysical for my taste and probably for your taste as well and one that probably belongs in the “weired idea of the week” category, but let me share it anyway: if the many-worlds interpretation of quantum mechanics should be correct, there might be not just one future but many. Maybe most of our futures are bad, but maybe the story has a happy end in some of them, and maybe this blog has a positive effect in those histories that leads to a future where people avoid destruction. So if I have an idea that has a very, very slim chance of having a positive effect, while I cannot see how it can have a bad effect, I better post it.
      In any case, I feel better posting these thoughts instead of taking them to the grave and then thinking on my deathbed: what if I had posted those ideas :-)

  3. You are probably right, but I decided to post these ideas anyway. I find it very unlikely that enough will be done fast enough to avoid a global disaster, both ecologically and economically. The most likely course of events, I suppose, is a catastrophic collapse of our civilization and a far reaching destruction of our eco-sphere. And most people are either ignorant or cynical or both.

    However, I decided to publish my ideas about how to avoid this anyway. I don’t think they are going to cause harm. They are the best ideas I could come up with about this. There are cases in history when ideas got amplified and became influential. It is unlikely if I publish them and impossible if I don’t, so let me better publish them.

    What I am proposing, if implemented, would work by the forces of economy. So you would not have to convince everybody, just the people who are in power. Once implemented, such a scheme would unfold automatically. So it does not require that everybody starts behaving rationally in a way that is good for the environment. I am not proposing to create a “new human being”. That would be totally impossible. I am proposing to create new institutions.

    The resistance against such a scheme would come from those who are in power now and are benefitting (in the short term) from the current unsustainable (that means: destructive and self-destructive) economy. We have a relationship of power between today’s people and the people of the future and between the rich and powerful and the rest of us.

    To make it happen, the powerful people who are now the de-facto owners of the majority of assets would have to be bought out of their assets and out of their power. It might be an ugly idea, but I think these people must, in a sense, be bribed. The scheme has to be constructed in a way that they would gain advantages from it. Some maybe of the money “taken from the future” would have to be “misused” to make the whole thing happen. At the moment I don’t have any better idea. This is a power problem.

    Power can be given away voluntarily, but that is unlikely. Power can be overthrown, but future people cannot make a revolution and revolutions are likely to go astray since the cannot be controlled. And power can be corrupted.

    Before anything can happen, these ideas would have to spread. My strength is not to be a campaigner or activist or communicator. My strength is in analyzing things, in finding new ways to look at things differently. I can only hope that other people who are good at activism or campaigning take this stuff up and try to get it into the main stream of discussion. At this moment there are maybe 10 or 20 people who see this, so it does not have any effect. However, information can be copied and can spread, and information can become active.

    Mainstream economists would dismiss my ideas as nonsense, but that does not stop me from publishing them here. In my way, mainstream economy is a big nonsense in itself.

    In any case, I think cynicism is a destructive attitude. I am trying to avoid it. If what I am doing here is ridiculous, let it be so.

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