the plan for the future

The collapse of complex societies

12 October 2022

The law of diminishing marginal returns
The law of diminishing marginal returns

The breakdown of societies and civilisations is poorly investigated, considering the likelihood and implications of such an event. Most people think life after the collapse is a war of all against all, where only the strong survive. There is a breakdown of authority and central control, law and order disappear, local self-sufficiency replaces trade and specialisation, and populations decline. People can't rely on defence, maintenance of public works, or delivery of goods anymore.

In his book The Collapse of Complex Societies, Joseph Tainter investigates some known cases from the past and available theories about their causes. He then comes up with a general explanation of societal collapse. Tainter defines collapse as a rapid loss of social and political complexity. Existing theories mention external causes like resource depletion, (environmental) catastrophes, changing circumstances, or internal causes like conflict and mismanagement.

Human societies are problem-solving organisations. Societies become more complex when they add institutions to address new problems as they emerge. After a military conflict, a society may maintain a standing army to deal with future wars. Institutions have benefits, most notably when they are introduced, but they can outlive their usefulness and become a liability. Each additional institution comes with costs for the population. According to Tainter, the law of diminishing marginal returns applies to investments in societal complexity. At some point, the cost of additional complexity exceeds the benefits.

Maintaining complexity requires surpluses. In agrarian societies, most people were subsistence farmers. Their produce was scarcely enough to feed themselves and their families. Few surpluses were traded in markets or appropriated by governments. Since the Industrial Revolution, surpluses have risen dramatically, and societies have become far more complex. In modern societies, only a few per cent of the population are farmers. Most people nowadays have jobs in the service sector and do not produce the things we need.

An abundant supply of energy provided by fossil fuels made it possible. A shortage of firewood in England triggered the fossil energy revolution. High energy prices made coal mining economical. As mines in England were underground, they were subject to flooding. It led to the invention of the coal-powered steam engine to pump out water from the mines. Steam engines were subsequently improved and powered the Industrial Revolution. Likewise, expensive fossil fuels may promote the use of new energy sources.

When societies experience a stress surge, for instance, resource depletion, a catastrophe, or mismanagement, the available surpluses drop, and the cost of maintaining complexity can become prohibitive. The current world economy requires growth or continuously increasing surpluses. When energy and resource supplies do not grow, surpluses do not either, and stress may emerge. Many people will see their prospects turn grim and may grow angry.

Competing societies cannot collapse voluntarily as a competitor will take over. In the past, competing polities kept investing in their militaries, regardless of the cost to their populations. Societies do not have to break down under those conditions. Europe has seen centuries of intense military competition and warfare without states collapsing. If competing societies did break down, they usually did so in unison when their dwindling populations were exhausted and starving.

A recurring pattern is a frantic increase in coping activities on the eve of a breakdown. These activities can be public works to legitimise the leadership, for instance, building monuments, adding hierarchical levels to manage dwindling resources, investing in the military to raid neighbours, and cultivating barren lands to scrape out a bit of additional agricultural output. Cleaning up the environment after polluting it may fall into this category. It is a frantic attempt to sustain an unsustainable level of economic activities.

Ending the growth of our economic activities and scaling them down to a sustainable level is in our best interest. Reducing resource usage entails less complexity, in other words, simpler lifestyles. If everyone abandons all unneeded consumption, the world economy will probably implode. Many businesses would go bankrupt, and many people would lose their employment.

Hence, it is prudent to own some physical gold and silver, preferably in coins. But that may not be enough if society collapses. Perhaps, you also need a kitchen garden and a gun. It is a scenario that many people dread and prepare for. Societies may not break down and may remain functional when resource inputs decline. There are a lot of excesses we can do without. And a graceful complexity reduction is preferable to an outright collapse. That is where Natural Money comes in.

Tainter sees collapse as a consequence of diminishing marginal returns on investments. If additional investments yield nothing, there is no point in making them. Why should you invest if your expected return is close to zero? At that point, investments halt and the economy contracts so that even fewer investments make sense, and the economy contracts even further. In the most extreme scenario, debts will not be repaid, the financial system may break down, and money may become worthless.

Negative interest rates can change the picture. If an investment yields little and you can borrow at a negative interest rate, it might still make sense to invest. That can help to turn a breakdown into a more graceful contraction. And a holding fee on currency could make the financial system more robust and able to withstand a financial shock resulting from an economic decline caused by halting non-essential activities. That is explained in the blog post Permanent Liquidity.

1. The Collapse of Complex Societies, Joseph Tainter, Cambridge University Press, 1988.