[INTRODUCTION]

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"JF: The goals of an economic system are quite distinct from the design of the system. And because we're so trapped in our linear reductionists' making stuff mindset, we think that if we just set different goals, we'll end up with different outcomes. But it turns out that's not true. You actually have to change the design of the system to come up with different outcomes."

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[0:00:29] JS: That's John Fullerton, architect of regenerative economics and founder of the Capital Institute. And this is the Denizen podcast. I'm your host and curator, Jenny Stefanotti. 

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In this episode we're talking about regenerative economics. We've all heard the word regenerative and understand the necessity of evolving from an extractive to regenerative economy. But what does it actually look like to do so? 

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John spent decades working in finance ultimately becoming a managing director at J.P. Morgan before he stepped away in 2001 knowing there was something deeply wrong about the finance industry that he was participating in. John embarked on an extensive intellectual inquiry that led him to formulate regenerative economics and publish his paper in 2015, Regenerative Capitalism: How Universal Patterns and Principles Will Shape the New Economy. 

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In this conversation with John, I tease out the core idea of regenerative economics, that we can use the universal principles underlying healthy and sustainable living and non-living systems throughout the real world as a model for economic system design. We discussed the major influences in John's thinking. How modern economics is based on fatally flawed assumptions? The eight principles of regenerative capitalism that he outlines in his work. Our bleeding edge thinking on finance and money. And also, the course he's currently offering on regenerative economics at the Capitol Institute, which he describes as more of an Awakening than a course. 

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As always, you can find show notes on our website www.becomingdenizen.com. There you can also sign up for our newsletter where I send our content to your inbox alongside news from our many partner organizations including the Capital Institute. 

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John is one of the most progressive and grounded thinkers I've encountered. His background in finance enables him to see a path forward. This conversation is just the tip of the iceberg in terms of what we can learn from him. Enrollment is now open for the course in regenerative economics. I hope you'll consider joining me and others in the Denizen community in the course this fall. In the meantime, I hope you enjoy this conversation. 

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[INTERVIEW]

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[0:02:18] JS: I'm really excited to dig in with you on regenerative capitalism. Last time we talked about this, it was almost three years ago. And I know a lot has happened since at the Capital Institute. And I'm excited to talk about that and what you're seeing from your vantage point. 

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What I love about you, John, is that you were in the belly of the beast for 20 years. And you left J.P. Morgan and embarked on your own intellectual inquiry, which has culminated in your views around regenerative capitalism and your work at the Capital Institute. But I feel like in many ways that intellectual inquiry of yours parallels a lot of what we're talking about in the Denizen conversation. 

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I'm just curious what were the things that were particularly influential in your thinking or significant aha moments as you tread that path that's led to where you are now? And then we'll get into regenerative capitalism. 

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[0:03:05] JF: Okay. Well, first of all, hi, Jenny. Nice to be back with you. I can't believe it's been three years since our last official conversation. But excited to be back with you and with your Denizen community. 

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You're right, it's been a sort of a long – I think of it as a search that I didn't really set out to go on, but I just kept being startled by reality and the understanding that I was getting. In fact, I left Wall Street with no real idea that I would be doing this. It was probably triggered by 9/11 and a real fundamental what the hell is going on here kind of a question. 

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But I guess the first real aha moment was reading Limits to Growth, Donella Meadow's work. And it just became quickly and sort of mind-numbingly obvious to me that the system we've created of exponential growth on a finite planet wasn't going to be able to continue into the future. And they had figured this out in the 1970s, but they were early. And we happened to live at the moment when the chickens were going to come home to roost. 

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And I read that before I was at all knowledgeable about climate change. It was sort of this distant thought that as something I was interested to explore as part of this. Probably was 2002 or 2003 that I read Limits to Growth. But as a finance guy, became very obvious to me that our financial system is what's really at the heart of driving the necessity of exponential growth and that it was a physical impossibility. Now what are we going to do? That was the first one. 

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And then I spent years after 9/11 fairly philosophical search as well. I remember, believe it or not, reading Tolstoy. And at the end of Tolstoy's Kingdom of God is a statement. The essence of it was the purpose of life is to speak the truth and to have the courage to speak your truth. 

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And here I have found this what was a self-evident truth that no one was talking about. And so, I've really been motivated to understand and grapple with the reality of our economic system and communicate that ever since. And then I guess one more I would have to say was in the epiphany category, was reading Herman Daly's For The Common Good. 

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There's a lot about Herman's work obviously that is foundational to my work. I think of regenerative economics as the next frontier of ecological economics. But in this book, he wrote about a word that none of us use anymore, which is a word called cremastistics. And he explained that Aristotle understood that cremastistics, which means the use of money to make money, was unnatural. And he distinguished cremastistics and economia, which is the root of the word economy, but also the root of the word ecology. 

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And it struck me that people like me who worked on Wall Street were practicing cremastistics, the use of money to make money, without realizing that that was a decision and a choice we made and quite distinct from the practice of economics and that it was unnatural. It seems that people for a very, very long time have understood the damage of an economic system that morphs into a speculative system. 

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[0:06:28] JS: One of the things you say in your paper is regenerative story starts with a single core idea. We can use the universal principles underlying stable healthy and sustainable living and non-living systems throughout the world as a model for economic system design. How did you get there? 

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[0:06:44] JF: That's a good question. I'm an impact investor as a side project. Try to walk the talk with my own investment capital. And one of the projects I got involved in was what's called Holistic Planned Grazing, which is a term and a practice that a guy named Allan Savory has been working on for about 40 years. And he's somewhat of a controversial guy as a result of a TED Talk he gave. But the basic idea is that the grasslands are a living system and our industrial agriculture industry has essentially – well, the first thing we – speaking in the United States, we collectively slaughtered all the buffalo. And the reason why there's 12 feet of soil under the state of Iowa is that the Buffalo and the grasslands have a symbiotic relationship and worked well together, which created soil, which creates the possibility of life. 

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And our industrial meat industry has essentially severed that relationship with between large herbivores and the grasslands. And we've converted a lot of the grasslands to corn fields, which are annual crops, not perennial crops. So, they extract and deplete soil. 

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And Allan's work was to use largely cattle, but any herbivore. Works with sheep and goats for example. Mimic how the buffalo used to roam by managing herds of cattle the way the buffaloes used to roam. And that unlocked regenerative potential and built soil, and retained water, and built biodiversity and did all these things. 

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And leaving aside the conversation about eating meat, and vegans and all that for a second, it became very clear to me that without this symbiotic relationship between herds of herbivores and grasslands, the grasslands as a system became degenerative. And desertification is the word we use for that. But mankind, with our industrial food system, has massively accelerated the destruction of our soils. 

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And so, it occurred to me that if this idea of holistic management can work on the living system we call the grasslands, why couldn't it work on the system we call the economy? And that raises a question, is the human economy a living system? 

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My assertion, and this is an assertion that is debatable – but my assertion is that if the human economy is made up of human beings and human technology and it's embedded in the system we now call Gaia, which we now understand is a living system, then if the human economy is to be sustainable like living systems that are by definition sustainable, otherwise they're dead systems, it would need to behave in accordance with the same laws, and patterns and principles that all living systems seem to operate under. 

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And that got me into studying ecology and studying living systems. And sure enough, we can describe the qualities of living systems that enable them to sustain themselves in this regenerative process is how we describe living systems. It's the process that describes living systems, including your body and my body or we're not having this conversation. 

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I landed on this idea of regenerative economics simply by making the assumption that the human economy was a living system. And if that were true, then it had to behave in accordance with other living systems. Because if one studies ecology, one learns that they tend to have patterns and principles that replicate across scales and across systems. Things like right relationship. Our first principles of how living systems actually operate. 

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[0:10:23] JS: And we'll dive into those in just a moment. I want to touch on a couple of other high-level things before we roll up our sleeves and get into some of the details.

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[0:10:30] JF: Sure. 

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[0:10:31] JS: But I think also an important part of your intellectual inquiry and something that we've talked about, what I particularly appreciate about Kate Raworth's Doughnut Economics, is understanding how we got here. And understanding where the fatal assumptions were in neoclassical economics who could have led us to the current paradigm. 

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And one of the important things that you talk about in the paper, one of the first things that you do in the course, there's also regenerative economics course we'll be talking about later in the conversation, was this notion that we need to move from a mechanistic to a holistic way of thinking. And you say we don't live in an era of change. We live in a change of an era. I wanted to quickly touch on what you call the integral era because I think it's really critical. 

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[0:11:17] JF: True. Well, I agree. I actually think this is the thing that we gloss over. And if we slow down and really grappled with it, the implication of it becomes much easier to process. And I'm not the only one singing the song now. There's lots of people who have diagnosed the origins of neoclassical economics. Although few have connected it to what Charles Eisenstein calls the Myth of Separation. 

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I think you need to go to the origin idea of the Modern Age, which was that – starting with Copernicus. Copernicus looked at what everyone was seeing, which is the sun rising in the east and setting in the west and saw it through a totally different lens, the idea that, "No, it wasn't that the sun was rotating around the Earth. But that the Earth was actually rotating around the sun as were all of the other planets." 

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And in researching for the course, I learned that there was about a thousand-year period where astronomers were trying to explain why as the other planets were rotating around the earth they would wobble. They'd move from left to right and then they'd backtrack right to left and then they'd keep going left to right. 

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And they developed all these theories to explain the wobbles. When in fact, the fundamental assumption that the Earth was the center of the universe was what was wrong. And I draw an analogy to that and are in economics. And frankly, many other things in our Modern Age scientific understanding. Which is, in economics, there's a core assumption that the early first classical and the neoclassical economists made, which is that just as there is a natural law of physics, which at that time was Newtonian physics, there must be an equivalent or an analogous law of economics. 

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And they literally took Newtonian physics and translated it into economics. And I can show you pages from textbooks that show that symmetry. And that was just a bold assumption out of thin air that the physicist at the time said made no sense. But that is literally the foundation of neoclassical economics, which is the same economics we continue to teach in every major university in the world today. 

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And so, you have an economic theory that is literally grounded on a false and incorrect assumption with profound implications. Because the thing about – at least the economist's understanding of Newtonian physics, is that things are composed of parts and you can simplify things into parts. And we live in our interconnected world. 

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In fact, it's fascinating the 2022 Nobel Prize in Physics was awarded for this idea of universal entanglement, which is now the evidence that it is accepted science that in simple terms everything's connected to everything. Not just on this planet, but across the entire universe. And so, the foundation of neoclassical economics is fundamentally in conflict with the law of universal entanglement. And all kinds of things go wrong as a result of that. 

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And going back to the analogy, between the beginning of neoclassical economics, which is Adam Smith was a classical economist. What was that? Late 1700s? In the 1800s, that's when neoclassical economics was really developed. It became mathematized as we were talking before this conversation. It became mathematized using probability theory, which is again a bad assumption. It assumes simple normal distributions of data as opposed to interconnected non-linear connections of data. 

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And so, the point is that the whole field, filled with really smart people. Economists generally are smart people. But the foundation of the theory is provably incorrect. And I would suggest that all of the advances in economics. And I'm generalizing. But many of the advances in economics are analogous to the patches the astronomers were trying to figure out. Because they haven't gone back to this root foundation issue. And instead, we have behavioral economics. 

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There's five or six Nobel prizes awarded for behavioral economics, which is a patch to explain that humans actually aren't atomic particles that are simply utility maximizing machines. 

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[0:15:38] JS: Irrational. Yeah. 

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[0:15:40] JF: Yeah. It's not just that those were bad ideas. It's that they're actually grounded in a complete non-factual understanding of reality. Yeah. 

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[0:15:49] JF: Misunderstanding of the way the universe actually works. Yeah. Okay. The integral era then is? 

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[0:15:54] JF: Well, integral actually preferred a new term now. One of my new teachers is a brilliant lady called Jude Currivan, who I would highly recommend for your podcast. She's a cosmologist. And she and others are now using a term unitive era. 

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And what that means at least to me is that the latest science, including the physics I just mentioned, but many other scientific discoveries, all of which amazingly have happened in this century. This is fresh science, but peer-reviewed hard science, is essentially proving and reconnecting our scientific understanding with the intuitions that our indigenous elders have always somehow known. 

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It's like the completion of the circle. And it's not that the reductionist method of the Modern Age is bad or necessarily wrong. It's just useful for certain things and not useful for other things. And the simple way to think about that distinction is that the reductionist method is really good for dealing with things that are complicated, like cellphones, and computers, and rocket ships and automobiles. But it's not well-suited to things that are complex. Because things that are complex are living systems, are things that are not reducible to parts. 

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And we're all familiar with the old adage, the whole is greater than the sum of the parts. But the whole is also way more complex than just looking at the complexity of the parts because of the relationships among the parts or between the parts. And that's the nature of human systems. That's the nature of living systems. That's the nature of an economy. 

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The latest science understands this and our indigenous elders understood this. And so, this unit of era is what I think we're awakening to, which will be the era that follows the Modern Age. The Modern Age was a response to the medieval period where we were seeking our truth from the church in the Western world. 

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And then we freed ourselves from the chains of – or the lack of agency of just having to believe in what the church told us and we could figure stuff out for ourselves. But then we used this reductionist method to figure everything out for ourselves, which made great progress. But it actually isn't that good at learning how to work with complexity. 

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Whether it's the health of your own body. That's complex. No wonder we're struggling to be healthy when we have a mechanistic reductionist medicals paradigm to healthy families, to healthy communities, to healthy businesses, to a healthy economy, to a healthy financial system. This is changing everything, not just economics. And that's why I think we're living through a change in era that is probably going to be looked at – future historians will look at this shift as being more profound than the shift from the Medieval Era to the Modern Era in my opinion.

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[0:18:51] JS: Thanks for that. I just want to make sure that we integrated that into the conversation as we shift into the meat of regenerative capitalism. Let me ask you this question because I think that there is ambiguity in the field. How do you define capitalism? 

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[0:19:03] JF: To say the least. It's a loaded word. And I'll be frank. When I wrote the first paper in 2015, I used the term regenerative capitalism specifically so that, in America, there was a doorway to walk through. This is a refinement of capitalism rather than a rejection of capitalism. 

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[0:19:25] JS: Gotcha. 

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[0:19:26] JF: And that was a tactical decision. I tend to not use the term capitalism much anymore because it's so loaded and it's now associated with, if not equated with colonialism, and slavery, and all kinds of very heavy and serious negative connotations, which are all valid to some degree. I joked at the time, the right term for the paper would have been regenerative multi-capitalism. 

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[0:19:55] JS: Yeah. I mean, the reason I wanted to just get your take on that – and I actually really appreciate having more contacts. And it makes sense that capitalism would grab the attention of the people who consider themselves capitalists and feel more acceptable and marginal and less of a challenge to the status quo. 

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[0:20:12] JF: I still get accused of being a communist though, by the way. 

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[0:20:14] JS: Yeah. I mean, because I have generally said capitalism is fatally flawed. Capitalism as defined by a market-based system whose objective is about maximizing return on financial capitalism. 

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[0:20:27] JF: Right. Right. I totally agree with you on that. 

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[0:20:30] JS: Yeah. But you can also take a tact of, say, "Oh, no. I'm just expanding the definition of capital beyond money to all these other forms of capital," which you do in the paper. But, okay, good to know that you've drifted away from that when you talked about more regenerative economics. Because generally, in my own conversations, I say capitalism is fairly flawed. But we erroneously associate capitalism with a market-based economy. And there are alternative market-based economies that are what we're actually interested in. 

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[0:20:56] JF: Yeah. I agree with that. I also think that we are in danger of throwing the baby out with the bath water when we say we're anti-capitalists. Because there are lots of aspects of the capitalist system even as it exists that we don't want to lose. I mean, it is true that it organizes resources is incredibly efficiently. 

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If we want to transition, for example, from a fossil fuel economy to a renewables energy system, God help us if we have to do that without conventional capitalism to organize resources. Maybe this is because I grew up in the system and I'm still trying to be a bit of an apologist for it. But I actually think that it's naive to think we can just throw away everything about capitalism because it has all these negative consequences and origins. I mean, it's true. It has horrible origins. But it has positive aspects I would say. 

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[0:21:51] JS: Yeah. No. Exactly. I agree with you wholeheartedly. Again, I wanted to just make sure as we had the conversation, we're using the same definition of that word. We're going to move away from capitalism and talk about regenerative economics. 

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[0:22:03] JF: There we go. 

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[0:22:04] JS: There we go. 

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[0:22:04] JF: Less threatening. 

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[0:22:06] JS: But one of the things I appreciate in your writing is that you do state what can often be overlooked, which is such a first-order question, which is what is an economy for? When you say the purpose of a regenerative economy is to promote and sustain human prosperity and well-being in an economy of permanence. And then, furthermore, you say – 

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[0:22:23] JF: Yeah. Economy and permanence, that comes from E.F. Schumacher. I should have mentioned his work as another – I wouldn't say as much epiphany as just you read it and you feel like you're reading truth. 

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[0:22:34] JS: And then you also say an economy that can sustain itself over a long period of time. Hence, a permanence. Like any living system will need to be regenerative. 

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[0:22:42] JF: Yeah. One of the qualities of living systems is that they're self-organizing, self-fueling, self-governing. A machine, you need to add energy and you need to repair it. And a forest, you don't need to add energy and you don't need to repair. And we live at a time when we have a polluting energy system. Wouldn't it be magical if our economy didn't require continuously adding energy? I don't know quite how we get there, but that's the vision, is that the human economy can behave the way living systems do. 

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[0:23:15] JS: And then that led you to the eight principles that you outline of regenerative capitalism. 

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[0:23:20] JF: Yeah. I guess what led me to that was to sit there and say, "Well, where do you begin?" And so, first principles, when you're lost, you need to stop and get clear on first principles. And so, when I use the term principle, a lot of people have principles. And I don't mean them in a sense of like these are a choice that I propose. It's more like this is the best description of reality that I can compose. 

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And here's an interesting double click. To reduce the complexity of living systems to eight principles or 800 principles is reductionist – is using the reductionist method and therefore is flawed. But if we're going to communicate about what is the regenerative process look like, we actually need to use the reductionist method to communicate. 

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It's not that reductionism is bad per se. It's just that we use it knowingly. I always say, there's no right principles, much less right eight principles. But I studied ecology. I studied living systems not in a formal go to school and get a PhD in ecology sense, but in reading the key literature and then thinking about economy and trying to come up with what is the least number of first principles that I can write down that describes as best as possible the essence of the regenerative process applied to the entire economy? 

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The point is that describing living systems is what matters, not the eight principles that John happened to articulate. 

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[0:24:54] JS: Yeah. They're attributes or characteristics that are particularly salient.

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[0:24:58] JF: Yeah, they're qualities. And it turned out that people have found them useful. But I always say, if you can come up with a better eight or change them, I'm all ears to modify them. 

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[0:25:10] JS: Well, I think they're also interesting design principles. You also use them as analytical tools. In your regenerative finance papers, you talk about, "Well, let's look at the existing financial system through the lens of these principles. And let me show you all the places where it's out of whack." 

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[0:25:23] JF: Yeah. And when we get to developing measures of regenerative vitality, those first principles ought to play a role again, right? And this gets to a bit of a rabbit hole to go down. But most of the metrics that we use even in the new economy conversations that you and I are involved in, they relate to outcomes. 

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And so, you mentioned Doughnut Economics and Kate's work. And planetary boundaries are a – they're not really outcomes. They're more thresholds that can't be crossed. But then the social floors are outcomes that are thresholds we don't want to cross. But these are all outcomes. 

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[0:26:02] JS: Yeah, obviously. But what does it actually mean to transition to a system that yields that? 

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[0:26:09] JF: Exactly. That's the key. And so, I use the analogy of you go to the doctor's office and you want to figure out whether you're healthy and whether you're going to live a long time. And the doctor doesn't ask you to do how – see how many push-ups you can do or how fast you can run the 100-yard dash. The doctor does blood work, and heart rate and pulse. And those are what I would call intrinsic measures of health. They're indicators that tell you whether your body or your system is healthy. 

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What are the intrinsic measures of health for an economy? And I would say that they will relate to the first principles. Because if the economy is aligned with the first principles, then we ought to be able to measure that and assess whether we're fundamentally healthy. And if they're not, then what is it we need to do to create the conditions for health? 

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For example, going back to the principle of right relationship. If most of the financial system has become some combination of highly speculative, often unethical, often extractive, mysterious, non-transparent and highly violent and aggressive. It doesn't take a genius to measure some of that stuff and conclude that the financial system is not working in right relationship within itself and with the greater economy. 

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And surprise, surprise, the financial system is actually not creating health in the broader economy. 

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[0:27:30] JS: Yeah. Let me just delineate quickly the principles so that listeners just have a big picture of what it is. Because I know we could spend a whole hour getting into all of them. But let me just delineate them and then maybe we can pick out a couple of them but I think are particularly potent to double-click on. 

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There's right relationship that you've mentioned quite a bit. There's views wealth holistically. Not just in terms of financial, but what are all the different types of wealth? You defined eight forms of capital; intellectual, experiential. Yeah. 

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[0:28:01] JF: Go ahead. 

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[0:28:02] JS: Let me just delineate them. And so, spiritual, cultural, living, financial, social, material. Third principle is that it is innovative, adaptive and responsive. This is a very interesting one because it has implications for governance being decentralized versus hierarchical. Empowered participation also has interesting implications for governance. Honors community in place. I love this one in particular. Robust circular flow. Very important. And I think this really dovetails nicely with the conversations that we've had with Donnie McClurkin from the Post-Growth Institute. And then finally, seeks balance. Very interestingly. 

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I know you're also a student of Donella Meadows. She talks about understanding complex system and feedback loops and where you have balancing versus – I forget what they're called. The feedback loops that kind of – like a thermostat. Restore it to a state. Versus feedback loops that like run away, right? 

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And it's very interesting when you start to see systems through that lens. Like if you particularly look at accumulation of money, and power and corruption, you see that that's a feedback loop where you get increasing levels of accumulation. And it's just growing and growing and growing versus coming back to some state. There's a right relationship, holistic wealth, adaptive, responsive, innovative, empowered participation, honors community in place, edge effect abundance, robust circular flow and seeks balance. 

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I'm sure that these are all like your children and you love all of them. And, again, we can't dig into each one of them. But are there any that you want to speak to in particular? 

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[0:29:34] JF: Who's my favorite child? 

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[0:29:35] JS: Who's your favorite child today? 

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[0:29:37] JF: It depends on the day, right? As a mother of three, you know that very well. 

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[0:29:41] JS: Right relationship. You mentioned a bunch. Do you want to double-click on that a little bit more? 

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[0:29:45] JS: Yeah, I think if I had to pick a favorite child, I think relationship is perhaps the most – well, first of all, it is important to say that you can't think of them individually. Their power comes from them being all in alignment. The one plus one plus one equals a hundred only happens when they're all in sync. It really isn't a way to say one is more important. 

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[0:30:12] JS: And they're also not missy. They're very much integrated. 

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[0:30:15] JF: Totally. But the thing about relationship is – this goes to the work of Gregory Bateson, and now his daughter, Nora Bateson, who's a dear friend and teacher. It's so profound that the important aspect of the various things we refer to as parts. And, again, used as an analogy, your body. You have a heart. You have lungs. You have veins. You have arms. You have legs. You have a brain. And all of these are parts. But the magic of your living system is how they relate? How they're all interrelated to each other? 

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And without the relationships, the parts are meaningless. And yet, we specialize and talk about parts. We've got a heart surgeon specialist and we've got a brain surgeon specialist. And where do we focus on the relationships between the different parts? And I would suggest that's true in an economy as well. And so, the importance of relationship is just we could talk for an hour just about that.

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[0:31:15] JS: Yeah. And it also just really encompasses such a critical piece of this. You mentioned Charles Eisenstein and the story of separation. It encompasses the new narrative. We did already release the podcast with you, and John and Hunter are on narratives. That we are not separate from nature. We are part of nature, right? It also encompasses what we already talked about as the fundamental flaws of the assumptions of the economy being separate from society. Kate also has this embedded in her Doughnut economics book. So, that is such a fundamental underlying paradigm shift. 

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[0:31:46] JF: Right. And yet, easy to say, but it's everywhere. Why do we have a word called the environment? We are the environment. There's an environmental movement. Well, that doesn't make any sense. I'm an environmentalist. That doesn't make any sense. That's like saying I'm a me. And in fact, in the indigenous cultures, apparently, there is no word for nature. 

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[0:32:07] JS: Yeah. That's so fascinating too. 

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[0:32:10] JF: One of my analogies that I'm testing out now is that someday we'll wake up and realize that pumping carbon dioxide into the atmosphere is no different than chewing off our own arm. And yet, we don't see it that way, because we see ourselves as separate from the greater living system called the biosphere or the gaiasphere. 

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And according to the latest cosmologists, you got to talk to Jude Currivan. I mean, it's literally the entire universe. These patterns and principles scale all the way out to the universe. 

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[0:32:43] JS: Yeah. The necessary fractal nature of the system I think is really interesting. I'm going to pick. I'm going to pick a favorite child. 

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[0:32:51] JF: You pick a child. 

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[0:32:52] JS: I think it's really important is edge effect abundance. And we were talking about this a little bit before we started recording about how I think people just tend to get very myopic in their own thinking, right? And in addition to the economics background, I was a fellow at the Design School at Stanford Edge. Effect abundance is really relevant for innovative, adaptive, responsive. Because innovation happens at the intersection of different ways of thinking and mindsets. And what I'm trying to do with my conversation is get people out of their siloed thinking and be provoked to widen the lens a little bit. I think I really like that one. All right, let's pick – go ahead. 

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[0:33:34] JF: Well, again, it's just a description of what is. It is to living systems what the law of gravity is to physics. It's just a description of what is. 

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[0:33:42] JS: Yeah, which is – well, let's talk about it just make sure the listeners know what edge effect is. Yeah. 

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[0:33:46] JF: Yeah. In ecology – so, this comes directly from ecology without any need to extrapolate. In ecology, there's a term called an echo tone. And an example of an echo tone is where a river meets an ocean. And at the mouth of a river, there's a delta. There's typically marshes. There's an abundance of bird life because the marshes hold clams and crabs. And the fish come in. And the birds come for the fish. 

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And so, there's just this overwhelming diversity of life at the mouth of a river. Very different than two mile or even 200 yards offshore, wuch less two miles offshore, where the diversity of life in the ocean is much less than it is where the river meets the ocean. 

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And the diversity of life is less than it is if you go upstream or up river a half a mile. You'll find a much less diverse plethora of life. And with that diversity, new forms of life are made possible. And so, using that scientific reality in ecology and applying it to an economy, think about how we've organized, first, universities. They tend to be organized in silos where we specialize in a topic and a domain of knowledge. And then we get out into the working world and businesses specialize as businesses. And then within them, functions within the business. You have a marketing department, and a finance department and an engineering department. 

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And most managers of businesses realize is that there's value to be had by getting people to work together and talk to each other. But we've organized society in a specialist kind of stovepipe way. And it turns out that specialists get paid more for their expertise. There's a massive incentive for people to specialize. 

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And yet, in a living system, the real value, the Innovation is going to happen, as you said, where you get people cross-pollinating across expertise. And the other thing I should say is that while this has always been true, the pressures have risen so that now is the moment where all of this stuff is profoundly important. Because the system has become more volatile. Whether it's climate change or immigration stresses or racial inequities have boiled to the surface. The abuse of indigenous peoples and their wisdom is now being recognized as vitally important to us. 

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All of these things are coming together at one time. And so, if the edge effect was important 25 years ago, it's exponentially more important today. Because as you said, that's where innovation can take place or different perspectives. 

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When you talk about diversity, it has nothing to do with how many women or black people are on the board of directors of a company. It's the diversity of ideas and ways of seeing and thinking that we need happening on a daily basis inside an organization that is – 

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[0:36:51] JS: Which comes from that diversity of life experience amongst many of – 

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[0:36:54] JF: Exactly. Exactly. And so, it's not a moral thing. It's not a we want to be good people thing. It's not a – well, I should say it is a moral thing. But it's also a systemic health thing. Often, when I'm giving a talk, an analogy, again, using the human body, one of the principles is this idea of metabolism or robust circulation. And I say that you may think that my poor little toes deserve to get a little oxygen. I'm going to be nice and send them a little oxygen through my circulatory system. And so, I've got some capillaries that reach down into my ankles and all the way down into my feet and even into my little toe so my little toe gets oxygen. And isn't that nice? I'm being nice to my little toe when my brain can keep it all for itself. 

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Well, no. It turns out that if my toes aren't able to participate – here's empowered participation. If my toes aren't able to participate in the circulation of oxygen, that's terrible for my toes. They'll rot off and die. But if my toes rot off and die, my feet won't be healthy and I probably can't walk. And if I can't walk, I can't manifest my potential as a human being. I care deeply about the health of my toes not on some moral grounds but because of it's essential to my own health. 

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And the idea of these eight principles is that the whole can't be healthy without all of them being activated and in operation all at the same time. And not only that, that is what creates what we call regenerative potential or unseen potential. That's the real juice of it, is that not only will you not be unhealthy. You'll actually manifest potential the source of our future prosperity in ways that we can't know until we experience it. And that to me is the reason to remain hopeful in the face of really unpleasant horrible facts that we're dealing with on a daily basis. 

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[0:38:52] JS: And how do you see this kind of more conceptual but also supportive for both assessment and design view of regenerative economics with the eight principles? How do you see that vis-a-vis some other things that we are familiar with like impact investing, social entrepreneurship, stakeholder capitalism, circular economy, Doughnut economics? 

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[0:39:16] JF: Sure. I guess the short answer would be that – I'll say it this way. If regenerative economics is true, then by definition it must hold all of those things as part of it. It can't be that we need a regenerative economy and circularity is not a component of it. And that's the easy one to demonstrate. I would say circularity is just another way of saying robust circulation. But robust circulation is actually a wider concept because it applies not just to materials and energy. It applies to information and even empathy. 

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The internet is the technology that has enabled robust circulation of information. The internet is one of the most regenerative innovations in the history of humanity until we slap extractive business models on companies that use the internet. And then you're left with Facebook. 

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Impact investing is a nod toward holistic wealth, right? We're trying to invest for value creation beyond just financial value creation. Doughnut economics, planetary boundaries is a goal, is a threshold that has to be respected. It just has to be. And social floors get a little more complex because who's to say what poverty means and who's to – I think they're much more context-specific. But I think that the general idea that we need a more shared prosperity is self-evident. But in general, the goals of an economic system are quite distinct from the design of the system. 

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And because we're so trapped in our linear reductionists' making stuff mindset, we think that if we just set different goals, we'll end up with different outcomes. But it turns out that's not true. You actually have to change the design of the system to come up with different outcomes. 

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[0:41:14] JS: Yeah. I mean, I think Doughnut economics is distinct from the other things that I mentioned. And that, again, I think it's just an amazing resource for understanding how we got here and then outline the kind of components of it that need to change. And then the high-level doughnut is so obvious, right? But it doesn't get into that. 

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[0:41:32] JF: Yeah. And it's always good I think to have a visualization of a bunch of gobbledygook nice simple picture. 

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[0:41:37] JS: And Kate's has some really interesting things about the importance of visual and just bypassing other parts of the brain and understanding. I mean, it's very interesting what she gets into in the book. But the way that I think about it is impact investing, stakeholder capitalism, circular economy, I see those as still holding this deep underlying fatal flaw about what the objective function is, right? It's still assuming the need for growth. It's still retaining the incentives around extraction at least in their dominant form. 

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[0:42:07] JF: Yeah. I have to agree with you. I think that's largely right. Or at least it's not confronting in a serious way the implications. I mean, growth is such a loaded word. Some things we want to grow and some things we want to shrink. It's really more about growing what and the quality of what we're growing. 

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[0:42:28] JS: Yeah. But there's no – I mean, it's really interesting when you talk about natural systems and economic systems. Having the attributes of natural systems, there is no integration of death and decay in the economic paradigm. But I do think, what I want to speak to next is just the theory of change around transitioning, there's interesting things that I grapple with around, "Oh, how does cultural change happen?" 

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And I think that these marginal reforms that are increasingly part of the mainstream conversation are necessary for those cultural shifts from the dominant paradigm today. 

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[0:43:06] JF: Yeah. Well, let me go back to respond to that because I think it's so fundamental. One of the principles I talk about is balance. And it's not balanced like a scale comes to a stop. It's like a harmonious dynamic balance, right? It's constantly adjusting. But there is a balance. 

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And one of the other, I would say, root causes, which is probably a child of the myth of separation, is the patriarchy. The dominance of masculine power energy in our culture, in our way of engaging in everything. And that's out of balance. 

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And so, the principles I think hold clues to the social and cultural transformation as well. I often think if we simply got the feminine and masculine back in balance and valued, I'm always – as a privileged old white guy, I'm always very careful in the words I'm choosing here. 

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But I think it's self-evidently true that a big part of the problem is we value what are generally associated with masculine attributes; competitiveness, analytical over intuition. And it turns out that's a problem. For example, all of this effort we've given to metrics in finance and in economics, including in we're trying to reform economics. 

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[0:44:34] JS: ESG. Yeah. 

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[0:44:35] JF: Yeah. Oh, well, if we just get the right measures. Well, that's a totally masculine way to think about it, right? I mean, we know. We don't need to measure anything to know that we can't burn fossil fuels anymore and that we shouldn't be writing trillion-dollar checks per year to the fossil fuel industry. And we knew that 30 years ago. But we built an entire industrial complex of ESG. 

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And by the way, we haven't even gotten to the hard part about ESG, which is once we accept that there's thresholds that need to be managed, how are we going to allocate the thresholds? Who gets to burn the carbon? We're not even having that conversation yet. We're still arguing about whether we should be measuring the carbon and whose job it is? And what's the right analytical approach? And meanwhile, CO2 emissions and carbon in the atmosphere have gone up every year. There's a great chart I use, which is the correlation of assets under management in ESG with CO2 emissions in the atmosphere. Perfect correlation. 

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[0:45:39] JS: Yeah. Yeah. 

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[0:45:40] JF: Depressing, but perfect correlation. 

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[0:45:42] JS: Yeah. Oh, gosh. There's so many different pieces that I could dig into. And one of the things that you talked about is that this transition and value system is one of the most challenging parts of the shift to regenerative economy. 

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[0:45:53] JF: Yeah. I think we should just hand the keys to the women and see what happens. 

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[0:45:58] JS: I'm very interested in this interplay between the cultural component of it and the economic component of it and the extent to which capitalism says captured culture. The biggest influencers of culture are hawking their beauty products on Instagram there are hundreds of millions of followers because that's how they get rich too. I really spend a lot of time deeply thinking about these paradigm shifts where it's not lauded to accumulate vast amounts of capital. But in fact, it's looked down upon. 

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[0:46:28] JF: Yeah. And ultimately, we need to get there because one of the thorniest questions that I wrestle with all the time – and I don't have an answer that's credible. I have an answer that's you utopian for this. But if there are limits to growth, that means there's not only limits to consumption and waste, which is what we're all relatively conscious about now. And so, we think we should drive smaller cars and bring our bags to our grocery stores and all that stuff. 

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But growth is defined as consumption, which is 70% of it, plus government spending, plus investment, plus net exports. And forget about the net exports for the purpose of this conversation. It's the growth of government spending and investment. 

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Government spending, that one's not as hard because a lot of that is consumption. But it means that the wars were fighting in Ukraine right now are horrible morally and ethically. But they're also a disaster from a systemic health point of view. And I don't mean just because of the trees that are getting cut down, but because we're wasting a mass amount of investment capital on stuff that is destroying fixed capital and spending energy and capital to do it in a world where we have a finite budget of investment capital. 

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[0:47:46] JS: Yeah. Yeah. 

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[0:47:47] JF: Jeff Bezos builds a $500 million sailboat. That's investment capital that could otherwise go into something useful and productive. And it's one thing if there's an unlimited amount of investment capital. But if we have to limit it, that becomes a profoundly ethical and ultimately crime against humanity kind of decision. 

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[0:48:07] JS: Yeah. And this is where the rubber hits the road in, okay, we have these conceptual delineations about what every generative economy would look like in terms of its attributes. What does it actually look like in practice? And I've spent a lot of time looking at corporate governance models. We've covered a lot of that here. We've covered co-ops. We've covered steward ownership. Understanding how to build the right incentives in the firm. But the frontier of my own thinking is in finance. And I know I feel like we should just do a whole separate conversation on regenerative finance. And in the frontier of that for me is actually money. 

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I'm really curious what your take on this is because your background is in finance. Because you say a couple of really great things in your paper on regenerative fina – which I think, again, people just don't think deeply about these things. Do we question our sacred cows? Do we even see them, right? 

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Finance represents at its core the circulation of energy in an economy. And then you say – I love this one. Anyone who tells you they understand money is most likely not thought about it enough, right? 

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[0:49:08] JF: Yeah. Yeah. 

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[0:49:09] JS: And so, the current paradigm is money is largely created by banks based on return of capital optimization. The flow of energy through the economy, which is in the form of money, has this objective function. A lot of what I grapple is – okay, because you look at – there's lots of entrepreneurs that want to adopt these Innovative corporate governance models that are not as extractive, that have the right incentives. And they don't have access to capital, right? 

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And when very minimum preservation of capital is critical, if we're just looking at it in terms of "money", how are you seeing that piece of the puzzle evolving? 

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[0:49:52] JF: I'm trying to think of what I should say in a sentence or two. 

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[0:49:55] JS: Or you can just give us some sound bites to wet people's appetite and we'll just have another conversation in the future. This is my frontier. I want to have a deeper conversation about money. We touched on it in MMT, right? 

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[0:50:06] JF: Yeah. I saw you did an old piece of MMT. I'll have to listen to it. 

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[0:50:07] JS: Yeah. 

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[0:50:11] JF: I mean, maybe just to – and I haven't listened to it obviously. So, I'm not sure where that landed. But one thing I'll say about MMT, and I hope everyone of your listeners got the sense, this is a unique opportunity for a few governments, particularly the United States. If you're the world dominant currency, it puts you in a very different position. 

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But, again, this gets to this shift in paradigm. We've set up the global monetary system as if we have nations that are separate parts from each other. We have central banks in each country and they all manage their country's finances as if they're separate. But everyone knows we live in a global interconnected economy. And then we have a financial crisis and the central banks do the best they can to coordinate with each other, but they're doing it in the context of their mandate, which is typically a growth and inflation or an unemployment versus inflation mandate within their country. That makes no sense. 

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And if we have a global economy where everything's interconnected to everything. And if you sneeze in Kansas, it affects Ethiopia. Or if you have a subprime crisis in the United States, it wipes out the entire Greek economy, which is what happened. Then you have to have a way to think about the global monetary system as a whole. 

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And what I would say on this today is the modern monetary theories explanation of reality, it's not a theory, it's an accounting identity, leads us to an opportunity that we haven't yet taken advantage of, which is the massive potential of one central bank or three to five central banks collaborating together on the urgent moment that we live in to move capital where it needs to go. 

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And how that would happen legally and politically is beyond my pay grade. But we can put up solar power across Africa in three years if we chose to. But it won't happen by waiting for commercial banks to decide to make a loan to Chad on their balance sheet because they can't securitize it. It just won't happen. 

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And if we expect BlackRock to show up with one of their ESG funds, we're waiting on something that's never going to happen either. But we can click our fingers and print a keyboard and have a trillion dollars in Chad tomorrow if we chose to. 

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[0:52:41] JS: That's the thing. Yeah. This is why I just think it's so fascinating, because it's just this concept, which is what motivates where energy is expended. 

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[0:52:51] JF: Yeah, it's locked us. It's captured us. We bow down to the god of economics and the church of money. And by the way, that was what the Bible said. This is nothing new. 

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[0:53:01] JS: Yeah. Yeah. Again, this is a matter of fact true. 

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[0:53:03] JF: But the other thing I would just throw in about money just to plant a seed for a future conversation is this idea of complementary currencies. And, again, following the logic of living systems, a monoculture is fundamentally unhealthy and a diverse polyculture is fundamentally healthy for the reasons we talked about earlier. And yet, we've designed the money system as a monoculture. 

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And in fact, when the Euro was invented by a guy named Bernard Lietaer, who was one of the real champions of this idea of complementary currencies, he actually intended it to be a complimentary currency. He didn't intend for the European countries to drop their domestic currency. 

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And if you have a pluralism of currencies, you have diversity, they can be designed to do different things, you create buffers. You create cushions for when there's a financial stress. And so, because Greece had joined the Euro, when the subprime crisis happened in the US, Greece couldn't devalue their currency the way they could have had they kept a domestic currency. 

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And so, they were trapped in the strong currency zone of Germany and couldn't depreciate the currency to attract more tourists to their beaches, which is what would have bailed them out of what was probably felt like a depression at the time. Complementary currencies be a topic to pursue. 

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But all of this, here's my plug for our course. All of this we talk about over two courses, a regenerative economics course and a regenerative – or I call it finance for regenerative world. I'm not sure there's such a thing as regenerative Finance. But the complementary currencies conversation leads us directly into cryptocurrency and the potential that holds for creating a next-generation monetary system. We're not even to the first inning of that conversation yet, I think. 

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[0:54:46] JS: Yeah. I mean, this is why technology is part of our conversation. How does it enable these disruptions or this experimentation? Okay. Well, let's – 

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[0:54:55] JF: Yeah. And it can go wrong like it often does with technology. 

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[0:54:58] JS: Yeah. Gosh. Well, there were so many different paths we could have gone deeper down, but I'm going to have to save them for another time because we're already at an hour. But let's talk about the course because this is where all of your attention is going now at the Capital Institute. I know enrollment is underway. I'm excited to put this conversation out and support that. People in the Denizen community have already signed up. I am most likely going to sign up. 

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[0:55:21] JF: But I'm proud to say there's almost a thousand people that have gone through one or both courses from like 50 countries. And I'm most proud to say that over 150 have taken at least one of the courses twice. And so, it is more of an awakening coming out of Plato's cave than it is a course where you learn stuff and then go put it to work. It's more of an inquiry. There's more questions than answers.

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[0:55:47] JS: Well, I also appreciated one of the things that you said in that 45-minute kind of the introduction to it for people who are interested in the course and want to get their feet wet before making a commitment. And I feel this so deeply from my own inquiries, that once you see it you can't unsee it. 

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[0:56:02] JF: Yeah, that's been the case for me. That also should be a warning on the label. It will never be the same once you see it. 

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[0:56:11] JS: I mean, I just can't look myself in the mirror and go back to the kind of jobs that everyone would admire me for having that would put money in my bank account. I just can't do it. Okay. The course is over how many weeks? And what are we covering? 

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[0:56:26] JF: It runs eight weeks. The next economics course starts mid-September. It's eight weeks. It's two days a week. Roughly two hours Monday, two hours Wednesday. Middle of the day Eastern Time. Everything's recorded. The lectures are live. The interaction is live. The community is amazing. We're going to do a class project in the economics course for the first time this fall the same way we've done in the finance course, which has proven to be a wonderful learning experience for all of us.

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[0:56:55] JS: Cool. I'm very excited. I mean, again, I think that the robustness of the approach that you have is invaluable. Lots of people in the community have taken it already. If you're interested in signing up, you can go on the Capital Institute's website. What is the website? 

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[0:57:08] JF: Capitalinstitute.org. And you'll find the course right there. And I should say that it's one of the reasons that people love it is that we've brought in probably 25 other thought leaders into this and we do discovery dialogues with them. So, you're getting lots of perspectives. And it could always be more and better. But it's not just the John show. In fact, many of them are some of my teachers. 

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[0:57:34] JS: Great. I will add that link in the show notes. You can also use the code Denizen10 for a 10% discount on the course.

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[0:57:41] JF: There you go. 

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[0:57:43] JS: It's also just a really – things like this are really great opportunities for us to bring a subset of the Denizen community together. Give an opportunity for our audience that hasn't yet met members of the community together and just deepened those ties. I'm excited. And I'm excited to support you and your work. 

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[0:57:59] JF: Well, I'm delighted to be here with you, Jenny. And as we were talking before, I look forward to figuring out how we can amplify each other's work. We're obviously on the same path here. And appreciate everything you're doing. I know it's hard at times and lonely at times. So, thank you for holding these conversations. 

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[0:58:18] JS: I mean, it's necessary work. And it's an honor to do it. And I appreciate that sentiment. And I appreciate your partnership in it. 

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[0:58:25] JF: My pleasure. 

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[0:58:26] JS: Thank you so much for listening. And thanks to Scott Hansen, also known as Tycho, for our musical signature. In addition to this podcast, you can find resources for each episode on our website, www.becomingdenizen.com, including transcripts and background materials. 

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