Here is the single biggest question to consider about the economic, energy and environmental unwinding we are facing - what will the economy look as we go? I get more questions about this than about anything else - what should people do for work, what should they do with savings, how should they begin to prepare themselves for a lower energy world. What I find, however, is that among both the prepared and the unprepared, there's a whole lot of people kidding themselves. There are those who imagine that there is no economy outside the world of the stock market and formal jobs - that a crash in those things is the end of the world, which means to them either that it can't happen or they should buy a bunker and some ammo. Others have imagined themselves "free' of all economic structures larger than the neighborhood, cheerfully providing most of their needs or bartering and never again touching cash. Both ideas fall into the realm of fantasy.
Let us remind ourselves that the informal economy is, in fact, the larger part of the world's total economy. When you add in the domestic and household economy of the world's households, the subsistence economy, the barter economy, the volunteer economy, the "under the table" economy, the criminal economy and a few other smaller players, you get something that adds up to 3/4 of the world's total economic activity. The formal economy - the territory of professional and paid work, of tax statements and GDP - is only 1/4 of the world's total economic activity.
We know from peasant economist Teodor Shanin and others working in the field that when the formal economy fails people all over the world, they shift into the informal economy. This explains why, in the former Soviet Union, although conventional economic models showed that people "should" be starving to death, they weren't. This is how people with functionally no income can still eat - although often not well.
The US has the smallest informal economy in the world as a percentage of economic activity, but is also one of the single largest informal economies in the world. Even here, as we all know, it is not at all uncommon to shift into the informal economy when cast out of the formal one - bartering with neighbors, doing under-the-table work, or returning to the domestic and household economy if someone else can provide economic means.
It stands to reason, then, that for many of us thrust out of the formal economy, or for those who cannot make ends meet in the formal economy, strengthening the informal economy is essential. We see this all over the world, in our own nation at present and historically. When times are hard, gardens flourish, criminalized enterprises spring up, black markets and barter get new life, people sell out of their homes and work intermittently.
We tend, however, to have an oversimplified view of the informal economy - oversimplified in several senses. In some cases, we don't even know it is there - for example, the "housewifization" of subsistence and domestic labor mean that we essential overlook and don't consider the merits of those forces. In other cases, we underestimate its capacity for support - assuming that no one can get by on odd jobs or under the table work. In still others, we diminish its utility without really understanding it.
This is in part due to the fact that the economic stories we tell are oversimplified - consider, for example, the narrative a basic economics text will offer about barter. The claim is that barter is unwieldy, and was enthusiastically abandoned just as soon as someone figured out how to use cash money. In fact, that's not the case - barter has had a role in most economies through most of history, and very complex barter systems have worked extremely successfully, with clear valuations of goods and services and complex and successful means of exchange. Consider, for example,.this account from a Connecticut Tailor's 18th century ledger of the goods he took in barter for his labor:
Talcott took credits in food (some wheat, pork and beef, many bushels of indian corn, pecks of beans and pounds of salmon, molasses and salt) and beverages (rum and brandy), labor (plowing, sledding, driving animals, cutting wood, dressing flax, roping onions, carting wood and dung, fence work, painting, making a coffin and digging a grave, and the unspecified work of men, boys and teams of oxen), transportation (ferriage across the Connecticut River and use of other people's vehicles and horses), farm supplies, (apple trees, hooks, boards, nails, seeds, hog rings and pasturage), repairs (harness mending, cooperage, fixing a chimney, bottoming chairs), specialized services (sheathing a bayonet, hairdressing and cutting, butchering, blacksmithing, taking inventory and distributing an estate, drawing a tooth, "bleeding Mrs. Talcott," building shelves in the tailor shop, crowning chairs, making a ferrule for a walking stick, grinding corn and replacing the handle on a pint cup, altering a gunlock, mending a porringer, setting a razor, rimming and bailing a skillet..." - Our Own Snug Fireside by Jane Nylander (pp164-165)
The account goes on for another two paragraphs, listing household goods bartered, tailoring supplies provided and ending with the description of a coat made for the payment of one puppy, two rolls of thread and nine shillings cash. It is the clear from Asa Talcott's accounts that a complex barter economy existed in his area, because some of the items are exchanged with others for further barter. It is also clear that while barter is often used as a substitute for cash by those who have little, it is also preferred to cash in many cases. Looking over other 18th and 19th century American account books, there clearly is a perception that one often gets more from barter than from cash.
Having lived at least partly in the barter economy myself for many years, that matches up with my own experiences. Because valuations in barter are imprecise, both parties have a strong wish not to appear to be shorting the other. In some ways barter economies emphasize not paying the lowest possible price, but a higher one, rather like those cultures in which prices are set artificially low and one bargains upwards, rather than down. Barter can also be a useful way of removing that which is extraneous and replacing it with that which is useful, ie, "I have baby clothes, you have fresh peas, I get rid of my baby clothes which I no longer need and get food, which I do need to feed the growing kids..." Cash has the annoying quality of being something none of us usually feel all that desperate to get rid of.
At the same time, what one sees from barter economies is that everyone is able to come to pretty clear expectations and valuations of things - that is, one knows what a hat is worth compared to eggs or sewing, in much the same way that I can appoximate a fair cash price for my lamb or garden plants. The underlying calculations are much the same - they require a knowledge of marketplace and a participation in the economy as a whole.
Barter is not the only economic activity generally under-rated by conventional analyses that emphasize only formal economy activity. The same is true of subsistence activity - one often hears something like "Why garden? Food doesn't cost that much anyway?" And taken alone, many things look very inexpensive - one's electric bill or one's grocery bill look wholly manageable in those terms. Manifestly, however, when economic times get hard, food pantries and electrical shut-offs demonstrate that it is not the size of the expense but the number of financial claims upon a person's income that really matter.
Things fall by the wayside, and that garden, whose total economic output seemed small makes an enormous difference. In urban Tanzania, for example, we know that poor families that garden have the nutritional status of middle-class families and their children do significantly better in school. In the US rural south, among the elderly, household gardens make a significant difference in both health and wellbeing and economic security - elders with gardens are three times less likely to go hungry during the course of a month.
When we under-rate or oversimplify the informal economy, we do ourselves a disservice, because we miss its centrality to our future. Moreover, we also do a similar disservice to ourselves when we imagine that our future exists entirely within the informal economy. The formal and informal economies are intertwined everywhere in the world - money drug dealers make in the criminal economy gets spent at Target, money made on Wall Street pays for illegal immigrants to care for the stockbroker's child. Under the table guitar playing or cab driving buys groceries and gas. Homegrown vegetables fuel labor at formal economy jobs. Volunteers make formal economy institutions like museums viable. Illegally scavenged or stolen construction equipment gets used in industrial building. Spouses edit and proofread professional writer's work. In every regard, the two economies intersect and are one.
I suspect as much as we underrate the informal economy, its size, importance and persistence, we also underrate the persistence of the formal economy. I know some people who anticipate an eventual economy that returns entirely to subsistence, barter and domesticity - but that's not a likely near-term outcome. The vision of a world in which you will not need any money, in which all debts will disappear, in which no one will invest or have to worry about retirement savings is probably an unlikely one - even if some debts are wiped out and so are some retirement savings..
We know, for example, that pre-industrial, pre-fossil fueled societies often had quite complex formal economic systems. While some people may have participated very little in those systems, they have always existed. The formal economic system of feudalism, for example, which required carefully calculated payment in labor, rather than cash, was largely unavoidable for most people. Reading a diary by a 18th century middle-class Jewish woman in Germany involves long discussions of letters of credit, banking arrangements and payments on debt. An understanding of the legal and economic complexities of a rural village in 17th century Germany would require extensive study, and involve many familiar formal economy concepts like mortgages, lawyers and survey boundaries.
American history has taken on as its past icon Laura Ingalls Wilder and her family who make and build everything of their own, and seem largely self-sufficient, but it is worth noting both that the narratives that Wilder wrote work explicitly to conceal some of the inter-dependence of the Ingalls family (Pa Ingalls, living in the isolated Big Woods was on the local school board, a school Mary and Laura attended), and that even in the fictionalized version of Laura's life, they still depended consistently on stores for salt pork, cornmeal, shoes, fabric etc...
Moreover, the pioneer life that we imagine as the American historical norm was really mostly a characteristic of periods of expansion into new territories - when first settling the colonies or moving westward, Americans could, indeed, expect to find themselves with little governance, a largely cashless economy and enormous pressure towards self-sufficiency. Once areas became settled, however, almost the first institutions to arise were banks and complex formal economies, debt structures and legal conflicts. Those who dream of a simpler time are probably kidding themselves.
That does not undermine the merit of a strong informal economy, or of subsistence, domestic and barter activities within that economy. Consider the common model of work in 17th and 18th century New England. A tailor like Asa Talcott, or a cooper, or a teacher like my great-grandfather Edmund White would also be a farmer in rural areas. Because the economy was localized, instead of specializing, Talcott farmed during the growing season, sewing little then, and did the bulk of his sewing work during the winter. The same would be true of a schoolteacher's schedule. Rather than specializing as one did in urban areas, local economies might not be able to afford a full-time tailor or cooper or teacher - but they could afford a part-time one, and everyone was better for not putting all eggs in one basket. This had its inconveniences - if you wanted a barrel made, you might have to wait until the harvest was over. At the same time, it enabled the formal economy to partly support those who needed it with enough cash for cash-necessary activities like paying taxes or debts, and enough barter goods and self-provided foodstuffs and clothing to keep a whole host of needs entirely out of the area of the cash economy.
What we do know from pre-fossil fuel eras is that the informal economy, when strengthened, can strengthen the larger economy as a whole - allowing the formal economy to support more people in the things that truly require formal economy tools like currency. We know that people who did know about debt and currency often found enormous value in informal economy structures - just as we find value in Craigslist, Freecycle and Ebay to support many of our own informal economy ventures. We know that before industrialization, a complex mix of economic activities supported most people - that few people relied solely on one kind of job or industry.
Thus we can begin to imagine the Post-industrial economy as a kind of hybrid - just as our industrial economy is a hybrid, but one with different emphases. It will not consist entirely of exchanges of eggs and vegetables, nor will it consist entirely of people whose whole economic activity exists in the realm of a single job for which they are trained and on which they are wholly dependent. Instead, it may involve a complex mix of formal economy work to meet formal economy obligations, subsistence labor to provide for things unaffordable in the new economy, domestic labor to reduce expenses and provide excess of some material for sale, barter with neighbors for a complex mix of needs as yet unmet, and perhaps forays into the areas of money work not legitimized by society as a whole in the criminal or under-the-table economy.
Debt and markets will continue to exist (which does not mean that some debt and some markets may not be wiped out or eliminated). Human beings will still have the habit of making complex their economic transactions. They will also continue to have the habit of clarifying them, of getting what they need directly from one another without involving the taxman or middlemen. The economy may occasionally or frequently descend into chaos without clear lines of demarcation between obligations that must be upheld and those that can freely be ignored - but in between those periods, the human habit of economic organization will continue, and will require investment for most of us in both formal and informal economies.
Having some kind of realistic picture of an emergent economy on an energy downslope, of the cusp of a crisis is really important. We have the bad habit of imagining large chunks of the economy out of existence to suit our own needs - but we are best informed by as clear a picture as possible.