WHAT’S THE BOTTOM LINE?
Interest is having a devastating impact on life as we know it. For example, there’s the Depression of the late 1930s; Japan since 1990; and the developments in the United States leading to the 2008 financial crisis.20 They were all generated by asset bubbles, and when those asset priced bubbles popped, huge numbers of businesses and banks failed. The assets in which these bubbles focused varied over time and place. For instance, in the 1930s they were U.S. stocks; in the late 1980s real estate in Japan; in the 1990s high-tech stocks in the United States; and again, real estate in America during the first years of the 21st century. What they all have in common is the pro-cyclical debt creation mechanism that overheats the economic engine. Such bubbles invariably burst with catastrophic consequences for everybody. Furthermore, high capital mobility combined with procyclical money creation amplifies the business cycle into destabilizing booms and busts cycles that tend to spread around the world, destroying financial, human, and natural capital.
Furthermore, conventional money reinforces a particular perception of time, through the existence of interest, which automatically mandates short-term priorities. In contrast, if a different currency were available—one that has a negative interest rate (as will be shown in the next chapter)—this would encourage society and business to value long-term opportunities and costs. Consequently, such a change would automatically reorient the entire investment process and directly promote longer-term financial and ecological sustainability.
The constant requirement for perpetual growth is imbedded in the monetary system. It obliges everyone to be on an economic treadmill with mandatory growth, regardless of the long-term consequences. Such pressures must bear some of the responsibility for the erosion of non-renewable natural resources, or the pollution of the air and water with massive tolls on health, social, and environmental well-being.
As the concentration of wealth becomes more and more acute the conversation becomes about more than simply food and prices of the necessities of life. Justice and democracy are at stake. As U.S. Supreme Court Justice Louis Brandeis claimed: “We can have a democratic society or we can have great concentrated wealth in the hands of a few. We cannot have both.” The Dalai Lama put it this way: “A society in which the rich are too rich and the poor too poor generates violence, crime and fighting for them.” Clearly, violence and war are the exact opposite of well-being and sustainability as it means a lose-lose proposition for all segments of society. As John F. Kennedy remarked, “Those who make peaceful revolution impossible will make violent revolution inevitable.”
Finally, but not least, social capital is not a mere by-product of society. It is the cement that changes a collection of individuals into a human society. It is a precondition for rendering a democracy functional21 and for securing economic prosperity.22 Indeed, political action and efficient markets are both unthinkable without a minimum of social capital and coherence. Democracy and economic prosperity become possible only when a society has a sufficient sense of responsibility, mutual trust, and cooperation. Increasing crime rates,23 poverty, and the exclusion24 of ever larger groups from society are clear indications of the erosion of social capital. A series of studies have shown that, at present, social capital is not only dwindling in most parts of the world, but it is also undergoing a change in its very nature.
The entire current financial paradigm begs these questions to be answered now with alacrity: Is there another way? And, if there is, how would that emergent society function in contrast to our present experience?
PART TWO
PROSPERITY
In a world of almost 8 billion souls and rapidly dwindling natural resources, the notion of prosperity is tricky. A better and more accurate term is sustainable abundance, whereby there is sufficiency for all. Sustainable abundance supports the inherent dignity of the human spirit, the creative genius, and the unbounded potential of the ever-evolving human race and its nonhuman cohabitants on this planet we call home.
With new currencies and new monetary designs working in tandem with the conventional system, we can achieve sustainable abundance.
In reality, we already live in a multicurrency world, although many don’t recognize that fact. Most of us are familiar with frequent flyer miles issued by airline alliances or other loyalty currencies distributed by supermarkets and commercial groups. These systems prove that the technologies for innovative currencies and payment systems can operate in parallel with conventional money, even on a large scale. This breakthrough has been enabled by increasingly inexpensive computing, along with expanding access to the Internet. Existing monetary innovations have already progressed well beyond simple loyalty and marketing currencies to strategies that help heal social breakdown, deal with the consequences of an aging society, educate people from cradle to grave, create jobs, and address climate change.
In this part, we introduce you to some remarkable stories of people all around the world who are in the process of implementing such cooperative currency systems. We explore what they have achieved so far, from innovations in business for entrepreneurs just getting off the ground to large global multinational corporations. Parallel to the commercial applications are ideas for government at different levels, nonprofits, and nongovernmental organizations (NGOs). Perhaps some of the most spontaneously ingenious and somewhat surprising solutions have been in the domain of banking.
Chapter Four
THE FLYING FISH
A New Perspective on Money
To say that a state cannot pursue its aims,
because there is no money, is like saying
that an engineer cannot build roads,
because there are no kilometers.
EZRA POUND, American poet and economic historian
It’s quite common to think of money in terms of its material representations. Although money has taken many forms throughout human history, from shells to zappozats (decorated axes),1 it is not a material object but, rather, is merely represented as such. For instance, if you are stranded alone on a desert island, a thing, say a knife, is still useful as a knife, but a million dollars in whatever form it takes—cash, coins, or debit and credit cards—ceases to be money. It becomes merely paper, metal, or plastic and no longer functions as currency. For any thing to act as money, it requires a community to agree that the particular object is acceptable in an exchange.
That is why our working definition of money is: an agreement, within a community, to use something standardized as a medium of exchange.2
These agreements manifest in very different scenarios and levels of society, ranging from tokens used among a small group of friends playing cards or cigarettes traded among prisoners to conventional bank-debt money exchanged among the citizens of a particular nation as “legal tender” (i.e., accepted in payment of taxes). A community can be geographically disparate, such as Internet users; it can exist in virtual realities, such as Second Life; or it can include large segments of the global population, as is the case with the U.S. dollar in its role as the international reference and reserve currency.
Therefore, money really lives in the same space as other social constructs, like marriage, club memberships, and business contracts. These constructs are real, even if they exist only in people’s minds. A monetary covenant can be made formally or informally, freely or by coercion, consciously or unconsciously. Most people do not consciously agree to use dollars, euros, or yuan, nor do they consider their nature. These currencies are used automatically, as a means of entering into an assumed and unspoken contract.
There is, however, a broader context of what money is, as money can be found outside the narrow parameters of legal tender. As shown earlier, contemporary national currencies are all interest-bearing fiat currencies, debt based, created through the fractional banking system. They are designed to facilitate transactions (i.e., as a medium of exchange), used both as units of account and as savings (i.e., as temporary stores of value), and are particular
ly well adapted for business and industrial applications and settings. As already seen, the use of interest, especially compound interest, has very precise outcomes that do not necessarily benefit society at large. However, money can also be architected in other ways.
There are thousands of new monetary pacts operating within communities in the United States and beyond that are not conducted solely with legal tender, leading to some very different outcomes. These pacts are called “common tender,” in contrast with “legal tender.”
These currencies are also identified under various names, including complementary currencies (because they work in parallel with conventional money), cooperative currencies (since they are created to encourage cooperation instead of competition among their users), and local currencies that are designed to operate within a more limited local community. These currencies can be specialized in ways that conventional money simply cannot. By understanding the constituent parts and their resulting functions, it is possible to remodel money with a specified outcome in mind. This new money can be structured to encourage behaviors that otherwise would not occur without some kind of intervention or deterrent, be they laws and legislation or appeals to moral judgment. For example, a currency can be crafted to encourage people to shop locally, to plant trees and take better care of their environment, to help elderly neighbors, or to provide after-school mentoring.
COOPERATIVE CURRENCIES: LINKING UNUSED RESOURCES WITH UNMET NEEDS
In terms of their creation and operation, cooperative currencies typically are managed by members of a community, a nongovernmental organization (NGO), or a business network, not by banks. Their primary function is to link unused resources with unmet needs within a specific geographical area, business, or segment of society.
Another way to understand these currencies is to compare them with the familiar frequent flyer miles programs introduced by airlines some 30 years ago. The unmet need from the airline perspective was customer loyalty. The unused resource was an empty seat on a flight. The loyalty currency is simply the bridge that links the two.
Creating a cooperative currency is also about building such a bridge, but it aims at inducing behavior changes that are useful to solve some of our more serious challenges of the 21st century. For example, in a small town where the key employer, a factory making cars, closes down and the jobs are shipped overseas, the outcome is massive unemployment in that area. The resulting unused resource is human capital—labor, ingenuity, and expertise—and the unmet need is to get people a way to provide for their families and revitalize the local economy.
Today, we have a plethora of both unmet needs and unused resources. Cooperative currencies tie these together and get the fundamental circuit of giving and receiving, buying and selling, moving again as people get their lives back on track. Completely new circuits of trade are being established by ordinary people as they create new solutions to their area’s problems. Accordingly, a community can be anything from a small local neighborhood to a group of multinational companies doing business together. The actual currency can address many issues: for example, the creation of an elderly care currency, an energy conservation currency, or a local food-growing currency. When and wherever there is an unused resource and an unmet need in an economy, they can be linked with a purposefully designed currency. The organization responsible for the issuance of a currency can be a nonprofit, a religious entity, a business federation, a community group, a union, a company, a government agency, or, of course, any body of government from a municipality to the federal echelon. In reality, the only conceptual limitation is imagination. Together with conventional national currencies, they can form what we call a monetary ecosystem.
The creation of these types of money provides to local and state governments a way to resolve problems in ways other than by bond measures or traditional increased taxation, and it eliminates the frustration of trying to secure funding from the dwindling budgets of government departments and agencies. It empowers groups of people to take control of their collective destiny rather than waiting for some top-down one-size-fits-all solution. It prevents being handicapped in one’s efforts—literally cap in hand—while seeking support from overextended nonprofits and philanthropic organizations.
The impressive flowering of these currencies, especially over the last couple of decades, is enabled by communications networks that offer access for greater numbers of people to computers, the Internet, and mobile phones. Recent surveys have indicated that there are approximately 4,000 mature cooperative currencies globally. It was possible to make an inventory of these 4,000 because they have a Web presence. Undoubtedly, many more currencies operate on a more informal and less technological basis.3 An average smart phone has more computational power than the computers used by NASA to launch the Apollo Space program back in the 1960s, while the cost of computers and mobile phones has dropped by several orders of magnitude. Imagine an airline trying to manage a frequent flyer program by using legions of clerks shuffling paper records. Today, such data are aggregated and parsed in seconds by simply swiping a bar code—a totally paperless and digitized transaction completed in just nanoseconds.
THE GAP BETWEEN HOW WE THINK AND HOW NATURE WORKS
Cooperative currencies have been thought of as curiosities, an interesting trend that might spark and then burn and fizzle like a comet in the night sky. But a solid core of science not only provides the rationale but also proves the necessity for their existence. As touched on earlier, in Chapter 2, nature holds the key not only for provocative insights but also for the solution.
All complex flow networks, like the human immune system, natural ecosystems, and biological systems, consist of complex flows of energy, information, and resources. Though complex, their behavioral patterns are predictable, independent of what flows through them, be it biomass in an ecosystem, information in a social system, blood in a circulatory system, electrons in an electrical circuit, or money in an economy. What makes their behavior predictable is the universality of their structures.4
An example is the illustrious food chain, which is actually a flow circuit: Energy flows into the planet from the sun, plants capture the sun’s energy and transform it into biomass, animals eat the plants and each other in a chain all the way to the top predator, which ultimately dies and is broken down and recycled by bacteria and decomposition.
Economic systems are similar: Money flows from one economic agent to another; outputs of one business serve as inputs to other enterprises or to a final consumer in a vast web that processes and circulates energy, information, and resources through the entire planet.
In nature’s networks, there is a constant push-pull between two emergent properties: efficiency and resilience. Efficiency is defined as a network’s capacity to process volume of whatever flows through it in an organized and streamlined manner. Resilience is a network’s capacity to deal with and adapt to changes, while maintaining the integrity of the network. So for a complex flow network to sustain itself, it must be not only efficiently organized but also able to adjust to changes in its environment, such as droughts, famine, disease, or attacks in a natural ecosystem. What make a network resilient is its options or choices, which can be best expressed as a network having access to diversity and interconnectivity.
For a real-life economic example, take the case of a factory that has closed down in a small town. If a lunch van has just this one factory as the sole outlet for its fare, the business is going to be in trouble when the plant shuts down. By being mobile, however, the business can seek new customers in other office parks and towns, thus diversifying its clientele. With menus and ordering available online, and with a community of loyal diners, interconnectivity is possible and consequently a viable business with a competitive edge and, ultimately, resiliency.
What is counterintuitive here, yet clearly demonstrated in real-life cases, is that nature does not select for maximum efficiency but, rather, for a balance between efficiency and resilience. Both
efficiency and resilience are indispensable for long-term sustainability and health. An excess of either also leads to problems. Too much efficiency leads to brittleness and fragility, and too much resilience leads to stagnation.
Viewing economies as flow systems highlights money’s primary function as a medium of exchange. From this perspective, money is to the real economy what biomass is to an ecosystem or what blood is to the human body. Money is an essential vehicle for catalyzing processes, allocating resources, and generally allowing the exchange system to work as a synergetic whole. In economies, currency (with its root interestingly in the word current or flow) circulates among nations, businesses, and individuals. Money must continue to move in sufficiency throughout the entire system because poor distribution will strangle the supply side of the economy, the demand side, or both.
Seeing the entire global monetary system in terms of a network structure reveals why it is brittle and subject to breakdown: the monopoly of one type of money, namely, national currencies, all created through bank debt, that flow within each country or group of countries, as in the case of the euro, and interconnect on a global level. Since there are no other options within the system than this one kind of currency, the entire network is frail. This is clearly borne out by the facts. As mentioned already in the Introduction, according to International Monetary Fund data, in the four decades between 1970 and 2010, there were no fewer than 145 banking crises, 208 monetary crashes, and 72 sovereign debt crises. This adds up to an astounding total of 425 systemic crises—an average of more than 10 countries in crisis each and every year!5
Nobody questions the efficiency of these huge markets, but their lack of resilience has been demonstrated repeatedly. The justification for enforcing this monopoly of a single currency within each country is that it optimizes the efficiency of price formation and exchanges in national markets. Every nation has tight regulations in place to maintain this goal. Banking institutional regulations further ensure that banks mimic each other in terms of both their structure and their behavior. This was demonstrated among the world’s bigger banks, most recently and with a vengeance, with the simultaneous bank crises in 2008 and the continuing economic problems, particularly in the United States and Europe.
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