[R-G] [BillTottenWeblog] A Better Way to Make Money

[Bill Totten]

Here's how we could solve the credit crunch without giving anything to
the banks.

by George Monbiot

The Guardian (January 20 2009)


In Russell Hoban's novel Riddley Walker (1980), the descendents of
nuclear holocaust survivors seek amid the rubble the key to recovering
their lost civilisation. They end up believing that the answer is to
re-invent the atom bomb. I was reminded of this when I read the
government's new plans to save us from the credit crunch. It intends -
at gob-smacking public expense - to persuade the banks to start lending
again, at levels similar to those of 2007. Isn't this what caused the
problem in the first place? Is insane levels of lending really the
solution to a crisis caused by insane levels of lending?

Yes, I know that without money there's no business, and without business
there are no jobs. I also know that most of the money in circulation is
issued, through fractional reserve banking, in the form of debt. This
means that you can't solve one problem (a lack of money) without causing
another (a mountain of debt). There must be a better way than this.

This isn't my subject and I am venturing way beyond my pay grade. But I
want to introduce you to another way of negotiating a credit crunch,
which requires no moral hazard, no hair of the dog and no public
spending. I'm relying, in explaining it, on the former currency trader
and central banker Bernard Lietaer.

In his book The Future of Money (2001), Lietaer points out - as the
government did yesterday - that in situations like ours everything
grinds to a halt for want of money {1}. But he also explains that there
is no reason why this money should take the form of sterling or be
issued by the banks. Money consists only of "an agreement within a
community to use something as a medium of exchange". The medium of
exchange could be anything, as long as everyone who uses it trusts that
everyone else will recognise its value. During the Great Depression,
businesses in the United States issued rabbit tails, seashells and
wooden discs as currency, as well as all manner of papers and metal
tokens. In 1971, Jaime Lerner, the mayor of Curitiba in Brazil,
kick-started the economy of the city and solved two major social
problems by issuing currency in the form of bus tokens. People earned
them by picking and sorting litter: thus cleaning the streets and
acquiring the means to commute to work. Schemes like this helped
Curitiba become one of the most prosperous cities in Brazil.

But the projects which have proved most effective were those inspired by
the German economist Silvio Gesell, who became finance minister in
Gustav Landauer's doomed Bavarian republic. He proposed that communities
seeking to rescue themselves from economic collapse should issue their
own currency. To discourage people from hoarding it, they should impose
a fee (called demurrage), which had the same effect as negative
interest. The back of each banknote would contain twelve boxes boxes.
For the note to remain valid, the owner had to buy a stamp every month
and stick it in one of the boxes. It would be withdrawn from circulation
after a year. Money of this kind is called stamp scrip: a
privately-issued currency which becomes less valuable the longer you
hold onto it.

One of the first places to experiment with this scheme was the small
German town of Schwanenkirchen. In 1923, hyperinflation had caused a
credit crunch of a different kind. A Dr Hebecker, owner of a coalmine in
Schwanenkirchen, told his workers that if they wouldn't accept the
coal-backed stamp scrip he had invented - the Wara - he would have to
close the mine. He promised to exchange it, in the first instance, for
food. The scheme immediately took off. It saved both the mine and the
town. It was soon adopted by 2000 corporations across Germany. But in
1931, under pressure from the central bank, the ministry of finance
closed the project down, with catastrophic consequences for the
communities which had come to depend on it. Lietaer points out that the
only remaining option for the German economy was ruthless centralised
economic planning. Would Hitler have come to power if the Wara and
similar schemes had been allowed to survive?

The Austrian town of Wörgl also tried out Gesell's idea, in 1932. Like
most communities in Europe at the time, it suffered from mass
unemployment and a shortage of money for public works. Instead of
spending the town's meagre funds on new works, the mayor put them on
deposit as a guarantee for the stamp scrip he issued. By paying workers
in the new currency, he paved the streets, restored the water system and
built a bridge, new houses and a ski jump. Because they would soon lose
their value, Wörgl's own schillings circulated much faster than the
official money, with the result that each unit of currency generated
twelve to fourteen times more employment. Scores of other towns sought
to copy the scheme, at which point - in 1933 - the central bank stamped
it out. Wörgl's workers were thrown out of work again.

Similar projects took off at the same time in dozens of countries.
Almost all of them were closed down as the central banks panicked about
losing their monopoly over the control of money (just one, Switzerland's
WIR system, still exists). Roosevelt prohibited complementary currencies
by executive decree, though they might have offered a faster, cheaper
and more effective means of pulling the US out of the Depression than
his New Deal.

No one is suggesting that we replace official currencies with local
scrip: this is a complementary system, not an alternative. Nor does
Lietaer propose this as a solution to all economic ills. But even before
you consider how it could be improved through modern information
technology, several features of Gesell's system grab your attention. We
need not wait for the government or the central bank to save us: we can
set this system up ourselves. It costs taxpayers nothing. It bypasses
the greedy banks. It recharges local economies and gives local
businesses an advantage over multinationals. It can be tailored to the
needs of the community. It does not require - as Eddie George, the
former Governor of the Bank of England, insisted - that one part of the
country be squeezed so that another can prosper.

Perhaps most importantly, a demurrage system reverses the ecological
problem of discount rates. If you have to pay to keep your money, the
later you receive your income, the more valuable it will be. So it makes
economic sense, under this system, to invest long-term. As resources in
the ground are a better store of value than money in the bank, the
system encourages their conservation.

I make no claim to expertise. I'm not qualified to identify the flaws in
this scheme, nor am I confident that I have made the best case for it.
All I ask is that, if you haven't come across it before, you don't
dismiss it before learning more. As we confront the failure of the
government's first bail-out and the astonishing costs of the second,
isn't it time we considered the alternatives?

www.monbiot.com

References:

{1} Bernard Lietaer, 2001. The Future of Money. Century. London.

Copyright (c) 2006 Monbiot.com

http://www.monbiot.com/archives/2009/01/20/a-better-way-to-make-money/


TO POST A COMMENT, OR TO READ COMMENTS POSTED BY OTHERS, please click
on the word "comment" highlighted at the end of the version of this
essay posted at http://billtotten.blogspot.com/