In perhaps the most straightforward solution to scarce currency, many depression workers joined barter exchanges and self-help cooperatives. Sometimes, workers would exchange their labor with factory owners for some of the goods they produced, or with farmers for a share of the crops. In other systems, laborers swapped goods and services directly with one another. They used various forms of scrip simply to keep track of how much work people had put in and how much value they had taken out. The founders and users of these currencies were not Communists or even ideological. Many, including Organized Unemployed Inc.’s Reverend George Mecklenburg, abhorred state aid so much that his sauerkraut co-op’s scrip was imprinted with the slogan “Work, Not Dole!”63
As FDR’s federal government programs kicked in, these alternative local money systems were either declared illegal, abandoned, or used to prime the larger economy. In many cases, though, they gave communities a taste of self-sufficiency before aid in the form of new debt arrived. There’s no doubt that FDR’s programs, bonds, mortgage policies, and GI bills let more Americans live better. He successfully forced the banks to start lending, which set us on the path to seven or eight decades of mandatory currency expansion and economic growth—for better and for worse. If lending can be understood as a form of dole, then Mecklenburg’s slogan may be more prescient than he meant it.
3. Cooperative Currencies: Working Money into Existence
Today, economic recovery is still understood as big institutions lending other institutions a bunch of money in order to capitalize new development. When cities have no cash and unemployment is high, the governor or president is supposed to incentivize a bank to lend money to a corporation to build a factory to create some jobs to kick-start the economy. Eventually, though, everyone up the chain of capital has to be paid back, the scores of financial advisors and other stakeholders gaming the loans get to take their cut, and the municipality is left dependent on a foreign corporation for everything. The corporation has the leverage to demand better tax treatment as it extracts more value from the region than it creates. Then the company leaves, and the cycle begins again. And that’s considered a success story—the very premise of our cyclical economy.
It would be much simpler, more sustainable, and less expensive to get that region to work without putting it into debt or the service of a remote entity. Instead of installing industry, government could much more easily equip regions with the tools and information they need to develop a means of value exchange.
After all, if people have skills and needs, then they have the basis for an economy. All they require is a way of exchanging value with one another. If Joe fixes refrigerators, Mary bakes bread, Pete grows wheat, and Sylvia babysits, each one can support the others. But barter alone won’t do it. Sylvia may need her refrigerator fixed, but Joe has no kids for her to babysit. He needs bread. But Sylvia can’t babysit for Mary, whose kids are off at college. Sylvia can babysit for Pete. But how does that help?
If everyone had dollars, it would be easy. Pete would pay Sylvia to sit for his kids. Sylvia would pay Joe to fix her fridge. Joe would pay Mary for bread. And Mary would pay Pete for the grain to make her bread. If only Pete had some cash, he’d be able to hire Sylvia. So he votes for the politician who promises new capital investment, a new plant, new jobs, some new dollars, and ultimately a new set of loans to be paid back to the bank for supplying the money to begin with.
What if, instead, Pete and the rest of his community learned to transact directly? What if, instead of bribing foreign business with a tax-free new enterprise zone, the politician simply offered a PDF file with simple instructions on how to start up a “favor bank” or local currency? Or maybe offered up an advisor for a couple of weeks to the local chamber of commerce to get an exchange system or a new community currency off the ground? Unlike local discount currencies, such as BerkShares, cooperative community currencies don’t need to be pegged to the dollar at all. They are not purchased into existence but are worked into circulation—a bit like the market money of the late Middle Ages. They are best thought of less like money than like exchanges.
The simplest form of cooperative currency is a favor bank, such as those being employed in Greece and other parts of southern Europe during the euro crisis. Incapable of finding work or sourcing euros, the people in many places lost the ability to transact. Even though a majority of what they needed could be produced locally, they had no cash with which to trade. So they built simple, secure trading Web sites—like mini-eBays—where people offered their goods and services to others in return for the goods and services they needed.64 The Web sites did not record value amounts so much as keep general track of who was providing what to the community and coordinate fair exchanges. This casual, transparent solution works particularly well in a community where people already know one another and freeloaders can be pressured to contribute.
Larger communities have been utilizing time dollars, a currency system that keeps track of how many hours people contribute to one another. Again, a simple exchange is set up on a Web site, where people list what they need and what they can contribute. The bigger and more anonymous a community, the more security and verification is required. Luckily, dozens of startups and nonprofit organizations have been developing smartphone apps and Web site kits through which local or even nonlocal communities can establish and run their own currencies.65 Time dollars can even be run on a blockchain, where the provider and the purchaser verify the transaction.
Time exchanges tend to work best when everybody values their time the same way or is providing the same service. The Japanese recession gave rise to one of the most successful time exchanges yet, called Fureai Kippu, or “Caring Relationship Tickets.” People no longer had enough cash to pay for their parents’ or grandparents’ health-care services—but because they had moved far away from home to find jobs, they couldn’t take care of their relatives themselves either. The Fureai Kippu exchange gave people the ability to bank hours of eldercare by taking care of old people in their communities, which they could then spend to get care for their own relatives far away. So a girl might provide an hour of bathing services for an elder in her neighborhood in return for someone preparing meals for her grandfather who lives in another city. As the Caring Relationship Tickets became accepted things of value, people began using them for a variety of services.66
What’s more, as the Japanese economy recovered enough for people to afford health care from traditional for-profit providers, a majority elected to stay within the Fureai Kippu system. Not only was it less expensive for young people to pay directly with their hours, but the elders found their amateur caregivers more connected and compassionate.67
Different money systems engender different behaviors and attitudes from the communities that use them. With Fureai Kippu, the caregivers get a surrogate elder for whom they can provide the care they wish they could be providing their own grandparents. They can establish relationships and negotiate scheduling directly, without having to worry about their company’s profits, schedules, billing, or insurance—or the costs of all those things. People can work less and get more. It’s only a problem for those who would hope to extract value from the transaction.
Time-dollars systems, and those like them, don’t encourage extractive profiteering because they are really only good for exchanging labor and services with other people. Unlike bank-issued currency, hours are not borrowed into existence, nor do they collect interest over time. They don’t actually accumulate. Instead, everyone’s account starts at zero. When Sylvia babysits for Joe’s kid, her account is credited three hours, and Joe’s is debited three hours. Since they both started at zero, Sylvia now has three hours in her account, while Joe’s account is in the red for three hours’ worth of work. He will remain owing those three hours to the system—to the community—until Mary hires him to fix her refrigerator. The net result of the exchange is even. The net total of the system is still zero. It is not
a growth economy but a transactional economy.
Although a person can do a bunch of work in order to bank enough hours to get a whole bunch of services, most time exchanges put a limit on how many hours members can accumulate. They also put a limit on how many hours a person can owe. This way a freeloader can be removed from the system, and the entire community can absorb the cost of the unearned hours pretty easily.
The time banks of progressive communities such as Ithaca, New York, or Boulder, Colorado, are some of the most famous in existence, but they have also begun to spring up in depressed regions all over the world, thanks largely to the ease with which they can be administered online. For instance, throughout Spain, time banks of all shapes and sizes are offering people a way to work and trade independent of a monetary emergency that the average Spaniard had no part in creating. There are more than a hundred time banks in Barcelona alone, with membership sizes varying from less than fifty into the thousands. Some of them are managed day-to-day by human staff (who are themselves compensated in time dollars), while others are entirely digital and automatic. Many of the bigger time banks even offer checking, auditing, and online banking.68
Time dollars are extremely egalitarian, valuing each person’s time the same as anyone else’s. An “hour” is worth one hour of work, whether it is performed by a plumber or a psychotherapist. Another version of time dollars, called LETS (Local Exchange Trading System), allows people to negotiate the value of their own hours or services. The advantage to a LETS is that it can also account for the cost of goods or even the capital investment of training required for certain services. In a purely time-based system, an auto mechanic can charge “hours” for the time he spends fixing a car, but he must charge standard currency for the parts. A LETS allows him to set a local value for the parts he has bought.
Of course, eventually the mechanic will need some regular dollars if he is going to stay in business. Auto parts manufacturers don’t accept local scrip. That’s why time and LETS systems are best thought of as complementary currency systems rather than complete replacements for all forms of central money. They complement central currency, giving people a great way to conduct local business when cash is either too scarce or too expensive. Moreover, they encourage transactional velocity and even good will instead of hoarding and profiteering. More people get to do more things for one another.
A local currency needn’t be the right tool for every economic purpose in order to be successful. A LETS won’t be getting people new iPhones, snowblowers, or iron ore anytime soon. Complementary currency’s purpose, more often than not, is either to kick-start a local economy or to make local transactions less burdened by the cost of currency and thus more competitive with nonlocal corporate, chain store, or big-box offerings. If a local farm and a local biodiesel company become members of a LETS, then the community has a great majority of what it needs to survive, even if it’s got no money at all.
The more flexible structure of a LETS makes it great for some of the more hybrid approaches to economic renewal and sustainability. By tying LETS dollars to something else in the real world, users can more easily gain trust and traction. For example, Mayor Jaime Lerner used a modified LETS to address both the economic and environmental crises facing Curitiba, Brazil. Sanitation and pollution in the slums were out of control, but Lerner was leery of requesting large loans from sources such as the World Bank, which he knew could well result in a permanent state of debt.69 The city slowly undertook a modest program aimed at ameliorating its sanitation problems, which grew into one of the most successful, long-running LETS on record. It began by offering children bus tokens in exchange for collecting garbage. The children, many of whom were too poor even to go to school, helped clean up the shantytowns, thus supplementing the work of an overburdened sanitation department. As the children brought their tokens home, their parents were able to use them to go into the city to look for work. Soon, merchants began to accept the tokens as normal currency, administered as a LETS.
Once this happened, Lerner had the freedom to expand the program even further, using the bus-token-based LETS currency to pay for public works projects, such as housing and infrastructure. The LETS was allowing him to invest in the city and its future instead of simply ameliorating poverty.70 True, this ended up putting more bus tokens into circulation than were actually needed for transportation purposes, but by then the value of the tokens on the LETS exchange meant more than the seats on the bus that originally backed them. Twenty-five years later, the city has some of the highest quality-of-life indices in the world. Approximately 70 percent of households still participate in the garbage-for-tokens program, and the city is able to recycle some 60 to 70 percent of its trash locally. Today, the United Nations points to Curitiba as a leader in sustainable urban development.71 The Curitiba bus token shows that LETS are scalable and needn’t be limited to small communities. Once a region agrees upon a medium of exchange, it can enjoy the liquidity of monetary stimulus but with no day of reckoning when the central bank comes to collect. The region is not expected to grow just to pay back interest; it can simply recover and reach sustainability.
Complementary currency helps to insulate communities disempowered by deflation, inflation, or volatility as the economy moves from one extreme to another. All too often, the financial crises that merely unsettle the hubs of political and economic power truly decimate outlying regions and smaller communities at the very end of the money supply chain. Local currencies, time dollars, and LETS are programmed to be nonextractive, highly transactional, and free of borrowing costs.
4. From Extracting to Enabling: The New Local Bank
In such a climate, how are traditional banks to participate effectively in the financial rehabilitation of the communities they serve? How are they supposed to function at all once people begin to see central currency as extractive, and the bank as a foreign corporation removing value from the community in the form of interest? Again, just as for their corporate brethren, it’s by adopting a hybrid approach. Here’s just one possibility:
Sam’s Pizzeria is thriving as a local business, and Sam needs $200,000 to expand the dining room and build a second restroom. Normally, the bank would evaluate his business and credit and then either reject his loan request or give him the money at around 8 percent interest. The risk is that he won’t get enough new business to fill the new space, won’t be able to pay back the loan, and will go out of business. Indeed, part of the cost of the loan is that speculative risk.
In a more hybrid approach, the banker could make Sam a different offer. The bank could agree to put up $100,000 toward the expansion project at 8 percent if Sam is able to raise the other $100,000 from his community in the form of market money. Sam is to sell digital coupons for $120 worth of pizza at the expanded restaurant at a cost of $100 per coupon. The bank can supply the software and administrate the escrow. If Sam can’t raise the money, then it proves the community wasn’t ready, and the bank can return everyone’s money.
If he does raise the money, then the bank has gained the security of a terrific community buy-in. Sam got his money cheaper than if he borrowed the whole sum from the bank, because he can pay back the interest in retail-priced pizza. The community lenders have earned a fast 20 percent on their money—far more than they could earn in a bank or mutual fund. And it’s an investment that pays all sorts of other dividends: a more thriving downtown, more customers for other local businesses, better real-estate values, a higher tax base, better public schools, and so on. These are benefits one can’t see when buying stocks or abstract derivatives. Meanwhile, all the local “investors” now have a stake in the restaurant’s staying open at least long enough for them to cash in all their coupons. That’s good motivation to publicize it, take friends out to eat there, and contribute to its success.
For its part, the bank has diversified its range of services, bet on the possibility that community currencies will gain traction, and
demonstrated a willingness to do something other than extract value from a community. The bank becomes a community partner, helping a local region invest in itself. The approach also provides the bank with a great hedge against continued deflation, hyperinflation, or growing consumer dissatisfaction with Wall Street and centrally issued money. If capital lending continues to contract as a business sector, the bank has already positioned itself to function as more of a service company—providing the authentication and financial expertise small businesses still need to thrive.
The bank transforms itself from an agent of debt to a catalyst for distribution and circulation. Like money in a digital age, it becomes less a thing of value in itself than a way of fostering the value creation and exchange of others.
Less a noun than a verb.
Chapter Four
INVESTING WITHOUT EXITING
“Our favorite holding period is forever.”
—Warren Buffett
FINANCE IS NOTHING PERSONAL
Okay, suppose the digital economy delivers on its deepest promises. Let’s say we transcend our industrial-age thinking and develop platforms dedicated to serving the needs of people instead of simply removing them from the value equation. Let’s say we transition to a business landscape in which corporations don’t have to grow in order to remain solvent. And, as long as we’re doing so well, let’s say we get down to the operating system of money itself and reprogram it from the ground up to be biased less toward preserving passive wealth for the rich and more toward exchanging value among everyone else.
Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity Page 19
