But what if inflation is only the result of too much of a particular kind of money — this bank-debt money we accept without question? There are other units of exchange that aren’t ravaged by inflationary trends. Is inflation the result of a lot of money in circulation, or is the type of money in circulation responsible for inflation? In fact, to retain its value, bank-debt money needs to be scarce.
Demurrage Currencies
At least twice in history, a form of money has existed where there was no incentive to accumulate it as a store of value because it didn’t earn positive interest in bank accounts. Instead, it had the equivalent of a negative interest rate (known as demurrage) — the longer you held on to it, the more you would have to pay — similar to a parking fee on money. his gave people who were paid in this currency a strong incentive to spend it or to invest it — preferably in things that would continue to be valuable over the long term. The velocity of this type of money, in other words, was quite high. Since people didn’t hoard it, it also was not scarce — there is strong evidence that its existence fostered long periods of prosperity in Dynastic Egypt and during the Central Middle Ages (10th–13th centuries) in Europe.
In the first example, from Egypt, people would receive shards of pottery with a date on them when they put their grain into the storehouse. The longer the grain was stored, the more the charge was for the guards and waste as the grain spoiled. Called ostraka,1 these shards circulated alongside the precious metals rings and bars that were used for trade with foreigners. The Greeks, Egypt’s main trading partners at that time, would mock the plain clay Egyptian currency. Yet the Egyptians thought the Greek obsession with metals was strange, “a piece of local vanity, patriotism, or advertisement, with no far-reaching importance.”2 They would accept Greek coins, but only for their metal content. The ancient Egyptians enjoyed an abundant and prosperous life. They lived in a fertile valley, producing grains, meat, wine and beer in quantities sufficient for all levels of society, and they were well-educated. They invested in quality public works and their irrigation systems were the envy of the world. When they built something to last, they built it to last forever — the pyramids and temples of this ancient culture survive today.
There is evidence that the money they used — this negative interest money made of plain clay shards — was at the root of the good life they enjoyed. The ostraka system, known as the corn standard system, was used for over 2,000 years until the Roman conquest of Egypt around 30 BC. When the Romans replaced the ostraka with their gold and silver, the long period of prosperity ended. From then on, positive interest charges accrued to Rome. Over time, this in turn changed Egypt into the equivalent of a developing country: poverty increased, as did the gap between the rich and the poor.
The second example of demurrage, or negative interest money, was special coinage used for local payments during the Central Middle Ages in Europe. These coins were produced by monasteries, bishops, provincial aristocracy and townships, and bore the resemblance of the current Bishop, Lord or King (seignoriage means fees earned through an authority’s issuance of standardized currency, and it is derived from the Old French seignior, or lord).3 During Carolingian times, the coins were changed when the rulers changed (a practice called renovatio monetae), and a recoinage tax would be assessed on the coins that were turned in. So the last person holding the coins would end up paying the tax. This provided a strong incentive to spend money rather than hoarding it for the future. However, instead of waiting for a lord to die, renovatio monetae evolved to a system where every five or six years coins would be reissued. The recoinage dates were not always predictable, and the abuse of this practice resulted in more frequent recalls, the first of which was in England when Harold I recoined only three years after Cnut had done so, and then Harthcnut did it again two years later. Archbishop Wichmann of Magdeburg revoked the money in his domain twice per year!4
Like all taxes, the recoinage tax was not liked by the people, and yet without their knowing the existence of a negative interest currency led to a flourishing medieval society, especially during the period between 1000–1300 AD. Local coinage was not the only kind of money — as in Egypt, long-distance trade with other countries (usually for luxuries) required some kind of convertible coin, usually made of precious metal. But local coins were an important medium — or even the dominant one — for local trading, and its periodic tax gave people an incentive to spend money on productive items rather than to save and hoard it. This increased velocity made the coins less scarce. As in Egypt, it also led to an era of building where things were made to last — the great cathedrals of Europe were all built during this period.
The era came to an end as centralized authority expanded, enabled and further strengthened by the introduction of gunpowder in the 1400s. As kingdoms grew, reissuing money became more and more cumbersome. This, combined with opposition to the practice (it was a tax, after all), as well as its abuses, led to its demise. Rulers like King Philip IV of France turned to debasement (reducing the metallic content in the precious metal coins) rather than demurrage for their taxes — an early trigger for inflation. This change, introduced in the 1290s, preceded the economic collapse that provided fertile ground for the plagues that ravaged Europe beginning in 1347 AD.
The point here is not to wax nostalgic for some lost golden eras, as there were plenty of other problems that people had to struggle with at those times. Rather, the purpose is to show that there are alternatives to a monopoly of the particular form of money we have in existence today. It is also an illustration of the possibility of separating two functions that money serves — the store of value and the means of exchange — as a way of creating more prosperity and more economic activity.
Cooperative and Competitive Currencies
Cooperation and competitiveness are two characteristics of the human condition that make civilization possible. We know that too much or little of either characteristic leads to its own set of problems. Too much competition and both sides lose when each compromise their own long-term integrity to score a point right now. Too much cooperation, and there is no room for the dialectic of innovation and critique that fosters continual improvement. There needs to be a balance between the two, and yet the balance is always hard to find.
There is no doubt that the economy of the United States in the 21st century could be called a competitive economy. Competition in free markets is held up as the only way to get low prices and all the benefits of a well-oiled economic system. Schools are competitive, as students vie with each other to get the best grades and to be accepted in exclusive colleges. Sports are competitive, and even families living on the same street have been known to do what it takes to “keep up with the Joneses.” Competition provides the energy most US citizens thrive on, at least on the airwaves and in public discourse.
Things are a little different north of the 49th parallel. Although Canada shares many of the characteristics of the United States, its economy and culture is somewhat less competitive. This can be documented by the large number of cooperative enterprises in Canada per capita as compared to the United States, and the fact that Canadians successfully managed to create a national healthcare system, something the US is only now starting. Many other western industrialized countries exhibit more of a balance between competition and cooperation than the US, as demonstrated in public benefits, inexpensive education systems, high quality national healthcare and other policies that strengthen the common good, rather than being oriented toward the individual.
All currencies do not need to be scarce. For instance, a currency can be designed to be always in sufficiency, because it is created at the moment of exchange as a credit for the seller and as a debit for the buyer. Examples of this are mutual credit currencies, which form the basis of Time Banks, commercial barter systems, Local Exchange Trading Systems (LETS) and others. In the Onion River Exchange, Montpelier’s Time Bank for example, if I need a ride to the airport and you are willing to give me a rid
e to the airport, we’ll agree on an amount of Community Credits (the name of the currency units, which in this case are measured in time) to exchange for the service, and off we go. Community Credits are simply notations in a central computer system and there are no notes or coins exchanged at all. You don’t need to have surplus to make transactions — it is acceptable to have negative balances in the system. The optimal balance, in fact, is zero, since that would mean you are giving as much to the system as you are receiving.
There is no inflation in such a system, and no worries about overabundance triggering lower values. Let us emphasize that such a currency is sufficient for the purpose it serves. Cooperation is high — every transaction in the system is a result from an agreement. There are no price wars or people trying to secure a monopoly on a particular good or service. The quality of transactions is high, and the exchange’s reputation spreads more by word of mouth at the events and social opportunities which it organizes.
A Time Bank or mutual credit system will never, and should never, take the place of all money. The goal is rather to provide an additional means of exchange that is sufficient to meet our needs for a variety of goods and services. It is fair to say that fossil fuels will never be traded in a mutual credit system; in fact, on that ride to the airport it is likely that you would pay some cash for the gas cost, since the airport is a 45 minute drive from Montpelier. However anything you can spend time on is fair game in a Time Bank. And there are always just enough Community Credits to go around — they only come into existence at the moment they’re needed.
The Value of Time
Time ain’t money when all you got is time.
GREG BROWN, FOLKSINGER
The value of time through history has been the subject of many economic theories, practices and terms. They include Marx’s labor theory of value, opportunity costs, just in time manufacturing, discount rates and minimum wage. Time is clearly a critical piece of the economic system. The notion of scarcity casts a shadow on our idea of the value of time. We recognize that there are people with more skills and knowledge than we have, and so we pay more for their time as a result. Rocket scientists, brain surgeons and sports stars all have something that is relatively scarce — a talent or an ability that is highly valued. Jobs that require fewer skills, on the other hand, don’t command as high a pay rate, largely because there are more people who can do them. The abundance of people with the skills makes the jobs more competitive, and the wages lower. There is only one Oprah, but house cleaners and street sweepers are numerous.
Yet just because there is an abundance of something does not necessarily make it less valuable to us as a species, even if its monetary value is relatively low. Every day we all need at least some of the following: child care, elder care, health services, food preparation. If we had to pay money for every moment of time that was spent on this part of our economy, we’d quickly go bankrupt even if the people we employed were not highly compensated.
Time is a great equalizer. We all only have 24 hours in a day, and how we choose to spend it is largely dictated by the economic system we’re in. If we’re part of a hunter/gatherer society, anthropologists have observed that we spend about 20–30 hours a week in activities that could be classified as work and the rest of the time playing games, making music and hanging around the camp. In the feudal system during the European Middle Ages, the breakdown of hours worked as compared to hours spent doing other things was about the same. Now, in so-called advanced civilization, we are spending many more hours per week working for pay and fewer hours in recreational, social and spiritual pursuits. Why have we chosen these priorities in our society?
Communities and cities run on time. Time is the glue that holds them together, the oxygen they breathe. The time volunteers spend serving on town committees, the time it takes city councilors to run for office, the time it takes citizens to participate in government — all of this is critical to community success, and almost none of it is work that comes with compensation. Service clubs who do volunteer work, church groups who staff the soup kitchens, food pantries and thrift stores, the girl scouts and boy scouts, the volunteer firefighters: all of these people and their time is what makes community more than a spot on a map.
In Bali, the people have recognized the value of community time for millennia and have a dual currency system that accounts for the time people need to spend on community activities. Community life is rich — each Balinese spends about 30% of their time on creative endeavors — dance, artwork, ceremony — that contribute to community life, particularly the elaborate ceremonies undertaken in their temples. The people are also part of a community group called a subak, which maintains the irrigation systems for rice production, and a banjar, which coordinates the civic life of the community, a bit like local government.
Each Balinese spends time in two ways — through conventional jobs in the businesses and other money-making enterprises on the island (being paid in Rupiah, the national currency), and also through Nayahan Banjar, which translated means “work for the common good of the Banjar.” The Nayahan Banjar unit of account is a block of time, typically about three hours long. Each Banjar initiates between seven and ten projects per month, and each family is expected to contribute both Rupiah and their time, and both are accounted for. The governance system of a banjar can be described as hyper-democratic: for instance, the Klian Banjar leaders are not only elected at a majority but can also be un-elected whenever a majority chooses.
In most cases, there is no problem finding enough people to contribute the time needed to complete an activity; thus contributions of time are not recorded. In some Banjars, however, where there is a scarcity in the contribution of time or when there are complaints from some members about the lack of contribution by others, the Klian Banjar records every contribution of time. Those who cannot contribute their share of time are asked to send a substitute person. If neither option is possible, they must then pay a charge of between 5,000 and 10,000 Rupiah (approx $1.20 US) for each time block missed.5
It may sound inexpensive enough so that you would assume people would buy their way out of community service, but in practice this is done only occasionally. So, the work goes on, and both time and money help pay for it.
The dual currency in Bali makes it possible for there to be a lot of flexibility with different projects, depending on the community. In wealthier communities where people have more money and less time, projects that cost more are easily approved. But in poorer villages more time and less money is available, but elaborate festivals and projects are still possible because the people choose to put in more time. There is less division between the wealthy and the poor for occasions like weddings and funerals as a result, because even people who are relatively poor in monetary terms can have big celebrations for major life events. The community work extends to other local tasks as well, such as improvements at the school or on roads, especially if the national government has not done its part.
Perhaps we have lost something in the West. Our affluence has made it possible to buy our way out of community service, even though we complain bitterly about all the taxes we pay to local and state governments. We don’t spend our time on community projects in any official way, and that leaves the work to be done for pay, which is rapidly escalating out of control. On one level time isn’t money, and the intrinsic value of time can be captured through different exchange systems like Time Banks.
Revaluing time can also move us towards a sense of sufficiency and abundance, since the things we need in abundance are impossible to fully value with a conventional money system. Child care is low paid work because it is abundant, and yet what is more important than raising our children? Elder care is low paid work for the same reason, and the abuses and neglect in that system make regular news as a result, a tragedy of epic proportions. Clearly something is not working when these critical life functions are systematically devalued by society. But every mother, father, son and daughter is cau
ght in the dilemma of the cost of time. How can they give up the work paid at $30 per hour for tasks that people get barely above minimum wage to perform? It doesn’t make economic sense — in most cases taking the time to do elder care or child care would mean economic hardship for the family. While it might be impossible to recreate the cultural norms that Bali has had in place for over one thousand years in the average US suburb, finding a way to revalue community time is important for a sustainable community.
The Two-Game Economy
A balance between competition and cooperation is critical for our civilization and our survival. Yet every morning when we get up, make breakfast and go to work, we are blindly participating in an economy propelled by a monetary system that values only one side — the competitive side of the equation. Even on a sports team, every coach knows that he needs to put in as much effort building the team as he does helping the members have the skills they need to beat the opposition. Players study the playbook and talk about how they need to work together on coordinated action.
Games of competition and collaboration are the polar ends of the way humans can interact. Another word for these two complementary qualities are Yin and Yang, the fundamental dyad that Chinese philosophy applies to all forms of manifestation. In Creating Wealth, we use the words cooperation and competition because they are more familiar terms for Western minds, but these characteristics are less all-encompassing. Yet for our purposes, they serve as a good reference point given their relevance to economic and community life.
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