The increased instability caused by this amplification of the business cycle is abetted further still by the destabilizing autocatalytic centripetal phenomenon, which pulls resources in from the greater economy, be it through subprime mortgages, derivatives, or other means. Both the amplification of the business cycle and autocatalysis contribute to the kind of loss of resilience that helped escalate the downturn of 2008-2009, into the worst recession since the Great Depression.
Joseph Tainter points out in The Collapse of Complex Societies that autocatalytic economic circuits follow a path similar to that of the Roman Empire: they grow, dominate their surroundings, reach their limits, and if left unchecked, end in collapse due largely to erosion of small farmers, local governments, and other non-epicenter networks.216 Understanding this process empirically grounds the age-old claim that monopolistic concentration, insider trading, speculation, and sheer greed are all bad for economic health. Some regulations, like the Glass-Steagall Act of 1933, counteracted this by barring Wall Street investment banks from owning community savings banks. Such measures were effective because they blocked too much autocatalytic alignment. This act was, however, repealed (under the Clinton administration) after intense lobbying by the banking system, and is another manifestation of the same recursively self-serving process.
Structurally, this autocatalysis is compounded by the current monetary and banking paradigms, with a monopoly in the issuance of money; that is, by the very same sector that wields such enormous influence on all else in our monetized economy, including the booms and busts of the business cycle. The continued lack of reassessment and amendment to these paradigms, together with unchecked autocatalytic circuits, are as dangerous a mix of ingredients as one can imagine with regard to the sustainability of our global economy. Until and unless addressed, this perilous status quo virtually ensures continued lack of resilience, instability, and ongoing crises.
RETHINKING THEORY AND PRACTICE
Current economic theory rests on the assumption that economic laws, such as standard supply-and-demand dynamics, hold true regardless of the resilience of the underlying networks. But GDP growth only counts the volume of monetary exchanges; it ignores whether such exchanges actually contribute to or destroy economic resilience. Supposed growth, as gauged by this primitive accounting scheme, may instead mask declines taking place in various parts of the economic web by allowing massive gains in one sector, such as hedge funds, to be conflated with health for the whole. As noted, this blindness to network health renders traditional economic theory incapable of understanding, much less predicting, bubbles, which, in the context of this economic framework constitutes growth without underlying structural development. The various schools of traditional economics are also unable to foresee the kind of widespread economic instability that now threatens the world.
The lack of attention to the erosion of lower-scale networks has opened the door to policies that have accelerated destruction at every level of the economy. Reigning economic thinking of the last several decades, devoted to regulating capital, has removed many of the obstacles to wealth concentration long known to create harm. Blind faith in market efficiency and the seeming correctness of maximizing profits regardless of the costs to anyone or anything else, has bred disdain for moral concerns, including harm to smaller economic actors.
Where an underlying stability once supported the monetary domain, our collective blindness has now inevitably caused that stability to collapse. The damage done to people—as consumers, laborers or operators of small businesses—and the continued onslaught upon the environment caused by predatory practices, externalization of costs, toxic products, as well as a lack of monetary choices, were all rationalized as necessary collateral damage and creative destruction. But the destruction factor now impacts the whole of the economy and virtually every living system of this planet, and seriously compromises our future prospects.
A long list of critics (including Joseph Stiglitz,217 Robert Pollin,218 John Saul219) point to the more than 100 major banking crises,220 the increasing concentration of wealth and power,221 the elimination of good jobs,222 and the erosion of civil liberties, public health, and democracy,223 all of which have accelerated between the 1970s and today. Each is an expression of the inherent unsustainability of our present economic regime.
This combination of blindness and disregard leads to widespread brittleness that, as the ongoing economic crisis shows, threatens big and small alike. It also highlights the fallacy of other common assumptions, including:
increasing efficiency always improves economic health regardless of the harm that financial efficiencies can cause to people, communities, and our planet’s ecosystem;
highly skewed distributions of wealth, power and size do not affect economic health;
money is value neutral, and our fiat-based, bank-debt monetary system can meet all of humanity’s many diverse needs.
Another road to socioeconomic vitality is available to us. A whole currency innovation movement has emerged over the past decades, thanks in large part to the efforts of pioneers from many countries. In the United States, much of the credit goes to innovators such as Hazel Henderson,224 Edgar Cahn,225 Paul Glover,226 Thomas Greco,227 Sergio Lub,228 Susan Witt,229 Wilson Riles, Arno Hesse, Guilllaume Lebleu, Nipun Mehta, Matthew Edwards, Charlie Rebich, as well as hundreds of grassroot activists too numerous to mention here. The next chapters will document some of the results.
CLOSING THOUGHTS
Traditional economics places a great deal of emphasis on “growth.” This parameter, as measured by GDP, is widely assumed to be synonymous with healthy, economic development. Recent findings, however, derived in large part from our understanding of flow systems, calls into question many long-held growth-related assumptions and activities.
One of the many ways in which growth is conflated with overall sustainability is how current policy and activities benefit dominant players at the expense of the greater economy. The present monetary and banking paradigm, together with the phenomenon of autocatalysis, enables large institutions to become ever larger, thereby reducing connections and diversity in the system.
This relentless emphasis on GDP gains, efficiency, and growth, at the cost of resilience, together with the lack of diversity embodied in our monetary paradigm, constitutes a structural cause for the instability of our economies. A balance between efficiency and resilience is essential for sustainable development.
CHAPTER FOURTEEN - LETS and Time Dollars
How wonderful it is that nobody need wait a single moment
before starting to improve the world.
~ANNE FRANK
As in other major societal transformations, monetary changes are a vital component of today’s Great Change. Prompted in large part by the inability to address issues by traditional means, and spurred on as well by low-cost computing, more and more communities are getting involved with new complementary currencies. Only a small handful of such currencies were known to be operational during the 1970s. Today several thousand systems are operational worldwide.230 A very conservative estimate of the rise in the number of systems is illustrated in figure 14.1.
It bears noting that only those social-purpose complementary currencies identified as operational in a dozen countries as of 2009 are represented. Excluded from the figure are the thousands of “loyalty currencies” (discount coupons, airline miles, etc.) used for commercial purposes and the countless social-purpose currencies that do not advertise their existence outside of their immediate geographical environment.
Two of the most popular complementary currency systems operational today are LETS and Time Dollars. Each of these currencies is an example of a mutual credit system, designed to help facilitate exchanges in communities in which national currency is either lacking or otherwise inadequate to meet local needs. A brief description of each system follows, beginning with the most ubiquitous and one of the most easily adopted of all social-purpose currencies—LETS.
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LETS
There are many flavors of Local Exchange Trading Systems—or LETS. One example is LETSystem, which originated in a once-prosperous fishing community near Vancouver, Canada during the 1980s. The community had fallen on hard times; local unemployment persisted at nearly 40 percent despite the presence of a large, skilled labor force and the continued demand for goods and services by the local population. LETSystem was created to help facilitate the local trade of goods and services. As LETSystem’s founder Michael Linton observed, the missing link was money. Without it, transactions simply could not take place. According to Linton:
The greatest deficiency of conventional money is that for too many, it is simply not available. By its very design, there is only a limited amount of it created. And, as conventional money must come from somewhere outside the local community, it inherently doesn’t understand or concern itself with the needs of a particular community.231
Exchanges in a LETS system take place using either LETS money alone or in combination with national currency. A gardener or car mechanic, for example, might ask only LETS money in exchange for services rendered, or accept partial payment in both LETS and in national currency. The proportion of LETS and national currencies used in each exchange is determined by the participants themselves on a case-by-case basis. The material inputs used in most LETS exchanges, for instance, fertilizer or car parts, are customarily paid for using national currency. The service inputs tend to be paid in LETS.
Exchanges in the LETS system take place using either LETS money alone or in combination with national currency. A gardener or car mechanic, for example, might ask only LETS money in exchange for services rendered, or accept partial payment in both LETS and in national currency. The proportion of LETS and national currencies used in each exchange is determined by the participants themselves on a case by case basis. The material inputs used in most LETS exchanges, for instance, fertilizer or car parts, are customarily paid for using national currency. The service inputs tend to be paid in LETS.
LETS is a mutual credit system, whereby the currency to be used in a particular exchange is created at the time of a transaction. When an exchange takes place, the account of the individual supplying the goods or service is credited, while the recipient’s account is debited. Credit balances indicate that an individual has provided goods or services to fellow community members in excess of the amount of goods or services redeemed, and vice versa for debit balances.
This system ensures that the supply of LETS within a community is sufficient and self-regulating. Like other mutual credit systems, LETS enables participants to benefit from whatever resources are available within the trading community. It thereby overcomes the systemically imposed scarcity of a national currency.
In contrast to conventional money, a negative balance in LETS is not a problem but instead is an indication that this particular member has purchased more goods and services from other members. Those with a negative balance are simply called upon to offer goods or services in return, further increasing the community’s collective wealth. Some LETS programs set debt limits to avoid abuses, but there is generally a common understanding that debts will be repaid.
Because open records are customarily kept of both credits and debits, those LETS users who refuse or fail to repay their debts (by serving or supplying goods to fellow community members) can be identified easily and barred from future participation. This built-in transparency ensures checks and balances, and engenders greater trust among users. Thus it is a self-regulating system.
One important advantage of LETS compared to conventional money is that it promotes the use of skills and services that are otherwise less likely to be considered for trade, such as having someone else perform one’s cooking, driving, web designing, gardening, etc.
James Taris writes in The LETSaholic TWIST:
Having a limited income meant I could only afford to pay for the essentials in my life; everything else became a luxury. But all that changed with LETS … Very soon I was mowing lawns, removing rubbish and painting rooms. Later I was also designing business cards, brochures and newsletters. And in return, I received massages, piano tuition and restaurant meals, computer support, computer software, and web design services. I would have reluctantly bypassed all of these goods and services if I had to pay for them in cash. LETS made them all possible.232
Typically, the value of one LETS unit is equivalent to one unit of whatever national currency is used in that community. Setting up a local LETS exchange is a straightforward process. Its few requirements include: a basic agreement to use LETS amongst participants, a user-accessible, transparent accounting mechanism, and the creation of a member directory listing each respective member’s offers and/or needs priced in LETS units.
LETS programs are currently operating in many different parts of the world. In Australia, there are an estimated 200 different LETS programs. England has more than 300 programs. A partial list of other nations with LETS programs includes: Argentina, Austria, Belgium, Brazil, Canada, Chile, Colombia, El Salvador, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Israel, Japan, New Zealand, Nigeria, Norway, Poland, South Africa, Switzerland, Thailand, and the United States.
TIME DOLLARS
Time Dollars, also known as Time Banking, was created by distinquished American attorney Dr. Edgar Cahn, who observed that formally paying people—by whatever means—empowers them. He emphasizes that, “counting what people do is a way of valuing what they do.”233 Given the inherent scarcity of national currency, Cahn conceived of using time as a medium of exchange. The basic unit of account is a Time Dollar, equivalent to one hour of service, which can be spent for goods and services available within a given community.
Time Dollars works in the following manner, as explained on the Time Dollars website:
At its most basic level, Time banking is simply about spending an hour doing something for somebody in your community. That hour goes into the Time Bank as a Time Dollar. Then you have a Time dollar to spend on having someone doing something for you. It’s a simple idea, but it has powerful ripple effects in building community connections.234
Time Dollars, like other complementary currency systems, link a community’s unmet needs (the services requested) with its unused resources (community members with time and services to render). Like LETS, Time Dollars facilitates transactions that likely would not take place otherwise. Time Dollars can be as simple as a group of moms getting together to share carpooling of kids, grocery shopping, taking care of elderly parents, walking dogs, or helping out with homework.
Time Dollars builds and strengthens relationships within its community of users. In one ten-year, $51 million joint study, researchers from Harvard, Columbia, and the University of Michigan endeavored to identify what helps make neighborhoods safe.235 The multimillion dollar answer was not additional police officers or more government assistance. Rather, the study concluded that community safety depended on “collective efficacy,” a fancy term for neighbors looking out for each other’s kids to curtail destructive behaviors. Time Dollars improves collective efficacy—and local resilience as well.
The acknowledgement of services via a currency also reinforces volunteerism. Research conducted at the University of Maryland’s Center on Aging demonstrated that roughly one third of Time Dollars participants had never volunteered before. The same research showed that the use of a complementary currency induces people to continue volunteering over time. The dropout rate, which typically reaches 40 percent in purely volunteer-based programs, is only three percent in these “hybrid voluntarism” programs that provide modest payment in complementary currencies.236
The Time Dollars system is being applied to address a number of social issues. In Brooklyn, N.Y., a health insurance company called Elderplan accepts 25 percent of the premiums for its senior health programs in Time Dollars. Preventive measures, such as fixing a broken bathtub rail, are provided through Elderplan’s Care Bank, a Time D
ollar exchange.237 The Elderplan model is now available in all five boroughs of New York City.
Another successful application is the Time Dollars Youth Court. Founded in 1996, it has become a cornerstone of the juvenile justice system in Washington, D.C. Juveniles accused of nonviolent offenses are tried before a jury of their peers, that is, other juveniles who have been convicted of similar offenses. Those found guilty must make a requisite apology, and submit to life-skills counseling and a combination of community services, such as tutoring of younger students or service on a Youth Court jury. In return for rendering these services, tutors and Youth court jurors earn Time Dollars, which can be redeemed for recycled computers, savings bonds for college, educational trips, special events, and more.238
The program’s effectiveness has attracted significant attention. Participation in the Youth Court has reduced first-year recidivism by half.239 The Youth Court now processes approximately 60 percent of nonviolent, juvenile offenders’ first cases. The program has been officially sanctioned by the D.C. Superior Court to work with the criminal justice system in a “partnership for the purpose of jointly developing a diversion program which provides a meaningful alternative to the traditional adjudicatory format in juvenile cases.”240 Similar programs are being implemented in South Africa and Jamaica.
New Money for a New World Page 15
