Local Money

How to Make it Happen in Your Community

Peter North

• Publisher: Green Books
• Year: 2010
• ISBN:
  9781907448058
• Topic: Economics
• Subtopic: Environmental Economics
• Index: Economics

An inspiring yet practical new book, Local Money helps you understand what money is and what makes good and bad money. It draws on the considerable track record of experimentation with local money around the world and gives ideas to those in the Transition movement and beyond about what has been tried, what works, and what to avoid.

PART ONE:

THE JUSTIFICATION

“The process by which banks create money is so simple that the mind is repelled.” John Kenneth Galbraith

“If you want to know what God thinks of money, just look at the people he gave it to.” Dorothy Parker

“Lack of money is the root of all evil.” George Bernard Shaw

“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” Forest E. Whitcraft

“Only when the last tree has died and the last river been poisoned and the last fish been caught will we realise we cannot eat money.” Cree Indian Proverb

“Money can help you to get medicines but not health. Money can help you to get soft pillows, but not sound sleep. Money can help you to get material comforts, but not eternal bliss. Money can help you to get ornaments, but not beauty. Money will help you to get an electric earphone, but not natural hearing. Attain the supreme wealth, wisdom, and you will have everything.” Benjamin Franklin

CHAPTER 1

THE MONEY WE HAVE

If we are to transition our local economies and provide new ways to make a living that do not cost the Earth, money will become more central to the process. I hope this book will be a resource to help us understand how money works, and what makes good and bad money.

Perhaps the place to start is to ask: Why bother? Why set up a local currency? What’s wrong with the money we have now?

If you have enough, probably nothing is wrong, and the money we have isn’t going anywhere anytime soon. Complementary currencies are complements to, not replacements for, the money we have. As we see in more detail later, to use a complementary currency you don’t have to have a critique of money at all. Many people can and do see them as a way to help others out and use their skills. Many businesses see them as just another promotion, as a way to get footfall through the door. They don’t see complementary currencies as a tool for building resilient localised economies as a response to peak oil and climate change.

You can also, of course, opt to do good things with the money you have. You can invest in and buy ethical products; spend it with sustainable and local businesses. You can avoid spending money with unethical or exploitative businesses, or on environmentally damaging products or things produced under oppressive working conditions. The money we have could work better.

But as long as there is grinding poverty next to extreme wealth, financial crises that destroy livelihoods and ruin lives, and needs being unmet even though we have the skills and resources to meet them, it’s hard to argue that everything is rosy and the type of money we have today can’t be improved upon. It has its problems.

Money is artificially scarce

Conventional thinking has it that the basic problem of economics is: how do we decide between competing demands in a world of unlimited wants and desires and deep, engrained problems, given finite resources – including money? Would it be better, Bjorn Lomborg¹ argues, to spend our limited amounts of money on fixing malaria now and leaving climate change to richer future generations? Nicolas Stern,² writing for the UK government, argues pretty conclusively that the costs of doing nothing about climate change seriously outweigh the costs of doing something. It is a debate about priorities.

Perhaps it’s a false debate. Lomborg and Stern both assume that the argument is about how to allocate money between competing options, when money is a limited resource. If we spend it on climate change, they argue, we can’t spend it on solving malaria. There are two possible responses to this.

First, at times, we solve our problems before worrying about whether we have enough money – times of war or emergency, when we go into hospital with a life-threatening problem, or when the banks fail. The UK health service does not depend on our ability to pay when we turn up at a hospital. Given the extreme severity of the climate crisis, we should be doing all we can to solve it, not being limited in our response by the amount of money we have in the first place. That’s what our leaders did when they had to bail out the banks – they created millions and millions of new pounds and dollars at the touch of a button.

Secondly, this way of thinking sees money as a ‘thing’, not a relationship or a tool for measurement. Money is seen as a stack of coins. It needs to be there before we can spend it. This view does not see money as a way to lubricate the exchange of what really matters: our time, skills and resources. Money is not a ‘thing’ but a relationship with a ‘thing’; with our knowledge and ingenuity. It is limited only by the amount of knowledge, ingenuity and resources we have.

Money that is more like knowledge and ingenuity is something we can all share and use to help to cultivate and grow the world we want to see. We all have knowledge and ingenuity. It’s not limited. My knowledge and ingenuity is not at your expense: we both have it, and can use it again and again. Why don’t we develop forms of money that work this way? Of course, this does not mean that we can just print money seen as a ‘thing’ willy-nilly. We can only create as much as we need to enable us to do the things we want to do. If we print too much, out of proportion with our skills and resources, it would be just waste paper that most people would not take seriously, and it would not solve our problems. But we should see money as a way of facilitating the work we need to do to solve our problems using the resources we have, not a ‘thing’ we need in advance that limits us.

Problem: Although we don’t always have the money we need, we can’t just print it willy nilly. It would be worthless.

Solution: We need to concentrate on whether we have the labour power and the (non-financial) resources we need to solve our problems and meet our needs, not on whether we have enough money in the first place. Money should facilitate our lives, not dominate them. We should have forms of money that people back with their time, knowledge and resources, rather than waiting for governments to create the money we need first.

We are not in charge of it

Money is a central part of our life, but we are not in charge of it. The amount of money in the economy, how it is regulated, and who has access to it is controlled by an elite of private bankers and politicians, and this gives that elite huge power to enrich themselves and control the rest of us. Beginning in the seventeenth century, ordinary people were forced off the land, where they met their own needs, into the hell of the early factory system. In many places in the global South this is still the case: people leave the countryside to go to work in poor conditions to make the cheap goods that we in the North benefit from. Sometimes they go willingly; sometimes they have little choice.

Even in the global North, we are not free. The need to earn money to feed and warm ourselves and pay our bills means we still have to take jobs that we might not like. We may have to work for low pay and in poor environmental conditions. We don’t have a free choice in how we live our lives while we are compelled to earn money in its current form, a limited resource controlled by someone else. Given that money should just be a way of lubricating trade, of measuring, this is unfair and unjust. Why do we put up with it? Having no control over a key part of our economic health is not wise. A central part of resilience is controlling those factors that affect us. We should have democratic, not elite money.

Problem: We are forced to take jobs we might hate to earn money.

Solution: We need money that we create, to meet our needs in ways we find fulfilling.

Money rewards people in grossly unfair ways

Some people earn a phenomenal amount of money, while others have the choice of going hungry or working very long hours for low pay. Why does the money system value some people so highly, when their work might not add that much to human happiness – for example, the bankers who developed the complex financial vehicles that regularly get us into financial crises? Why is hard manual work, care work and childcare so poorly paid? Why do women, younger and older people generally earn less than middle-aged men?

Problem: We are not treated equally.

Solution: We need money that rewards people fairly for the work they do. This is a key argument, particularly for time money (see Chapter 6).

We value money too highly

We need to see money as a way of making sustainable, convivial, enjoyable livelihoods possible, not an end in itself. The parable of the talents suggested that money should be used for production, for good – not seen as a commodity itself. Worshipping money, we put it before happiness. We are on a consumption treadmill, which is carbon-intensive and built on cheap oil. People often do not have time for each other, for their families, or for their children. We need money that lubricates real production, not something that we covet for itself.

Problem: We value money too highly and it makes us unnecessarily competitive.

Solution: We need a more convivial form of money that helps us live at the pace we want to, earning the living we want to. We don’t want to have to chase after money, or to covet it. We need to see money as a tool, not something of value in itself.

Issuing too much money – or too little

In the Great Depression, bank after bank crashed as those in charge of the economy believed that prices must be allowed to fall to their ‘natural’ market level. ‘Liquidate, liquidate, liquidate,’ those in charge of the economy said. The result was that too little money was issued, and the economy collapsed.

In contrast, in the 1970s across the Western world many economists felt that too much money was printed, causing inflation. F. A. Hayek, Mrs Thatcher’s inspiration, consequently argued that the creation of money should be privatised, put in the hands of what he called ‘men (sic) of a conservative temperament’ rather than ‘profligate politicians’.³

It is thus no coincidence that the Depression saw an effervescence of ‘soft’, unbacked paper ‘scrip’ currencies designed to encourage people to spend them. At the other end of the scale the inflationary 1970s saw the development of ‘hard’ alternative currencies backed by baskets of locally valued commodities. These were hard currencies designed to maintain their value. When should you use a soft currency, and when should you use a hard one? What is ‘too much’ money, and what is ‘too little’?

We want to develop currencies in enough quantities that we can solve our problems using them. Money needs to be seen as a lubricant that helps things happen. But we don’t want unlimited, ‘waste paper’ or ‘monopoly’ money that just loses value.

How on Earth do we get the balance right? Central bankers get this wrong all the time, which is why Mervyn King, Governor of the Bank of England, once commented that managing the UK’s money supply is like ‘driving with only a rear view mirror’. It can take months for changes in the money supply to affect the ‘real’ economy.

Problem: How much is ‘enough’?

Solution: This is a hard one. The only solution is to constantly review how our money system is working by talking to people who use it, watching prices, and monitoring how much money is in the system. We need to issue the money in predict-able, transparent and logical ways, with the consent of those who use it. Don’t issue money arbitrarily, informally, or behind closed doors. That way we can have a democratically controlled form of money that we can fall back on if (or more likely, when) politicians and bankers mess up the economy again.

Usury is fundamentally unsustainable

When we lend money out at excessive levels of interest, we are living off unearned income and force the economy to grow unsustainably. While economists will argue that interest is a payment for the use of someone else’s money so you can do now what you would otherwise have to wait for, or compensation for accepting the risk that you might not get your money back, for others the amount of interest paid is out of all proportion to the value gained from using someone else’s money.

Credit cards and mortgages for those who cannot afford to pay them back, who regularly miss payments and pay penalties, are hugely profitable for the finance companies. The last thing they want is the person who always meets their payments, who pays off the credit card in full each month. Some citizens’ organisations are therefore campaigning for rates of interest to be legally limited to 8 per cent.

Why should someone setting up a new business, which might be of great social value, have to bear all of the risks of the business failing, and pay interest on a loan to set the business up? The person making the loan wins twice – if the business works out he gets his interest; if it doesn’t, he gets his interest. A failed business can leave the entrepreneur with a debt and no income. A community and its citizens should take collective responsibility for the sort of businesses and livelihoods it wants to see.

Worse, high rates of interest and climate change don’t mix. As charging interest means that you need to earn more money than you borrowed to pay back the interest, then you must grow your business – and the economy inevitably grows as a result. It seems hard to reconcile this with the need to cut ca...