Reinventing money

RAJNI BAKSHI

THE American fairy tale, Wizard of Oz, is commonly known as the struggle of a bunch of simple people against some wicked witches and wizards. Now research into the origins of this tale shows that it was actually a critique of the banking establishment in the United States of America and perhaps an early example of monetary activism in the 20th century.

Most of us usually don't stop to wonder about the basic nature or function of money. We may lament the unequal distribution of money in society and how it can corrupt human behaviour. However, it seems difficult to imagine that the functions of money could be moulded in ways that would solve many social and economic problems.

Yet this is just what a wide range of activists are doing today. They are reminding us, first, that money is not the same as wealth. For money itself can neither be eaten, nor worn nor lived in for shelter. Second, such activists are working out monetary systems that simultaneously nurture community life, help restore ecological balance and provide employment.

At the dawn of human civilisation all wealth was equated with tangible useful things. For example, the word capital did not originally mean money. The word is derived from the Latin word capitis, which means head and it referred to heads of cattle. In ancient Egypt the monetary system was based on stockpiles of grains. Till about two hundred years ago wealth was stored mainly in land and its improvements.

Money, unlike cattle or grain, does not exist in nature. It is an abstract institution of society, a medium of exchange, invented about 3,000 years ago to facilitate trade. In some societies money took the form of stones and shells. By about 1000 AD coins made of precious and semi-precious metals were known all over the world. Subsequently, paper money was introduced when private banks made loans. In the 20th century the supply of this paper money came to be regulated by the Central Bank of each country.

Till about 20 years ago, paper money was backed by gold. Today there is nothing material backing the world's currencies and yet they exercise a position of supreme power. The consequence is that money in the bank is equated with wealth, rather than tangibles like natural resources that actually sustain life.

Take for instance the following logic offered by a Malaysian minister for forestry to David Korten, author of the book The Post Corporate World. Korten, who is also co-founder of the People-Centered Development Forum in the U.S., narrates how the Malaysian observed that his country would be better off once its forests were cleared away and the money from the sale was stashed in banks earning interest. The financial returns would be greater. The image flashed through my mind of a barren and lifeless world populated only by banks with their computers faithfully and endlessly compounding the interest on the profits from timber sales.

The Malaysian Minister's views are based on the fact that in the global economy money is indeed growing faster than trees. This is because the global monetary system has got virtually de-linked from the real economy. In 1995 the global daily exchange of currency was $1.3 trillion, that is 30 times more than the daily gross domestic product (GDP) of all the developed countries.

Thus, writer-activists like Korten say that we are all victims of the war of money against life. The consequences of this are rapid depletion of real wealth, that is natural resources, and concentration of money in the hands of a few. The world's 450 billionaires are estimated to have combined financial assets that are greater than the combined annual incomes of half of humanity.

Money is like an iron ring we've put through our noses. We've forgotten that we designed it, and it's now leading us around, says Bernard Lietaer, a former banker and now activist-academic based at the University of California, Berkley. It is time, urges Lietaer, to design a money system that takes us towards sustainability and community. Lietaer is a Belgian who years ago helped to design the single European currency system and is now one of the leading champions of alternative community-based currencies. The Future of Money: Beyond Greed and Scarcity, the title of Lietaers latest book, conveys the essence of todays monetary activism. This is one of several books that have recently been published, in the U.S. and the U.K., on how the existing money system needs to be, and can be, re-invented. These include The Ecology of Money and Short Circuit, by the Irish economist Richard Douthwaite, and Time Dollars by Edgar Cahn and Jonathan Rowe. The Schumacher Society in both the U.S. and U.K., the New Economics Foundation in the U.K., the American Monetary Institute and Transaction Net in the U.S. - are among the groups spear-heading such efforts.

Political activism to challenge the capitalist monetary system is not new. Even a hundred years ago, in the U.S., there was strong political mobilisation against monetary policies that favoured the rich at the cost of farmers and workers. Frank Baum, the author of Wizard of Oz, was a staunch supporter of one of these movements. The History of Money, a book by the anthropologist Jack Weatherford, tells of how Baum's tale is actually an attack on the established banking system that deliberately kept money in short supply.

Scarcity is one of the key problems of the current form of money.

Money has different effects depending on its origins and the purpose it is intended to serve. Money created to make profits for a commercial bank is intended to remain scarce and has an entirely different effect compared with a local currency created by the users themselves purely to facilitate their trade. Monetary activists are calling for decreasing the hold of scarce currencies and strengthening sufficient currencies - that is, those created within communities by mutual credit systems.

The fundamental premise of all this work is that in a healthy economy money is neither the dominant value nor the sole or even dominant medium of exchange. Money must be a servant of the creation and protection of real wealth. This monumental task requires several measures. Korten suggests that a healthy money system must: (1) make speculation unprofitable; (2) limit the growth of financial bubbles; (3) increase incentives for cooperation among people and communities; (4) reward productive work and investment; (5) create a just distribution of claims to real wealth; (6) provide incentives for patient and locally rooted investment in real assests; and (7) strengthen the social fabric of family and community.

This is clearly not a call for boycotting the conventional national currencies. Local currencies are intended to serve a supplementary function. In extremely successful situations these currencies do significantly lessen people's dependence on the conventional currency issued by banks and governments.

The other powerful instrument of a healthy monetary system is zero or negative interest money. The idea of negative interest or a demurrage charge is based on the premise that money is a public good, like the telephone or bus transport and that we should charge a small fee for using it. Under such a system, money would be used only as a medium of exchange, not as a store for value. Since this would encourage circulation it would help to create more work and livelihoods.

Lietaer forecasts that different forms of alternative currencies will be a major tool for social design in the 21st century, primarily because they will be conducive to higher levels of employment. I propose that we choose to develop money systems that will enable us to attain sustainability and community healing on a local and global scale. These objectives are in our grasp within less than one generation's time. Whether we materialise them or not will depend on our capacity to cooperate with each other to consciously reinvent our money says Lietaer.

Over the next few weeks this column will report in more detail about some aspects of this activism, focussing particularly on local currencies and the concept of a demurrage charge on money.

Next: Interest-free loans.

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