Conceptualizing post-capitalist economics
Sacred Economics: Money, Gift & Society in the Age of Transition by Charles Eisenstein is a well-researched discussion of the history of money, capitalist economics and the worldwide movement for economic relocalization. Part I explores the profound effect the institution of money has on human thinking and psychology, as well as direct links between our monetary system, the current economic crisis and the impending global ecological crisis. Parts II and III explore possible alternatives to a debt-based monetary system that has outlived its usefulness.
The book begins by describing the gift economy that has characterized all primitive cultures. Public gift giving was a major social ritual in all early societies. It was the primary mechanism early human communities employed to satisfy basic survival needs. As civilizations became more complex, gift exchange and barter were impractical over long distances. Therefore, money was introduced as a common medium of exchange. By tracing the western conception of money back to its earliest origins in ancient Greece, Eisenstein makes a strong case that the money system itself is responsible for rapacious growth and resource depletion, greed and the demise of community.
The Illusion of Scarcity
An early artifact of the introduction of money is the mistaken belief that the basic necessities of life are in short supply. This illusion underpins all western economic theory. In fact, many textbooks define economics as the study of human behavior under conditions of scarcity. As Eisenstein points out, this is a ludicrous notion in a world in which vast quantities of food, energy and raw materials go to waste. He links the illusion of scarcity to the illusion of the “discrete and separate self.” This, in turn, stems from the concept of personal wealth and the privatization of communally owned land. Prior to Roman times, land, like air and water, was considered part of the commons and couldn’t be owned. Under Roman tradition, there was no way for an individual to legitimately take possession of common lands. Thus the Roman aristocracy must have seized it by force, just as the English stole the communally owned lands of Native Americans.
Debt, Commodification, and Perpetual Growth
Sacred Economics argues that what economists commonly refer to as growth is the expansion of scarcity into areas of life once characterized by abundance. Fresh water, which was once abundant, has become scarce following its transformation into a commodity we have to pay for.
The fractional reserve banking system, which allows bankers to create money out of thin air – through loan generation – accentuates the pressure to convert more and more of the commons into commodities. Because the debt and interest created is always greater than the money supply (current global debt is estimated at $75 trillion, in contrast to global wealth of $30 trillion), there is always constant pressure to produce more goods and services to repay it. This explains why there are always people willing to cut down the last forest and catch the last fish.
As natural resources, such as fossil fuels, minerals, forests, fish and water, are rapidly converted to commodities, a similar transformation occurs in the social, cultural and spiritual commons. Stuff that was free throughout all human history – stories, songs, images, ideas, clever sayings – are copyrighted or trademarked to enable them to be bought and sold.
According to Eisenstein, the main reason for the world’s current financial crisis is that we continue to face mountains of increasing debt – yet have run out natural, cultural, social and spiritual capital we can convert to money to repay it.
The Case for Negative Interest Money
Eisenstein argues that capitalism, like the monetary system, has ceased to serve the interests of the vast majority of humankind. However, he disagrees with a “Marxist” solution, in which capitalist infrastructure is totally dismantled. He believes major economic change can occur through gradual evolution. In addition to advocating for relocalization of economic and political power away from central government – to cities, states and regions – he also supports the creation of local “negative interest” currencies, first introduced during the Great Depression in Germany, Austria and Switzerland.
Negative interest money was first proposed by Delvio Gisell in 1906 in his book Natural Economic Order. Gisell called it “free money” because it allowed people to exchange goods and services without paying interest to the owners of money (banks) for the right to do so. A negative interest system involves “demurrage” or natural decay in the value of money. If you know that a $100 bill will only be worth $90 in a year’s time, you have a powerful incentive to exchange it for goods and services.
In the 1920s, a negative interest currency called the Wana circulated in Germany. Towns that used the Wana had plenty of money for business expansion, workers’ salaries and public infrastructure and services – in contrast to towns that relied on the Deutschmark which, owing to deflation, was in extremely short supply. Austrian and Swiss communities introduced negative interest currencies (the Worgle and the WIR) in 1932. Owing to the threat these alternative currencies posed to banks and wealthy elites, the German and Austrian governments banned the Wana and the Worgle in 1932-33. The WIR is still in circulation in Switzerland but no longer operates as a negative interest currency. During the post-World War II boom, the demurrage was eliminated to prevent the Swiss economy from overheating.
In the US more than 100 cities were preparing to launch demurrage currencies – to stimulate local communities ravaged by the Great Depression – when Roosevelt came to power in 1932. Roosevelt, who recognized the enormous threat this posed to central government, banned all “emergency currencies” by executive decree (as Thaddeus Russell writes in A Renegade History of the United States, Roosevelt set the dangerous and unconstitutional precedent of circumventing Congress to enact laws by executive order).
The main advantages of negative interest currency are:
- Money ceases to be scarce. As it becomes easier for small businesses to access money, jobs are created and people resume purchasing goods and services. Because the new currency is commons-based (see below), higher prices for ecologically harmful products serve as a brake their production.
- The ready availability of money eliminates the fear of never having enough, reducing greed to acquire more, one of the main causes of income inequality.
- Debts become easier to repay. People only pay back the original loan, without the compound interest.
- There ceases to be any incentive for corporations to convert natural resources to profit, as cash profits rapidly decline in value.
- Banks have more incentive to fund ecologically and socially beneficial projects with a low rate of return. They lose less by lending negative interest money than by allowing it to accumulate.
- As money loses its value and importance, there is gradual resurrection of both the gift economy and the commons, in which people work for a “social dividend” in the form of public recognition. Eisenstein sees this process already beginning with the thousands of volunteers who donate their time to create and upgrade Open Source software, Wikipedia and books, films, songs and blogs they share freely as part of the Creative Commons.
Using State Banks to Issue Negative Interest Currencies
Eisenstein can see great benefit in local, regional and state governments issuing negative interest currencies to stimulate local business development and job creation, just as the Wana, Worgle and WIR did during the Great Depression. He applauds Ellen Brown’s work in campaigning for publicly owned state banks. At present, seventeen states have introduced legislation to create publicly owned state banks, funded by interest free tax revenue rather than Wall Street. These publicly owned banks would be in an ideal position to issue local negative interest currencies.
How a Commons-Based Currency Would Work
Rather than backing them with gold or silver, Eisenstein proposes that demurrage currencies work like bearer bonds and be redeemable for the right to “deplete the commons.” Businesses could exchange them, in other words, for the right to create an agreed amount of pollution or to deplete an agreed amount of a natural resource. Because these pollution/resource depletion quotas would be extremely expensive, corporations would be forced to internalize” (i.e. absorb the cost) of environmentally harmful production, rather than “externalizing” it (i.e. making the public pay) as they do currently.
New Zealand economist Deirdre Kent has proposed using land to back locally created negative interest currency. Under her proposal, local government would issue negative interest vouchers as a “loan” to prospective home buyers. The vouchers could be used to repay these “loans,” pay property taxes (known as “rates” in British commonwealth countries) or purchase goods and services from local businesses. This would offer new home buyers a far cheaper alternative than a bank mortgage, as well as discouraging property speculation, stimulating local business and producing additional revenue for local government.
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