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Mutual Credit Design Principles

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1:01 pm
February 23, 2011

John G Root Jr

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These design principles are very promising. There is a real need for us to understand the thinking behind them so that we will be able to generate the ideas that will give us the society to benefit everyone and not repeat the mistakes of the past. The key idea is that money confers power because it is legal tender or because we make a contractual agreement in the mutual credit system, not because it is valuable in itself. Money is a robust accounting system that represents and makes commensurate or equatable all the things of real value so they can be exchanged. It is not valuable in itself and the time value of money (putting your money to work for you earning interest) is an implemented fiction with dire consequences, such as producing goods, distributing and consuming them faster than compound interest would otherwise "grow" the loan. With this understanding it can become really clear that interest is not related to the valuable goods and services that our accounting system keeps track of. Howerver, issuing money as an equity stake, instead of a loan, to capitalize an enterprise that generates goods and services still has to take the reality of that enterprise into account. The return to the bank for its equity stake in the bank would best be related to the lifespan of what it capitalized. That would keep the investment related to the reality of the goods and services it funded and would give the percentage return to the bank a basis in reality.

It is when the principle behind the arrangement is transparent that we may all participate in the decision making out of our knowledge and understanding. It is what allows us to make visible what is now the "invisible hand of the market" and create the economy we want as a result of a democratic process that leads towards consensus. It is our Economy and We decide!

The Means Assures the End. Do the Good!

12:12 pm
February 23, 2011

Richard DeVoe

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Post edited 9:53 am – February 24, 2011 by wspademan

design principle:

#1 Good. No comment.

#2 I like this in spirit, but question on several levels: we already provide the means (grants from profits, loan priorities, CGC capability to create money using mutual credits) for each community to "handle its local economy" without resorting to multiple iterations of a mutual credit system design. Can we design the first "national local currency" that seemlessly interfaces with both the regular economy and between CGCs? Seems to me, "system wide innovation" should be just what it says – adaptations made that are universally adopted, informed of course by varied experiences throughout the country.

#3 Agreed. How does this influence/impact trade between CGCs?

#4 Made John's day! The stipulation (necessity) of having another source of income and what that should be is fundamental and I'm not sure we're agreed on how to accomplish this.

#6 On the surface, like much of the above proposed principles, this looks and sounds positive and even desirable as an ideal. I'll underscore my reservations, however, about "suggested" and "pretty good" by recommending that our approach be to provide a solid foundational system that is understood to be reliable, that we can all have confidence in, while recognizing that it can and should evolve and improve as we learn from each CGCs somewhat unique experiences. As far as business contributions to a stakeholders fund, even !% of gross could be more of a barrier to many of them who work off small profit margins than we might think (not to mention the fact that they'll not likely warm to having another entity to whom they're required to "report" income). We'll want to explore other options for income into the system, like my earlier proposal (months ago) to charge tuition for educating people about money and training some to facilitate the growth (by brokering transactions) of the local economy (mutual credit system). One absolutely key objective is to create a system that will not only extend credit that isn't otherwise available but will actually, in effect, creat jobs as an inherent function. When we bridge this somewhat counter-intuitive divide between the need for income into the system and the apparent expenditure incurred when we create money (credits), we'll truly have a magnet to attract mass participation.

8:56 am
February 23, 2011

wspademan

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Post edited 11:38 am – February 26, 2011 by wspademan

Here's what I see as important design principles for mutual credit in the Common Good Economy (in addition to the overall Design Principles):

0. Shared Infrastructure. All Common Good Communities will share a common internet-based infrastructure for managing mutual credit, integrated seemlessly with external credit in the conventional economy, through the Common Good Bank.

Independence. Local mutual credit systems need not operate the same way the bank does. That is, there can be very different rules for local financial cooperation and contractual cooperation among Common Good Bank Members than the rules imposed on banks in our current economy.
Inspirational diversity. Each Common Good Community should be able to decide for itself how it wants to handle its local economy. We can expect that different communities will use different systems. This is healthy both for system-wide innovation and for adaptation to local conditions.
Sustainability. Each local mutual credit system MUST be self-supporting. That is, it must not be a leach on other Common Good Communities. Liabilities (including any mutual credit that the community creates) must be balanced by Assets.
Not-for-profit loans. Ultimately, all loans — even through the bank — will be interest-free (in real terms) or negative interest (the borrower gets paid for taking initiative). This requires the community to have a source of income other than interest on loans. Regardless of what system a community adopts, it should aspire to this ideal.
Spending into circulation. A Common Good Community or group of Common Good Communities can create mutual credit by spending it into circulation, subject to the Sustainability requirement (#3 above). For example, the community can create mutual credit to purchase saleable or income-producing assets, such as a local power company. The amount of mutual credit that a community or group can create this way is limited to the amount of Common Good Bank stock owned by its members.
Defaults. There will be default "suggested" rules for mutual credit in any Common Good Community. That is, there should be a VERY good system in place from the beginning, that will continue until the community changes it. Suggestions include the following:
- The community has an equity stake in every business it funds. (This reflects reality in that every business depends on the community for success.)
- The community's stake is structured as a percentage of gross income (income before any expenses are subtracted).
- All local business owners are invited to contribute a percentage of their gross, whether or not they ever get a loan. This is one requirement for being a "Common Good Business".