From my point of view what we are looking for in considering how to
create money is what Stephen Zarlenga calls the Lost Science of Money.
We need some very fundamental principles out of which we can design a
monetary system. Underlying these fundamental principles is that BECAUSE
OF HUMAN NATURE, not my uniqueness or yours, but because of the way
human beings are constituted, whenever we make a free exchange of what I
have for what you have, both parties to the exchange are better off. I
have what you want, you have what I want and at the agreed price I
reckon what you have is MORE valuable to me than what I have and you
reckon that what I have is MORE valuable to you than what you have. As a
result of the exchange we are both better off. This is crucial to
understand, because it means that in the way that we provide for each
others needs – production, distribution and consumption – each exchange
along the way gives rise to a surplus, which neither party to the
exchange can claim for themselves, but which arises by virtue of our
commonality, that we live in a society in which we provide for each
others needs. One way or another the monetary system will distribute the
surplus. So the first principle is that MONEY IS A RIGHT, it is a fiat
of the law, it is a primary function of society, and how it is organized
is very determining. The second principle is that money is what we use
to keep track of the value of what everyone does for each other. Money
is the unit of measure of value and the means of exchange. The money
represents the values that exist in society and makes them commensurate
so that they can be exchanged. The third principle is that money confers
power. My existence and my standard of living and my position in life,
to a very large extent, are determined by the amount of money I have.
The fourth principle is that the money is not valuable in itself. If a
valuable commodity like gold or silver (or anything else) is used as
money its assigned value has to be higher than its commodity value or it
will revert to being a commodity (if the gold coin I am using is worth
more as gold for jewelry or to plate the tip of my Monster Cable, then I
will sell it as gold and it will cease to be money). The fifth
principle is that the monetary system controls the economy and the
existing debt based monetary system transfers the ‘due to human nature’
surplus into private hands via interest and not into the commons. The
sixth principle is that the sovereign issues the currency. In the way
our society has developed the owners of the Federal Reserve system are
the true sovereign and as we experience every two and four years, our
democracy is a sham. If we the people are sovereign then we the people
should issue the currency to reflect our values and what we decide
democratically is the Common Good. The last principle, the one most
necessary for designing a monetary system, is that money should only
ever represent what is. Money should always reflect what is actually
going on in the economy. The amount of money in circulation needs to be
increased and decreased to keep prices stable, based on what is actually
happening. Now, those principles lead to a monetary system in which the
people decide democratically how to regulate the economy. No money for
things we don’t want and lots of money for things we do want.
This brings us to the need to understand the economy. Like nature,
the economy is a living organism. People are inspired to place their
talents and energy in the service of the community by transforming
nature into useful products which are distributed and consumed. The
value creating process consists in transforming nature into something
useful to satisfy our material needs, distributing it to where it is
needed and consumed. The product or service reaches its highest value at
the point of consumption it and passes out of the economy. So it is
reasonable to look at the economic cycle and see that transforming
nature into a useful product, distributing it and having it consumed is
similar to what happens in nature. Values are produced, distributed and
consumed. Money should be created to create values, it should circulate
to distribute them and it should be extinguished when the goods and
services it represents are consumed.
In order to create something new one needs capital (new money) so
that one may organize the world to transform nature into a useful
product or service. To distribute the goods and services the money
supply needs to be in accord with the available goods and services and
when they are consumed the money supply needs to shrink accordingly. In
practice this means regulating the money supply to maintain stable
prices. The surplus generated by the exchange process also needs to be
represented by issuing enough money directly to consumers so that there
is always enough money to buy all the available goods and services,
(Social Credit understands this aspect) One can represent this by the
analogy of a season in nature. The sun, (money supply) increases in the
spring giving rise to new growth which increases through the growing
season to harvest when the sun (money supply) decreases and nature goes
to sleep during winter. In the economy there is no externally controlled
season, but there is an increase and decrease in economic activity.
Not all values are material. We are only comfortable with prices for
material values. Spiritual values are not really representable with
prices, we tend to think of them as being infinitely valuable. What is
the value of a house? Not hard to come up with, but what is the value of
a home? What price would you put on your family, your experiences, your
life? I would rather not. Spiritual values are not economic, but they
are produced by consuming material values. From the time you are born
until you start working you consume value, during your working life you
tend to produce more material value than you consume and during
retirement you again consume way more than you produce.
Money is being used to both create material values (transforming
nature) or spiritual values (consuming nature). For- profit enterprises
produce material values and consume spiritual values and not-for-profits
produce spiritual values and consume material values. Regulating the
money supply so that all of this remains related to reality is the task
of the monetary system. If more material goods and services are being
produced than there is money available to pay for them, then issue money
directly to consumers so they have enough money to buy them and if not
enough goods and services are being produced issue money to produces so
they can produce more. The more spiritual values (intelligence,
innovation, etc.) there are in the economy the less people and time
needs to be spent on providing material values. We are at a point now
where a tiny percentage of people and time are involved in producing all
the material goods and services that we need. All the rest of what goes
on in our service economy is a result of completely unnecessary rules
and regulations and financial services is the biggest sector of the
economy, all of which is unnecessary for our quality of life, once we
regain control.
To summarize: What new good or service would be worth while and
increase the common good? Who wants to do it and are they capable? Is it
a good and sustainable use of the needed resources? When the answers
are all yes we issue the money as grant to do it. If it results in
needed goods and services then the capital (money) we issued is properly
represented and over time we will have to issue more money to the
consumers so they have enough money to buy them, but if it fails we will
have to remove money from circulation because it was not properly
represented by goods or services. The surplus that arises from ‘due to
human nature’ exchange can all go to producing spiritual values
(community, art, religion, recreation, etc.) by consuming material
values. The amount of time and people needed to produce our material
needs continually declines as more spiritual values (intelligence,
innovation, machinery etc) are incorporated into the productive economy,
until we are spending only days a month on producing and weeks a month
enjoying education art, recreation and community.
What I am concerned about is not having principles or fundamental
understanding of the economic process to guide us as we move along.
Issuing money as loans and granting the surplus is fine as a start, but
our effort must also be to understand what we are seeing and guiding its
development! The monetary system we create will either accurately
represent what is actually happening according to our collective will or
it will distort our collective will and give us false feedback!
How can you create no value and expect people to trade hard work in return for it?
When we create money by lending it into existence for productive purposes (as Common Good Bank communities are designed to do), then we, as a community, ARE creating value. That's what we mean by "productive". If you want a loan, you have to be doing something that will be of value to the community.
True, this system is based on faith, since at the time the money is created the value has not yet been produced. We as a community decide to create money for something we value, as an act of faith in the abilities and integrity of the borrower.
This is the way the system already works, in principle.
It is actually quite a good system. Except that it has been perverted and hobbled by removing all the good things from the system: community, values, integrity, and sometimes even faith. A system of democratic community banks will ensure that those good things remain an integral part of the system, so that it works to everyone's benefit.
The only reason that monetry systems of the world today work is because of peoples faith and belief in it. That is the root issue. Pretty much all currencies today are fiat currencies, backed by absolutely no intrinsic value or any kind of value whatsoever. We trade worthless paper or digital database entries for physical goods and services. This way of thinking is fundamentally flawed and deemed for failure, I don't see how this commongoodbank is any different. How can you create no value and expect people to trade hard work in return for it? You can't, unless you condition or coerce people into doing so, which is exactly how todays cultures operate.
Existing banks lawfully create money via the Fractional Reserve System, effectively multiplying your deposit 10 times by issuing new money as loans ("get your money for nothing, get your kicks for free").
The previous post misses the essence of what a Common Good Bank can and will do. It will also create money, in approximate proportion to Federal Reserve requirements and, like 97% of existing "money" in the money supply, this money will come into being – and eventually be extinguished – by keystrokes on a computer, forever existing only in cyberspace. It is of only minor concern if and when a physical currency (scrip) is added in order to facilitate more exchanges, being more practical in some cases.
The beauty of the CGB model is its dynamic innovation that effectively allows money created as "local" (placed in circulation for specifically agreed upon community purposes, whether granted or loaned) to be automatically converted to dollars when they are needed for purchases outside of the network of businesses and individuals comprised by the Community Division.
This confusion of these terms, money and currency, can obscure the true power of this wonderful instrument. With only 100 depositors, each with an account containing $4,000 (the national average), we will be able to create and control, for the common good, approximately $4 Million! Exactly what amount can be created can only be learned through experience and experimentation – but that's the potential.
The difficulties normally associated with implementing a local currency (ordinarily only in scrip) are circumvented and its nemesis (converting to dollars on demand) is slain.
Post edited 11:25 pm – February 21, 2010 by wspademan
Philip Beard said:
…there's no way for the local money to come into existence quickly or easily, and lacking the degree of organization and consensus required to set up the bank branch and related agencies, it never will… we need an effective starting point. Doesn't it make more sense to find that point in existing structures (the web of businesses, governments, non-profits, and individual citizens) than in a new structure that will require a lot of energy and time to create?
Starting a bank is difficult but not impossible. Yes there are other easier worthwhile things that can be done. But it is well worth the effort to create a comprehensive community-based democratic economy that can empower communities everywhere. The web of starting points that you mention has been around for a long time, but it has not yet resulted in a Common Good Bank. It certainly won't happen unless we make the effort.
As described, the local money issued will be valued by the public only to the extent that the local Common Good bank branch is valued. And that bank branch doesn't exist yet; it has to be formed by people (at least 50, according to your criteria) who agree to abide by CG's overall mission and (somewhat complex) operational methods. So there's no way for the local money to come into existence quickly or easily, and lacking the degree of organization and consensus required to set up the bank branch and related agencies, it never will.
So why not start instead with something that already exists: trusted local merchants, and/or local government? Rather than relying on the uncertain establishment of a network of agencies (including the bank) dedicated to the CG principles, and having the bank create local money by lending it to merchants, why not allow those merchants (and/or local government, as per your Agville example) to spend the money into existence themselves, simply debiting and crediting each other's accounts via the credit clearing mechanisms described by Tom Greco?
Your goals and vision are admirable, and the attention you've paid to achieving democratic participation is remarkable. But in order for these visions to become reality, we need an effective starting point. Doesn't it make more sense to find that point in existing structures (the web of businesses, governments, non-profits, and individual citizens) than in a new structure that will require a lot of energy and time to create?
Credits for community service can serve as currency. The tax per person must be equal, the amount paid per hour must be constant and the budget must be balanced. They can be paper scrip, tokens or entries on a ledger. The American colonies had tremendous success with this system before it was outlawed by the British, triggering the War for Independence. Bills of credit were permitted under the Articles of Confederation but outlawed again under the U.S. Constitution. Community service is a tax on time and everyone values their own time equally.
Richard, thank you. Your article is well written and makes many important points. Beware, though: the notion that interest can never be repaid because it is never explicitly created is a fallacy. See my post on this subject: http://commongoodbank.com/2009/10/general/the-evil-interest-fallacy
I saw you at MUM open mic, and looked up your website.
I have had a strong interest in money since that is THE major stress of the world today. I have been trying to put the Raam into circulation (Maharishi's global currency), but have been unable to get the movement leaders to even talk to me. According to a Jyotishi, I should just wait for a year and a half, and they will contact me when they need someone.
I believe you will find both links very useful. My heart is set on fulfilling Maharishi's goal for the Raam and his Global Bank. I will maybe wait for when the time is right for it, or see what Nature has in mind for me.
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