HOW A NEW CURRENCY MIGHT HELP COUNTRIES LIKE GREECE.
Ted Trainer.
10.9.2015.
This is an attempt to put very simply the way a local currency can be used to get basic economic activity going in very depressed towns, regions and countries.
Christos is a farmer who canŐt sell vegies because most people are too poor to buy them. Nikos is a baker who canŐt sell bread for the same reason. Someone (ideally a new bank established by the government, but it could be a small private group) sets up an arrangement whereby anyone can come in and be given say 100 units of a new currency, the Drachma B (hereafter the DB.) The bank doesnŐt have to first get hold of some money to do this because it is only giving out bits of paper (specially printed so they canŐt be forged.) Now Nikos can go in and get this new money and use it to buy vegies from Christos, and Christos can use this income (or his quota of DBs) to buy bread from Nikos. As others are given DBs and spend them the range of goods and services that can be exchanged for DBs widens.
It has previously been explained to Nikos and Christos, and everyone else, that the bits of paper simply enable you to get goods by giving an IOU to the seller. (Of course normal Drachmas too are only IOUs.) There would be no need to guarantee or ŇbackÓ the currency, i.e., for the issuer to say you can bring them back and we will exchange them for normal Drachmas. Whether or not the system worked would depend only on whether people were willing to accept the notes in exchange for goods they are selling, believing they could ÓspendÓ them getting other goods from other participants. That trust would best be built by starting small and explaining the system well. Remember there are many very deprived people capable of producing for each other but prevented only by lack of an IOU system all accept, so may would probably be keen to participate.
NikosŐ bakery might have been selling a little bread previously, for Drachmas, but now he can expand sales considerably, adding a group of customers now able to buy bread. His cash register would contain two currencies. If some proportion of his bread production costs can only be paid in normal money, for instance to pay for the flour he has to import from a long way away (or for Christos to pay for the bananas he imports to sell), they might ask that a corresponding proportion of their selling prices be paid in normal money. (É or ask some customers to do this while allowing others who only have DBs to pay in full using them.)
The DB can only be used within this new Economy B. Someone who imports bananas into Greece canŐt use DBs to pay his supplier overseas because that supplier canŐt buy anything where he lives with DBs. Thus the DB is only a local currency, which enables a lot of trading within Greece between people who can produce something needed and who at the same time have unmet needs, but previously could not sell to or buy from each other, simply because they had no ŇmoneyÓ.
The new money provides individuals with a way of keeping track of their Ňtrade balanceÓ within the Economy B system, and obliges them to contribute/work to get more DBs. The system does not enable free loading. If at a point in time you have few DBs left that means you had better do some work to earn DBs or find something to sell into the system to earn some more, so you can buy some more of the basic things you need from within Economy B.
Unemployment would quickly fall dramatically because unemployed people would see that they can start producing something to sell that others want, and farmers or small firms would realize they can employ more people because they can now sell more things, for DBs.
A sensible government would allocate to Economy B some normal Drachmas to enable the new firms to pay for crucial inputs to production that must be paid for in Drachmas, such as the energy for Nikos bakery. Such a cost to government would be hugely outweighed by the social benefit. But much could be done within Economy B without such assistance and without Drachmas, especially in labour-intensive production. (This proposal is similar to a ŇTime DollarÓ scheme, where your hours of labour input are tallied entitling you to hours of labour from someone else, without anyone having to get hold of normal money.)
Various devices might be useful in getting the system started. It should be explained well, and perhaps a small core group of existing firms and farms and unemployed workers able and willing to work on a trial run in those firms for DBs could be selected to start operating on a set date. The firms would best be those that are struggling to survive, and that can operate with few if any imported inputs, spare parts, etc. so they can increase production without needing much if any more normal money. This kind of start would enable the large amount of unused existing plant and idle workers to be put into production, as distinct from requiring any investment in creating new factories or farms. It would involve little or no risk or trust as bakers would know on day one that people had the (new) money to buy the increased amount of bread they were going to produce, and they would know they could spend that money at ChristosŐ farm. Participants might be encouraged to make contacts and arrangements in advance of the starting day.
How does the issuing agency, bank or community group, decide how much new money to put into circulation? It just responds to demand. If more people come to the bank wishing to enter the scheme this just means they think there are more firms willing to take DBs now.
At an early stage the bank would start allowing those who received the initial 100 DB issue to get more of the new money. The amount of new money in circulation would increase to the level where there was enough circulating to enable all the trading people wanted to do.
The government might tell people they could pay up to say 30% of the government services they receive, or of their taxes, in DBs. People would be keen to do this because it is very difficult to earn normal Drachmas in the depressed economy to pay taxes etc. The government would be happy because it would be getting more tax from these people and selling more services to them. It could use the new DB income to purchase things it needs that are being produced within the DB system, such as cleaning services, lunches, drivers.
The system would seem to be immune from exploitation. What if Nikos spent his 100 DBs but refused to do any work to pay for the goods he had bought, like running up a LETS debt and leaving town? If he did this then he wouldnŐt have any DBs left and couldnŐt purchase anything else he needs and doesnŐt have the Drachmas to pay for. He has to produce or work for a firm in the system to go on getting DBs, to be able to go on getting vegetables which he needs but canŐt buy now.
It is likely that there would be rapid extension of the scheme to include a wide range of producing firms. There would be strong incentive to set up a business to produce something people need, to seek local inputs that can be paid for in DBs, and for people to seek jobs in these firms. Ideally the system would rapidly grow to encompass all goods and services and firms that could operate within Greece without requiring imported inputs (again because these canŐt be paid for in DBs). It is said that 60% of the food eaten in Greece is imported, so thereŐs an enormous amount of farming and purchasing that could be shifted into the DB arena.
The weakest aspect of this approach is to do with funding the (small amounts of) investment needed to set up new firms and expand the emerging Economy B. Materials are needed to develop new little firms and farms, and pay for inputs and much of this would have to come from outside Economy B and be paid for in normal Drachmas. However miracles can be achieved if very frugal and cooperative ways are embraced (mud brick sheds, earth ovens, deliveries by bicycle, working bees, community recycling, and registers of voluntary expertise É), and if activities requiring minimal inputs are targeted first. Nikos might get his flour inputs from a distant grain farm and mill, paid for in DBs which the farmer there can use to pay workers living in Economy B here but working over there on that farm. (Better still, each town should be making direct links with particular more distant farms, or establishing its own cooperative farms as close as possible. These would also function as ultra cheap holiday destinations, within Economy B.)
A sensible government would provide the (small amount of) normal money needed to build premises and equip firms that were going to set up within Economy B, such as ovens for a new bakery. It would also organize for some of the countryŐs capacity to earn from exporting to be put into paying for (the relatively few) items required to build and run firms operating in Economy B that have to be imported.
Ideally as people saw the sense of all this they would shift more and more functions into Economy B, and pressure governments to enable this. Eventually a fully-fledged Economy B might provide all the things that individuals, families and communities needed, either leaving the remnant old Economy A to provide non-necessities via market forces, or leading to a vote to eliminate the old economy entirely. Note that there can be a large role in Economy B for (ideally small) private firms and co-ops, but it is likely that over time mostly publicly owned enterprises would be opted for (e.g., farms owned by towns, neighbourhood poultry co-ops and fish farmsÉ)
Obviously the scheme would be of no value in helping Greece overcome its current problems within the international financial system. It is not about becoming more internationally competitive to be able to pay back debts or attract foreign investment, etc. It is the kind of device that would enable people to escape predation by that system, to a considerable extent.
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Wider implications.
The economy described above is a head-on contradiction of the capitalist economy, and avoids most of its major faults. It involves no concept of interest or capacity of richer people to receive incomes without working for them. It enables production and consumption of many urgently needed goods and services. Thus it is about Appropriate development, not profit-maximising capitalist development, or market driven development which always attends to the Ňeffective demandÓ of richer people. It does not create wealth that can be accumulated and used to buy out and dispossess. (There is no point in saving lots of DBs; they are only of value if you spend them.) It brings together vast quantities of unmet need and capacity to produce to meet that need, whereas the conventional economy will leave those needs unmet and leave many people idle unless some rich person with capital to invest thinks he can make more money setting up a factory.
Simpler Way transition theory sees the establishment of the above non-market exchange system as a vital element in the eventual transition to a just and sustainable world. However the above discussion is limited to some issues to do with facilitating production and exchange but the required Economy B must involve much more, especially provision for collective control of local (and eventually national) economies via participatory processes.
Inspiring examples of the development of Economy B are the Chikukwa project in Zimbabwe and the Catalan Integral Cooperative in Spain. There are some similar ventures around the world, but this non-capitalist approach is largely ignored by the mainstream, and indeed by most NGOs and most people on the left. It is obviously anathema to the capitalist class, to conventional economists, and to Third World elites and middle classes. What is absolutely crucial to them is to have as much business turnover going on within the normal monetary economy as is possible, because they can only prosper from buying and selling within the global economy. ItŐs no good to them if lots of labour and resources are being put into production and lots of purchasing and consuming is going on but they cannot get involved in or make money from it because itŐs not being transacted in normal markets using normal dollars. They donŐt want things sold in DBs which they canŐt accumulate and use to buy luxury yachts, or put in a bank to get interest on. In addition itŐs in their interests if those previously unemployed workers remain available for any mines or sweat shops those with capital might set up, or remain unemployed and impoverished so there will be plenty of willing cheap labour. And it is not in their interests if lots of poor people produce carrots for themselves when they could be buying carrots from the supermarkets the rich own.
Even if Third World governments wanted to enable Appropriate development there are massive forces against this, mainly deriving from the impossible debt levels and the resulting conditions imposed by the IMF and World Bank. Governments desperate to pay interest on loans have to focus on facilitating the national export sector and providing infrastructure for the transnational corporations, leaving none for enabling local self-sufficiency let alone for production outside the market system. Earning within the global economy is the top priority, and because ŇdevelopmentÓ is defined as raising the GDP no value is seen in enabling Christos and Nikos to exchange necessities without Drachmas. Indeed IMF Structural Adjustment Programs explicitly prevent Appropriate development and enforce adherence to the conventional path, including by prohibiting them from issuing money.
Conventional, capitalist development ensures that the development taking place is primarily development in the interests of the rich, especially the transnational elite. It ensures that the productive capacity of the Third World is geared primarily to buying and selling within the global market, which guarantees that only miniscule proportion of the value produced trickles down to those in most need. Thus billions of people are condemned to suffer intense deprivation and poverty for generations É while the possibility of establishing alternative local economies continues to be ignored. Conventional development is therefore a disguised, legitimised form of plunder. (See TSW: Third World Development.)