Sunday, October 9, 2011

5. A Multiplicity of Financial Vehicles

At the beginning of Part III we reminded each other than the economy is basically the sum total of transactions between people. At that same basic level, “money” is simply the markers we use to record those transactions. There is no mandate that transactions between people can only be counted via one kind of marker. In fact, plenty of perfectly valid and life-supporting transactions can be accomplished without any markers at all.

We have grown up accustomed to a monoculture of the national currency (U.S. dollars, British pounds, etc.) but -- just like in agriculture, just like in human culture -- for a resilient future we'll be much better off with a polyculture.

Peter North shared a brilliant vision in his book, Local Money: “We can see a LETS scheme or time bank being used for local production and exchange of things we can produce at home or in a local community ... More complex goods would be produced by local businesses, perhaps using a local or regional scrip ... or a business-to-business exchange. More local production could be developed using local currency loans, or through a local bank ... Special-purpose currencies could finance local food production and Community Supported Agriculture, and local power generation ...” All of this will probably operate parallel to a national currency that handles the few out-of-area trade transactions.

In other words: multiplicity. Instead of one financial vehicle, the old U.S. dollar, we’ll have many ways to facilitate economic exchanges between people. If one of those financial vehicles is encountering temporary problems – for instance the U.S. dollar suffering extreme inflation or extreme deflation -- we’ll have other financial vehicles to fall back on.

Scarcity of conventional cash

One of the scarier parts of the Depression of the 1930s was when banks closed. People were no longer able to access the cash which facilitated all the doings of everyday living. If our cash is all in one place (Big Banks), we are in very serious jeopardy. If our finances are maintained through a wide diversity of vehicles, we have a lot more resilience built into our system.

Eisenstein says “What we call recession, an earlier culture might have called ‘God abandoning the world.’ Money is disappearing, and with it another property of spirit: the animating force of the human realm. At this writing, all over the world machines stand idle. Factories have ground to a halt; construction equipment sits derelict in the yard; parks and libraries are closing; and millions go homeless and hungry while housing units stand vacant and food rots in the warehouses. Yet all the human and material inputs to build the houses, distribute the food, and run the factories still exist. It is rather something immaterial, that animating spirit, which has fled. What has fled is money. … so insubstantial (in the form of electrons in computers) that it can hardly be said to exist at all, yet so powerful that without it, human productivity grinds to a halt.”

Stoneleigh declares “Money is the lubricant in the economic engine and without enough of it that engine will seize up as it did in the 1930s, when farmers dumped milk they couldn’t sell into ditches while others were starving for want of the money to buy food. There was plenty of everything except money, and without money, one cannot connect buyers and sellers.” source

Note the “money in motion” circling arrows in Stoneleigh’s diagram below. When the amount of “money in motion” decreases, there is less “lubricant” to facilitate the economic engine. The circles constrict and decrease. There is little money in motion to facilitate even the most basic necessitites. Right now, as we undo the credit bubble there will become fewer and fewer of those circling arrows.

By opening the avenues to additional types of “lubricant” – money substitutes, currency alternatives, gift culture – we can, at the grassroots level, assure that transactions can still flow despite the restricting supply of “money in motion” i.e. conventional cash.

Expanding the supply

Different types of financial vehicles serve different purposes. Most of us don’t think about it very much, but some people do. (see Peak Moment YouTube video about the scarcity principles built into our US dollar system)

A local currency can be designed in such a way as to prevent hoarding, to instead encourage a greater flow of transactions within a local community. A time bank can become a vehicle which brings out the hidden talents or the undervalued efforts of its members. Each has an important role to play in bringing out a more complete panorama of community “wealth.”

Different financial vehicles will attract different pools of participants within your community. Your local sharing arrangements will attract individuals. Your local bartering systems will attract mostly individual households and proprietorship businesses, perhaps with greater emphasis on services than on goods. A local currency will work nicely for local businesses because it functions in predictable accounting units like the national currency.

But local currency isn’t for everyone. Hopkins et al spent a bit of time getting Totnes businesses interested in accepting their local currency, the Totnes pound. This action puzzled me. Then I realized that I was mentally applying the Totnes actions to my own (vastly different) neighborhood. When Totnes folks were encouraging their local businesses to embrace local currency, they were working with independently-owned local businesses. By contrast, in my neighborhood there are lots of chain stores where local currencies simply won’t work. Striving to get the chain store type of business involved in an alternative finance scheme is moving in entirely the wrong direction. We must recognize that the chain store is a doomed animal, if for no other reason than its dependence upon cheap consumer goods transported worldwide by cheap oil. As such, chain stores are not part of our safety net, and there is no need to figure out complex designs to fold them into our new, expanded financial structures.

A Transition community can easily begin to set up a diversity of financial vehicles. Which one should your community have? To share the wisdom of Vidya Chaitanya of Transition Mar Vista: a community may one day need all of these. Start with the one that feels easiest to do right now, given your community dynamics, your people resources, and your community needs.

next section

Listed from easiest/simplest to most complex:

Simple sharing arrangements

  • small-scale, easy-to-set-up, neighborhood-level sharing ideas.
  • Sharing arrangements might include carpooling networks or informal childcare co-op arrangements, pet care co-ops, elder care co-ops, etc. They may include garden sharing (you can piggyback on the established friend-finding network GrowFriend), tool sharing (example: Portland), neighborhood libraries (example: Los Angeles), book swaps, seed swaps (how to).
  • Group purchasing: You can buy in bulk, save money, and access better stuff. Small food co-ops (how to: Los Angeles EcoVillage). Group purchasing software
  • Simple sharing arrangements are a great entrance point into alternative finances, because they’re very easy to set up. They get community members accustomed to dealing with each other in a new way (outside of US dollar transactions), which can open the door for other financial vehicles. They can be fun and delightful in themselves, and grow the spirit of the community.
  • See The Sharing Solution by Emily Doskow and Janelle Orsi for great ideas. and

Gift Circles

  • A gift circle is an open circle where people come to help each other, and share their needs and services. People share their services and help as a gift, without expectation of anything in return. The purpose of a gift circle is to allow people to help each other and to create a sense of community, and to further the gift economy. (See Eisenstein, page 37)
  • How to start a gift circle
  • In a discussion circle here in Los Angeles, the issue was raised of problems inherent in gift circles -- someone giving too much and feeling taken advantage of, etc. The observation was made that these human-dynamics issues were really part of all human exchanges and interdependencies, but that in many ways the conventional money system with its built-in disconnection has allowed us to ignore these uncomfortable issues. That shifting to any of the more "alternative" models we have been discussing means facing these human-dynamics issues again.

Local bartering arrangements

  • Basic barter: a basic cash-free exchange. You walk my dog; I wash your car, transaction complete. Basic barter breaks down if you don’t have what I want: for instance I wash your car but I don’t have a dog for you to walk. It also breaks down if there is a significant valuation difference between the items being exchanged. Thus more sophisticated bartering quickly becomes necessary.
  • Time Banking: Time banking is a form of sophisticated barter. As you perform tasks within the community, you “bank” hours which you can spend on things within the community as a whole. I wash your car, you walk Mary’s dog, Mary bakes Ted a pie, and I trim Ted’s bushes. Within the system we are whole. Usually a computer is used to track the credits, but it can be done manually as well. Time banking is best for exchanging services; since the basic unit being exchanged is an “hour,” you have to invent a local protocol for when you try to exchange goods.
  • Time banking proprietary software is somewhat “plug and play,” but your community will incur an ongoing fee in U.S. currency. I hesitate to recommend this given the content of the Stoneleigh lecture. (note: Before you sign up with the U.S. proprietor of the Time Banking software, please do your homework and learn about the history of the company).
  • See a list of time banks in the greater Los Angeles area
  • Cities and larger communities might look into the regional work being done by Fourth Corner Exchange.
  • In Ithaca, New York, they printed physical paper “Ithaca Hours” to exchange; their system has attributes of time banking and local currency, combined.
  • LETSystems (Local Economic Trading Systems) are very much like time banking, except that (1) the software is open source, thus potentially free to your community; and (2) the valuation of each credit is set by the individuals who are making the exchange transaction, thus there is much more flexibility.
  • For LETSystems see YouTube example from New Zealand , YouTube explanation from Asheville NC , article explanation.
  • Edgar Cahn’s book No More Throw Away People emphasizes how bartering systems can be used to reward and cultivate previously undervalued services within a community. Examples he gives are care for the elderly, neighborhood watch, volunteerism, and more. These jobs are necessary to make a community functional, yet our U.S. dollar system dismisses them without value. Neighborhood bartering networks are a chance to bring these necessary-yet-undervalued skills into the local economic sphere.
  • Time banks and LETSystems can become tools to ease mainstream people toward more of a “gift culture” mentality. One LETSYstem explanation said to think of it like “trading favors.” The goal of either LETS or time banking is that your account balance should hover around zero – close to “even” in giving and receiving favors within your community. It takes a passionate time bank coordinator – a cheerleader – to keep encouraging mainstream participants to use an unfamiliar system in Transition times. But this is what it takes to rebuild the fabric of social relationships and culture of reciprocity.
  • Older books by Edgar Cahn such as Time Dollars explain how LETS and time banking could be achieved without computers ‑‑ a very important criteria for some of our less affluent communities. (see my prior insights on "Diversity and Internet Connections") Tracking can be done on paper, for instance with a passbook system akin to the banking passbooks which were prevalent in the 1960’s, and a periodically printed magazine-style directory.
  • Both time banking and LETSystems seem to require a dedicated “cheerleader” to keep the excitement going and keep the system feeling fresh, exciting, and new. Over a two year period in our Los Angeles area, we saw four time banks/LETSystems started, of which only two are still going. The ones with staying power have a driver – a cheerleader, plus in each case the local Transition group is using the time banking system to run their reskilling classes, which helps keep the system alive.

Other alternatives

  • The Peter North vision includes business-to-business exchange. A Google search for “business to business exchanges” pulled up several existing networks. I have not reviewed any of them, but as your community begins to need it, know that some networks do already exist.

Local currencies

  • Local currencies are perhaps the most high-profile of these suggestions. They gain the most press, they command attention, but they also represent a huge step up in both complexity of setup and cost to create and run. If your community is considering creating a local currency, please refer to Peter North’s Local Money to understand the foundational decisions you will need to make – including fiat, demurrage, security features, circulation, mutual credit, backed currencies -- so that your currency will work well for the specific needs and issues of your community. My review of his book is here.
  • Creating Wealth: Growing local economies with local currencies, by Gwendolyn Hallsmith and Bernard Lietaer. Particularly the Appendix: “The Community Currency how-to model”

National currency / U.S. dollars

  • For managing those U.S. dollars that we do have, community banks are typically more in touch with the unique culture and needs of their local neighborhood. Hopkins and North don’t mention them because apparently community banks have vanished in the UK, but we still have a few here in the U.S. Find out if your neighborhood has one Support them, educate them, and fold them into your Transition activities.
  • Keep in mind, however, Stoneleigh’s cautions about the banking system. The repercussions of past banking practices will likely affect all banks, whether Big or local.
  • Learn more about the bank within the Mondragon cooperative complex and its unique policies and practices.
  • See more at Practical Tool #6 about community-based investments.