From:
www.simpol.org.uk/pdfs/simpolautumn05.pdf
Thinking aloud about fresh alternatives : A Personal Contribution to the Monetary Reform Debate
Silvano Borruso, SP Adopter in Kenya, gives a brief historical summary of how money came to be created and used, and proposes two reforms for our current debtbased monetary system. Citing examples from the Channel Islands, Austria and China he explains the contradiction between money?s ?store of value? and ?medium of exchange?. And he suggests that the creation in the 1930s of stable purchasing power via the issue of ?Gesellian? currency on a municipal scale can be quoted as an example of successful monetary reform with huge potential benefit.
From barter to modern government-based monetary systems
The very existence of money depends, necessarily and sufficiently, on the division of labour and the endless supply of goods and services that it produces. Take this supply away and money, whatever it?s made of, becomes utterly useless. Given self-sufficiency, barter is the norm.
Money embodies demand. As such, it ought to meet supply on equal terms, i.e. waxing and waning pari passu with the waxing and waning of the division of labour and its products.
Lycurgus of Sparta (9th century B.C.) understood this. His government issued money made of iron disks rendered brittle by dipping them in acid. Money was thus a medium of exchange, without additional properties, that would turn it into ?store of value.?
Croesus king of Lydia (6th century B.C.) did not understand. He coined lumps of electrum (an alloy of gold and silver) into money, sparking off the very confusion avoided by Lycurgus, and which still plagues humanity after 26 centuries. He monetized a precious metal. Money, up until then embodying demand as pure medium of exchange, now became part and parcel of supply, and hence ?store of value.?
It followed that whoever controlled the raw material for money, controlled (and still does) the demand embodied by money, inevitably getting rich at the expense of the producers of goods and services. Croesus monetized gold and became immensely rich (1).
Financiers wrested the control of money from governments in the past four centuries or so, and then convinced (or cajoled, or conned, is not up to me to say) them into believing that the way of raising revenue was by going into debt with them, and then taxing the producers of wealth to pay not only for the functions of government, but also for interest on debt. This so-called ?public? debt still acts like a ball and chain at the ankle of every government unlucky enough to have fallen into that trap.
Two necessary reforms and how they have been tested in practice
It should be clear from the foregoing that two reforms are needed.
? Money is to be a public service, not a private enterprise.
? Money?s exclusive purpose is to match the supply of goods and services coming to market thanks to the division of labour. The contradiction ?store of value? v. ?medium of exchange? ought to be eliminated once and for all.
The first reform was successfully carried out by the Bailiwick of the Channel Islands beginning in 1815. Since then the States of Jersey and Guernsey have issued money and spent it on infrastructures (2). Contrast them with the United Kingdom: the Glasgow Market, built in 1817 on a loan of ?60 000, was repaid only in 1956, when it was ripe for demolition. The Channel Tunnel ended up costing almost twice the original estimate of ?7bn. The tunnel Authority had to ?find? the money by borrowing it from a consortium of 220 banks. All the while, ?a pile of several billions of pounds cash [was sitting in a London] bank? (3). If ?several? means ? 7, that hoard could have paid for the Chunnel without indebting anyone, and fares would now be shorn of interest. Etc.
Governments, and the financial powers feared by them, as Simpol rightly points out, can afford to ignore the success of the puny Islands, as also such suggestions as: ?To issue new money as public revenue and put it into circulation as public spending, rather than continuing to allow commercial banks to issue it as profit-making loans. [It] will benefit almost everyone. It reflects the same principle as will make sense for future taxation. The monetary value of common resources should be treated as public revenue. It should not be ?enclosed? as private profit" (4).
What they can no longer afford to ignore, though, is China?s monetary policy.
In 1978 18 Chinese farmers ?agreed that they would still pay their grain tax [to government]. But once their obligations were met, they could sell or barter whatever surplus they could coax from the land? (5)
In a single year the bypassing of government restrictions spread like wildfire, triggering off the most spectacular economic boom of all time. Now China is doing on a grand scale precisely what the Channel Islands did, what Robertson recommends, and Silvio Gesell (1862-1930) proposed (6). China does not ?borrow.? Its State banks issue money directly into industry and infrastructure capital production, thus fuelling the lightning development of its major (and now minor) cities.
But the rut of convention stands in the way of this first reform. After 200 years of ?borrowing? and taxing the fruits of people?s labour, a better solution is not obvious. Simpol?s task is precisely to remove the scales from ordinary people?s eyes, and through them from those of their political representatives.
Proven success of the ?Gesellian? alternative paper currency
The first step of the second reform has already been taken by abandoning the gold standard: 1931 (UK and most countries) and 1971 (United States). The second step would consist in getting rid of the contradiction ?store of value? v. ?medium of exchange? still plaguing paper money. Gesell showed how: separate the monetary unit from the object representing it. The unit keeps a stable purchasing power, but the paper object gradually loses 5% of its
nominal value in one year, during which it can move goods and services equal to its nominal value times the number of exchanges. Demand and supply would now meet on a level field (7).
Gesellian money succeeded most spectacularly in W?rgl, a railway junction in the Austrian Tyrol, in 1932. A paltry 5,300 Schillings worth of ?Work-Certificates? issued by the municipality moved 2.5 million of goods and services by circulating some 450 times in 14 months. A bridge over the River Inn still stands as a witness to that success. Had H.M. Treasury acted similarly with the Channel Tunnel, a paltry 2.5 million pounds of such money, by circulating 400 times in a year for seven years, would have paid for the whole thing at the original estimate. Gesell called it ?Free Money.? No country has adopted it, but the first one that did would see usury and its offspring ? the public debt, high production costs, unemployment, poverty, inflation/stagnation, etc. ? disappear. The Social Question would be solved most peacefully and effectively, and the rest of the world would be effortlessly coaxed into adopting a truly Simultaneous Policy.
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Notes:
1. See Herodotus I, p.30 ff.
2. A virtual visit to the Islands via the web will convince
anyone of how beneficial such practice has been.
3. The Economist, 27 July 2002, p.77.
4. James Robertson, Alternative Mansion House Speech, 4 Sep 2000.
5. How Eighteen Farmers Saved China, in China Inc. by Ted Fishman, Scribner, 2005, p.46 ff. 5.
6. Natural Economic Order, Part IV, Chap.2.
7. Some 30 000 communities worldwide issue their own currencies, some on Gesellian principles. Many such attempts languish and fail because there is no true ?circulation?, i.e. a single point of issue acting also as a point of reception. That?s where W?rgl succeeded, and where national government would unfailingly succeed. In fact, any producer of goods or services for which there is demand would succeed: a consortium of schools, a transport company, a cement factory, a utility company, etc. Their tokens would be denominated in whatever they produce: a teaching period, passenger-kilometres, kilowatt-hours, etc.
A Footnote about Interest-Free Loans From Peter Challen, Christian Council for Monetary Justice
Silvano Borruso's article is right to recognise the use of interest-free (repayable) loans for productive capital projects (as in Guernsey and the Channel Tunnel), thereby halving or more the cost. It is noted, however, the article mentions such loans in the context of debt-free money which is not repayable. The difference is crucial to acceptance in the world today because debt-free money is perceived as inflationary, not directed capital projects, and exclusive of the private sector.
A big momentum is now building behind nationally initiated interest-free loans which, after six international conferences, are undoubtedly winning the argument within Islamic academia. Trisakti University, for instance, is teaching the subject in its postgraduate programme and more universities are following suit. Such developments strengthen the case for monetary reform, and their increasing international acceptability endorses Simpol's decision to adopt this topic as one of its key policy measures.
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Editorial Note: a follow-up contact and extracts from a new book about money Readers will be interested to know that Jill Phillips, Simpol-UK Management Board member, is preparing a Simpoltons? Guide to monetary reform. This is designed to help people new to the topic learn more ? easily and enjoyably ? about the issues involved.
Deidre Kent also offers reader-friendly guidance in Healthy Money, Healthy Planet published this year by Craig Potton (New Zealand). Her approach differs in emphasis from that of James Robertson and John Bunzl in Monetary Reform: Making it Happen (ISPO, 2003), for she writes: ?I will argue that to have an abundant, sustainable and just economic system we need interest-free money at every level of organisation ? international, national and local ? to complement the scarce money we have now.? But the main features of this 322-page book are the clear explanations and solutions that follow from the statement ?It is rare to find an economist who acknowledges that at heart there is a structural defect in the financial system, which is leading to escalating debt, a widening gap between rich and poor, and a growth imperative that endangers the survival of the planet.? The text is presented in two main sections, Sick Money and Healthy Money, and ends characteristically with suggestions about what action individuals could take so that money ?can be restored to become our servant, not our master.?
