Cooperative Money: The Key to Sustainable Prosperity

June 23, 2013 by Philip Beard

GO LOCAL Board Member Philip Beard shares his thoughts about local currency.

Cooperative Money: The Key to Sustainable Prosperity

Thanks largely to Georgia Kelly and her Praxis Peace Institute programs, we know a lot more than we used to about cooperative principles and practices, especially as manifested by the coop movements in Spain and Italy.  These practices run counter to the dominant western capitalist model.  Prominent among them are worker ownership of business enterprises; democratic management (one person, one vote, rather than “one share, one vote”); the primacy of people and their work over monetary profits; prioritizing social and environmental goals over financial targets; the promotion of human dignity and just distribution of wealth; the preeminent role of education and innovation. 

The cooperative business models we have studied have opened our eyes to a new paradigm of “best practices” in line with those principles.  It is encouraging to see them adopted by growing numbers of progressive-minded companies and communities.  (The town of Richmond provides a sterling example of a local government actively promoting cooperativism.)  But clearly, the cooperative trend is not advancing as fast nor penetrating as deeply into our collective ethical consciousness as we would like.  What we recognize as best practice is a long way from becoming standard practice.  Why is this so?  And what can we do about it?

Father Arizmendi-Arrieta, the brilliant founder of the Mondragón cooperatives, stresses our obligation to be constantly searching for appropriate next steps in our development toward “divine perfection”.  “The world has not been given to us to contemplate, but to transform,” he says.  (Reflections, p. 100)  And, “The awareness of the problems that exist is the first step toward solving them.”  (p. 160)  I submit that we are not sufficiently aware of the problems embedded in our monetary system, problems that prevent us from turning our theoretical best practices into standard practice.  We need not only to contemplate our monetary world, but to transform it.

The Problem.

Few progressives are aware of the immense destructiveness built into the very fabric of our global monetary system.  Of course everyone knows about the “great recession” we’ve been mired in since even before 2008, but only a small minority see its roots in the structure of our money itself.  Consequently we beat our brains out trying to address our economic, social, and environmental ills without attending to the systemic force that drives them.  Small wonder then that we make such slow headway toward the sustainable, just future we all yearn for.

Here’s the problem: Our money is created in a way that automatically keeps it too scarce to address our needs adequately.  As the Fed blithely instructs us in its revealing handbook Modern Money Mechanics: “Money, like anything else, derives its value from its scarcity relative to its utility.”  (p. 2)  That remarkable proclamation provides the doctrinal premise for how our money system works.  The handbook describes how the Fed purports to maintain the value of our money by keeping it scarce.  The primary tool for creating this systemic scarcity is compound interest – a repayment obligation attached to all money issued by the Fed’s member banks.  This obligation is itself not funded. 

All money is created by private banks as loan principal.  In order for borrowers to repay that principal along with the interest required, they must commandeer someone else’s borrowed principal, and that makes money scarce.  Unless that someone else can refinance their own loan with new added debt, they will default.  So we are all competing for monetary resources that, ironically, are kept programmatically too scarce to cover all the obligations created by their debt-based issuance.  And the only way to keep this musical-chairs system from collapsing is to keep it growing, issuing new debt to temporarily meet the interest obligations of the old.  Voilà the rationale for the dominant “growth imperative” mantra of our econ departments and government gurus.

That doesn’t sound very cooperative, does it?  “Predatory” would appear more fitting.  Quoting German complementary economist Thomas Mayer, “How can we ever have been so foolish as to entrust the creation of our money to private banks?”

Consider the long-term psychological, social, and environmental consequences of this programmed scarcity.  Psychologically, fear of default accompanies all our commercial dealings, and this fear spills over into our non-commercial activities as well.  We all feel vulnerable, and financial calamities like the current “Great Recession” empirically validate that feeling.  Socially we’re motivated to cut corners, defer honoring our obligations, and break each other’s trust.  Environmentally we’re driven to exploit non-renewable resources, and in the process burn so much fossil fuel that we’re cooking the planet.  And the destruction on all fronts grows exponentially, because the compound interest mechanism that demands eternal economic growth is an exponential function.

Thus the existing monetary system, far from helping us discover and promote “best practices” for a sustainable future, itself might be termed a worst practice.  It hamstrings our most noble efforts at regaining rational control of a world gone haywire.  But like drug addicts in denial about their dependency, we go on using it as though we had no choice.  Feeling victimized, we take sour solace in the certainty that whatever the system’s inevitable malfunctions, they’re somebody else’s fault.  So we do nothing to transform this pivotal part of our world.  Father Arizmendi would not be proud.    

 The Solution: What would cooperative money look like?

A system that aims to counteract the structural flaws of conventional money by incorporating cooperative principles must embody the following characteristics:

            •  Its accounting units must be sufficiently available to meet our needs as they arise, at all levels ranging from individual to societal.

            •  It will not create artificial scarcity.  In particular, it will not rely on the imposition of interest-burdened debt as a condition of its issuance.

            •  It must accurately represent the concrete value of the goods and services we trade.

            •  It itself will not be traded as a commodity whose value and availability are subject to speculative fluctuation.

            •  It must provide for easy transferability of value between the medium-of-exchange and store-of-value functions of money.

Money possessing these features will allow us to extricate ourselves from the deadly boom-and-bust cycles that result from irresponsible speculation such as the sub-prime mortgage debacle of recent memory.  It will provide us the monetary resources to support our societal commons (think schools, transportation infrastructure, health care, elder care, information technology, etc.) without taking on backbreaking debt to private banks.   In short, it will allow us to solve problems we currently can’t even address because “the money’s not there”.  It will provide the key to a sustainable future.  But we must evince the will to design and implement it. 

A real live practical model

In fact an elegant solution to the problems of debt-based, interest-burdened bank money is at hand.  It’s called mutual credit clearing, or autonomous credit.  It relies on the emergence of associations of people who agree to cooperate with each other in ordering their commerce, savings, and investment practices according to transparent, non-exploitative principles, thus fully deserving the designation “cooperative money”.

Our own Sonoma County version of an autonomous credit system is the “Go Local Buck” (GLB).  To facilitate its immediate acceptance by both businesses and buyers, we of the Go Local Cooperative have designed it to function initially as a loyalty reward rebate, like airline miles and the rewards-card offerings of innumerable businesses.  As of January 2014 over 15,000 Go Local Rewards Cards are circulating, with about fifty member businesses participating in the GLB program. Uniquely, rewards earned at a given business may be redeemed at any of the other businesses in the network.  This “shared rewards” system simultaneously motivates purchasing from locally-owned, independent businesses and frees the user from the nuisance of packing scores of single-business cards around.

The GLB foundational principle is simple but profound: We needn’t rely on banks to issue us the credit we need to meet our needs, provide us with useful work, and lubricate our markets.  Instead we can issue it to each other.  Once issued, this autonomous credit functions as a medium of exchange that circulates indefinitely until it returns for redemption to the person (or business, non-profit, or government agency) that first issued it.  Issuers are obligated to accept “back” the credit they’ve issued, in payment for whatever they sell.

The credit units created in this process are money plain and simple: a representation of value transacted.  It’s useful to think of them as money spent  into existence, rather than lent into existence as per the Fed’s practice.  (Merchant issuers are initially buying marketing with the credit units they issue.) And once enough GLB’s are circulating for a critical mass of people to accept the autonomous credit concept, local/regional government agencies can address their own unmet needs by issuing GLB’s to help fill the omnipresent dollar gaps in their budgets.  As long as it’s clear that these same GLB’s must be accepted by the respective agency in payment of taxes, fees, fines, etc., the system stands on firm financial ground. 

Some important details need to be worked out by each autonomous credit association.  They include determining who shall enjoy the issuance privilege; how much credit each issuer is allowed for a given time interval; whether loans at interest should be allowed at all, and if so at what rate and in what form (simple or compound?); whether hand-held paper currency is employed alongside electronic account entries; etc.  These are not simple questions, and the ultimate success of each association will depend on how responsibly, how cooperatively, they are resolved.

Space limitations prevent describing how autonomously generated credit can serve not only the transactional function we require of our money, but savings and investment functions as well.  Suffice it to say that successful models exist that can be emulated and built upon.  A good introductory resource that illuminates these questions is Margrit Kennedy’s recent book Occupy Money (New Society Press), available in paperback from your local bookseller for under $15.

The Challenge

Just how serious are we about transforming our world into one we can be proud to pass on to our descendants?  How committed are we to cooperative living?  We know better than ever before the perils of muddling on with the maddening status quo; and thanks to Praxis, Daily Acts, GO LOCAL, Sonoma Clean Power, etc. we’re more aware than ever of best practices that need to become the norm.  So let’s take the hugely powerful next step of transforming our money so it can fully support our hard work and most fervent plans.

Use GO LOCAL Bucks; join and spread the conversation about autonomous credit; live the cooperative future with Cooperative Money!


Useful resources:

Kennedy, Margrit, Occupy Money, New Society Press 2012

Greco, Thomas, The End of Money and the Future of Civilization, Chelsea Green 2009

Fr. José María Arizmendi-Arrieta, Reflections, Otalora Press, Mondragón (no date)