Show me the money

Image: Flickr CC-BY 2.0

by Gwendolyn Hallsmith

Renewable energy, reparations to the descendants of former slaves and Native Americans, universal basic income, energy efficiency improvements, new transportation systems, job retraining for fossil fuel workers—the list of Green New Deal (GND) aspirations is long and expensive. Senator Bernie Sanders recently released a GND proposal estimated to cost $16 trillion. That’s 16 times the current annual U.S. defense budget, which is about $1 trillion. U.S. GDP was $20 trillion in 2018. How does the U.S. muster federal spending that requires a sum that’s 80 percent of our annual economic output? The Green New Deal requires a LOT of money, amounts that now look politically impossible. Why is money so scarce? Why is there never enough to meet our needs?

Some point to Modern Monetary Theory (MMT) as a path forward. MMT advocates say we need to stop worrying so much about deficits. The Treasury and the Federal Reserve can issue the money into existence to pay for it all. Inflation won’t be a problem because we can tax the money back out of existence if prices start to rise.

Unfortunately, for the system to work the way MMT imagines it does—that is, for the government to have the ability to simply print money into existence, for free—some critical legal changes are needed: 1) the prohibition Congress passed in 1935 ending the practice of the Treasury borrowing directly from the Fed without issuing bonds needs to be reversed, and 2) the legal requirement for money to be in the government’s account before they spend it needs to be eliminated. Otherwise the U.S. government would be required to borrow the money for the GND from the large, private banks and investors by selling government bonds, as they do now, pay the wealthiest class the added interest, and burden future generations with the astronomical costs of it all.

MMT overlooks the privileged role of the U.S. dollar in the current global economic paradigm. Recent changes in IMF reserve currency rules threaten this privilege, yet we still have monetary power that many nations do not. We could use our waning power in the world to spark a new wave of change in monetary systems and make a Global Green New Deal possible.

What monetary system changes are needed for a Green New Deal?

The monetary system conditions at the root of runaway inequality and environmental destruction are 1) private ownership, 2) debt-based issuance, 3) positive interest, 4) monoculture, and 5) monopoly. All these conditions need to change; the adverse impacts are an emergent property of a complex system, not a simple linear cause and effect relationship between one variable (like positive interest) and one impact (e.g. compulsory growth).

All the government icons and signatures on our dollar notes make us think that the U.S. government issues all the money, but this is not true.

Private Ownership. All the government icons and signatures on our dollar notes make us think that the U.S. government issues all the money, but this is not true. The Federal Reserve System is effectively owned and operated by the large private banks; the dividends they get paid for their capitalized ownership stake are guaranteed at 6% per year, right off the top of the bank’s earnings, tax free. On top of this, since the crash of 2008, the excess reserves the banks hold are also paid interest, decreasing their incentives to move that money into the normal economy with all its risks, shocks, booms, and busts.

We need to make money a public utility, not a private profit center. Strategies include the network of public banks at all levels of government outlined in the GND Congressional resolution introduced this year, and past efforts like the NEED Act and the Chicago Plan. If MMT worked as advertised, it might also be truly public money.

Debt Based Issuance. Between 90-95 percent of the money in circulation in the U.S. is issued by banks when they make loans. That’s right, private banks create money out of thin air as loans and reap the interest as profits. This means that virtually all the money we use is someone else’s debt and comes into existence with the built-in expectation that it will return a profit to its issuer in the form of positive interest. This is one of the reasons there is never enough money for all the things we need, because debt-based money tilts the scales so almost every aspect of human life must produce a return for the lenders, or it doesn’t get issued. If there were money enough to go around, no one would borrow it from the banks—they produce, control, and benefit from money’s artificial scarcity. The scarcity also comes from the fact that when all the money is debt, there is never enough to pay back all the interest.

Positive Interest. Positive interest on all the debt-based money drives the discounting/net present value calculation large investors use when they evaluate the long-term value of investments. Discounting systematically devalues the future, which undermines all the efforts we make to leave a better world for our grandchildren. One way to envision the unfortunate effect of discounting is to picture something simple, like a tree, and look at what net present value calculations do to warp the way we value it with money.[1]

Here is the tree’s physical reality. The seedling is planted, and after 10 years, we’ll assume the tree’s value has increased to $100. After 100 years, at this rate of appreciation, the grown tree would be worth $1,000. Both values are in current dollars.

Here is the same tree when viewed through the lens of net present value. The net present value of the tree after 10 years is a lot less (discounting $100 over 10 years), and looking out 100 years, it’s worth almost nothing (discounting $1000 over 100 years).

The following illustration shows how the assumed value of the tree would change dramatically if money did not come with inflationary added interest built in but rather had some kind of storage charge, or demurrage, for keeping the money idle (instead of the rewards we give the banks now for excess reserves).[2]

Money issuance needs to be a mix of debt and “grants” (for lack of a better word). Grants would not come with debt’s positive interest and could be used for public and private goods that do not promise a financial return. Education, health care, child and elder care, the arts, and democratic participation are all examples of human activity which cannot and should not be profit centers for either public or private banks.

Monoculture. Even though world currencies come in lots of flavors – Dollars, Euro, Yen, Pesos, Rubles, etc., the majority of them use the same bank debt issuance system. This creates a global monoculture of money in circulation. On a systemic level, this single type of money is as harmful as other monocultures. When the banks fail, the economy fails.

A key consideration for the Green New Deal is that creating different types of currencies could eliminate the artificial scarcity built into the money issued by banks.

Diversifying the types of money in circulation would mean adding public currencies and complementary currencies to the mix. A key consideration for the Green New Deal is that creating different types of currencies could eliminate the artificial scarcity built into the money issued by banks. We can have enough money for everything. We just need different kinds of money. There are already examples of complementary currencies which are used for food, time, care, carbon, data, and small businesses that don’t require bank money to provide a means of exchange to meet these needs. If every currency couldn’t be used to buy everything, this also reduces risks of inflation and accelerating overconsumption.

Monopoly. The laws that require all debts and taxes to be paid in a particular currency (like the Federal Reserve dollars in the U.S.) give the banks a monopoly on money issuance. We need to break the monopoly the private banks have on the money we use and accept public and complementary currencies for debts and taxes. Cryptocurrencies threaten banking monopolies but are still private currencies purchased with bank money. A truly public cryptocurrency accepted for taxes does not yet exist.

The systemic impacts of the current monetary regime have been well-documented in a report to the European Club of Rome by my late colleague, Bernard Lietaer, and others. In brief, these are 1) amplification of the boom and bust cycles, 2) short-term thinking, 3) compulsory growth, 4) concentration of wealth, and 5) devaluation of social capital. All of these exacerbate social and economic inequality, climate change, and other harmful environmental degradation. It is not sufficient to address these problems piecemeal, the solutions we propose must be socially and economically just as well as enabling a safe, healthy, and biodiverse environment. If we change the monetary system, we can transcend the values money has warped which now lead us to human extinction. We can change everything.

Gwendolyn Hallsmith is an author, musician, and activist who lives in an ecovillage she founded in Vermont. She writes and sings about sustainable communities and the new economy.

[1] This is not to say that valuing trees in money is even appropriate. They produce the air we breathe, they protect the water we drink, they offer shade and food and solace. To reduce them and the rest of nature to a dollar value is the main step that leads to economic exploitation, environmental degradation, climate change, and species extinction.

[2] Illustrations courtesy of Bernard Lietaer.

Is Europe staring at a second Renaissance?

by Ashish Kothari

A day after I reached Barcelona in Catalonia (Spain) in the last week of May, its first woman mayor was elected, much to the delight of large sections of its civil society. Ada Colau, a 41-year-old activist who has fought with social movements against forced evictions, is with Barcelona En Comú (formerly Guanyem Barcelona).

This is one of many new political outfits in Spain that are rising from peoples’ movements of various hues, including those seeking fundamental changes away from an economic system that has left 50 percent of the country’s youth unemployed, created a massive unpayable public debt, and caused ecological devastation.

Over the next few days I met with a number of researchers and activists and practitioners in Barcelona who are in one way or the other seeking alternative futures. There seems to be an explosion of experiments towards sustainable farming and producer-consumer cooperatives,eco-housing and communes, solidarity networks, complementary or alternative currencies, occupation of empty buildings (squatting) by the homeless or for social activities, cycling and car-free spaces, reclaiming the commons in cities, and much else.

Bank squatted for social purposes, Barcelona. Photo: Ashish Kothari

Though still marginal in a society that is overwhelmingly consumerist and wasteful as also facing enormous social problems (including a resurgent right-wing in many areas), these initiatives are growing and provide hope for a different future.

This would especially be the case if the grassroots mobilisation in such initiatives can be combined with progressive new elements in the state, such as the ones that have taken power in Barcelona … and if the rapidly rising political formation Podemos takes over Spain in the coming national elections.


Promises for another way of living

I will illustrate this with a few examples that I got to know of during my visit. One is theCooperativa Integral Catalana (CIC), a network of activists working on various aspects of collaborative, ecologically sensitive living.

Its aim is to be “a tool to create a grassroots counter-power, departing  from self-management, self-organization and direct democracy, and one that would help overcome the actual state of dependency on the structures of the system, towards a scenario of liberty, full awareness, free of authority, and in which everyone could flourish under equal conditions and opportunities.

As CIC activist Ale Fernandez told me, sitting on the roof of one of their working spaces in the midst of an urban herbal garden, the initiative has a very interesting origin. In 2006-08, activist Enric Duran Giralt carried out an act of financial rebellion, borrowing 492,000 Euros from various banks, distributing this to a number of initiatives described as alternatives to capitalism, and refusing to return the money, arguing that banks had been stealing from ordinary people for decades (earning the nickname ‘Robin Bank’!).

When arrested (and later released on bail), Duran pointed out the irony that chief executives of banks who had ruined the lives of millions of people by their irresponsible acts leading to the 2008 financial crisis, were being let off scot-free.

The CIC was started by him and others as a model of how people could live perfectly well without capitalist institutions such as banks, through solidarity and collective actions.The CIC has also evolved into the proposal for a global cooperative called Fair Coop with its own currency (faircoin), similar to Bitcoin but with justice and sustainability principle.

Joel Morist I Botines, CIC, Barcelona. Photo: Ashish Kothari

CIC worker Joel Morist I Botines took me out for coffee, and with his eyes shining brightly and a big unruly beard flying in the wind, gave me a run-down on all that the collaborative does: The use of unused buildings or other available properties for collective, social housing; community-led, free and alternative education that is integrated with community living; sharing knowledge platforms; producer-consumer exchange especially of organic, ecofriendly products (food, soap, laundry items, toothpastes, etc); technological innovation and collective repair spaces; social or ‘free’ community currencies in which exchanges can take place without using euros and movie-making through crowdfunding.

CIC is involved in these and much else. It has one permanent assembly for decision-making, but many individual processes or projects linked to CIC have their own assemblies, in an attempt towards decentralised or direct democracy. There are about 5000 user members in the producer-consumer exchange.

The full-time paid employees of CIC, interestingly, can even have their salaries reduced as they are encouraged to obtain more and more of their living needs through sharing, alternative currencies, and other ways that reduce the need for money!

The second initiative I saw is fascinating because it is not something we are used to in India. Can Masdeu is an old hospital building that had been abandoned for a few decades and was occupied by an international group of activists who converted it into a housing and social centre in 2001.

They achieved fame in early 2002, when some 100 police came to evict them. Using passive resistance and tactics that would have meant the police possibly injuring themselves and the occupants if forcible eviction was attempted, and eventually winning both significant public support and a local court’s favorable judgement, the activists managed to stay on. Since then, repeated attempts by the Barcelona administration to evict them failed. (Incidentally, the new Barcelona mayor was involved in protesting against these attempts).

The 24 people who now occupy Can Masdeu have converted it into an example of collective living, permaculture and organic farming, simpler lifestyles, baking and cycle repairs and other survival or livelihood activities, and through all this less need for money.

The 24 people who now occupy Can Masdeu have converted it into an example of collective living, permaculture and organic farming, simpler lifestyles, baking and cycle repairs and other survival or livelihood activities, and through all this less need for money.

Can Masdeu’s building and surrounding fields and forests have also become a space for residents of Barcelona (and elsewhere) to come and volunteer for practical work, do joint activities on Sundays, tend to little garden plots assigned to them, bring schoolkids to get exposed to a different life and more.

Claudio Cattaneo, one of Can Masdeu’s veterans, father of a two-year-old child, and also a researcher who has studied the ecological economics of squatting in Barcelona, was quite frank that this was still an evolving experiment. There are many weaknesses to be addressed still (for example, energy use remains relatively high, and it is not yet clear how elderly people would fit in), but even in his statement of gaps one could see that there is already a lot that the place has achieved.

Can Masdeu’s occupation is still technically illegal. I asked Ale Fernandez, one of the early residents, whether he would prefer it to be legalized; he said he was in two minds, it would be ok if there was a good law covering it, but it was also scary to be “part of the machine,” referring to the system that could gobble up such initiatives in a minute.

This is a dilemma many alternative, radical initiatives face in many countries: whether to remain ‘outside’ the system and face continued harassment and possible closure, or to get legitimised by it, which entails the risk of getting institutionalised, less ‘edgy’ and less radical.

Can Masdeu – the fields and the house, Barcelona. Photo: Ashish Kothari


It’s not all about money!

Another widespread trend in Europe encompasses a similar paradox. People in several towns are trying out social currencies of various kinds. In this experiment, the unit of exchange between producer or service provider and consumer is a locally generated ‘money’ or equivalent unit. For that particular exchange, therefore, the relationship is outside the dominant monetary system.

In so far as many of these are ‘complementary’ currencies – working in limited circles, supplementing rather than replacing the dominant currency – they do not really threaten or seriously challenge this system. But some, if they become big like the Bristol pound, can indeed be subversive.

In Barcelona, I met Susana Martín Belmonte, who has helped write a chapter on social currencies for the Barcelona En Comú party that has just come to power in the city. I did not fully understand it, but Susana stressed that this model moved away from bank-related interest, and money as debt and speculation, that was at the centre of the economic crisis. Instead, it focused on positive value creation and trust-based economic exchanges, an early version of which is to be tested in Barcelona.

This initiative is part of a wider European Union funded process of piloting social currencies.

There are however challenges to making this widespread enough to challenge the currently dominant money system. Researcher Kristofer Dittmer, whom I met at the Autonomous University of Barcelona, recently conducted an interesting review of local currencies of various kinds. He concluded that there was not significant evidence of them leading to ‘community-building, advancement of alternative values in economic exchange, facilitation of alternative livelihoods, and eco-localization’, all of which are criteria that the Degrowth movement in Europe espouses.

But there are indeed a number of local benefits, and he said he had not looked at the Bristol pound, which may be one of the few to achieve larger social and economic impact.

Dittmer’s own inclination is for reforms towards a “more democratically controlled monetary system, which is a prerequisite for public spending and taxation that favor communities, egalitarian values, ecologically rational supply-chains, and other principles that degrowth advocates cherish.”

Belmonte, however, feels that if the kind of social currency she is promoting spreads widely, it has the potential to undermine dominant economic powers. This ongoing experimentation and debate in Europe should be of major interest to us in India, as increasingly our movements will also want to look at fundamental changes in economic and monetary systems.


Other initiatives

The above initiatives are part of a growing search in Spain and the rest of Europe for alternatives: different ways of being, living, working, and relating that in various degrees question or rebel against the currently dominant economic and political order.

I learnt about these and others over several sessions and treks and meals with a wonderful team of people associated with the Institute of Environmental Science and Technology (ICTA) at the Autonomous University of Barcelona, including the ecological economics guru Joan Martinez-Alier, and his younger colleagues Federico Demaria, Daniela del Bene, Aili Pyhala.

It is through my interactions with them that I came to know of Som Energia, for instance, which is a cooperative buying renewable energy and putting it on the grid, making it more accessible to households. Eticom is a cooperative offering mobile services as an alternative to the big private corporations while ECOS is common working space where many of these cooperatives and projects have their office, with shared cleaning, transport, insurances, finances, design and printing.I also heard more about the movement towards ‘degrowth’, which espouses a considerable scaling down of Europe’s energy and materials use, and encompasses philosophical, ethical, economic, political and socio-cultural elements in its advocacy.

With the above team at ICTA and other local researchers and activists, we discussed the similarities and differences between degrowth and other alternative approaches from elsewhere in the world, including Buen Vivir and Sumak Kawsay in Latin America, swaraj or radical ecological democracy (RED) in India and ubuntu from southern Africa.

A couple of presentations I made on RED/swaraj were well-attended and generated very interesting discussion on a host of complex issues. People were very interested in the various examples of alternative initiatives that I mentioned, and asked many critical questions about them. It was clear that the presence of such initiatives in both Europe and India offers us a great opportunity, to exchange experiences, mutually learn, evolve common futures where globalization is about freer movement of ideas and cultures and people rather than of finance, and build solidarity networks that can also be a political force.

These initiatives in Europe are of course still marginal in a continent that has made its ‘progress’ based on colonial and neo-colonial exploitation of the south, and where a highly materialist lifestyle is as ‘natural’ as breathing air.

These initiatives in Europe are of course still marginal in a continent that has made its ‘progress’ based on colonial and neo-colonial exploitation of the south, and where a highly materialist lifestyle is as ‘natural’ as breathing air.

Increasingly, however, as the economies of Europe themselves face crises and it becomes clear that tinkering around within the same system is not helping to resolve them, as knowledge of the ill-effects of these lifestyles for the rest of the world and for themselves spreads, and as ecological and social movements gain ground, the ‘ordinary’ person will be faced with choices for the future that are clearly either irresponsible or responsible.

Hopefully, the thousands of initiatives that are springing up will then also provide available pathways to choices of a more responsible life, forging a future in which the colonial past of Europe is replaced with a truly collaborative role vis-à-vis the rest of the world.

Thanks to Federico and Daniela for comments.

This article originally appeared in India Together.