If the state can't save us, we need a licence to print our

[Duncan Goldie-Scot]

own money

http://www.guardian.co.uk/commentisfree/2009/jan/20/george-monbiot-recession-
currencies

If the state can't save us, we need a licence to print our own moneyIt
bypasses greedy banks. It recharges local economies. It's time to
think seriously about an alternative currency
Comments (39)
	
	
		 George Monbiot
		 The Guardian, Tuesday 20 January 2009
		 Article history
In Russell Hoban's novel Riddley Walker, the descendants of nuclear
holocaust survivors seek amid the rubble the key to recovering their
lost civilisation. They end up believing that the answer is to re-
invent the atom bomb. I was reminded of this when I read the
government's new plans to save us from the credit crunch. It intends -
at gobsmacking public expense - to persuade the banks to start lending
again, at levels similar to those of 2007. Isn't this what caused the
problem in the first place? Are insane levels of lending really the
solution to a crisis caused by insane levels of lending?

Yes, I know that without money there's no business, and without
business there are no jobs. I also know that most of the money in
circulation is issued, through fractional reserve banking, in the form
of debt. This means that you can't solve one problem (a lack of money)
without causing another (a mountain of debt). There must be a better
way than this.

This isn't my subject and I am venturing way beyond my pay grade. But
I want to introduce you to another way of negotiating a credit crunch,
which requires no moral hazard, no hair of the dog and no public
spending. I'm relying, in explaining it, on the former currency trader
and central banker Bernard Lietaer.

In his book The Future of Money, Lietaer points out - as the
government did yesterday - that in situations like ours everything
grinds to a halt for want of money. But he also explains that there is
no reason why this money should take the form of sterling or be issued
by the banks. Money consists only of "an agreement within a community
to use something as a medium of exchange". The medium of exchange
could be anything, as long as everyone who uses it trusts that
everyone else will recognise its value. During the Great Depression,
businesses in the United States issued rabbit tails, seashells and
wooden discs as currency, as well as all manner of papers and metal
tokens. In 1971, Jaime Lerner, the mayor of Curitiba in Brazil, kick-
started the economy of the city and solved two major social problems
by issuing currency in the form of bus tokens. People earned them by
picking and sorting litter: thus cleaning the streets and acquiring
the means to commute to work. Schemes like this helped Curitiba become
one of the most prosperous cities in Brazil.

But the projects that have proved most effective were those inspired
by the German economist Silvio Gessell, who became finance minister in
Gustav Landauer's doomed Bavarian republic. He proposed that
communities seeking to rescue themselves from economic collapse should
issue their own currency. To discourage people from hoarding it, they
should impose a fee (called demurrage), which has the same effect as
negative interest. The back of each banknote would contain 12 boxes.
For the note to remain valid, the owner had to buy a stamp every month
and stick it in one of the boxes. It would be withdrawn from
circulation after a year. Money of this kind is called stamp scrip: a
privately issued currency that becomes less valuable the longer you
hold on to it.

One of the first places to experiment with this scheme was the small
German town of Schwanenkirchen. In 1923, hyperinflation had caused a
credit crunch of a different kind. A Dr Hebecker, owner of a coalmine
in Schwanenkirchen, told his workers that if they wouldn't accept the
coal-backed stamp scrip he had invented - the Wara - he would have to
close the mine. He promised to exchange it, in the first instance, for
food. The scheme immediately took off. It saved both the mine and the
town. It was soon adopted by 2,000 corporations across Germany. But in
1931, under pressure from the central bank, the ministry of finance
closed the project down, with catastrophic consequences for the
communities that had come to depend on it. Lietaer points out that the
only remaining option for the German economy was ruthless centralised
economic planning. Would Hitler have come to power if the Wara and
similar schemes had been allowed to survive?

The Austrian town of Wvrgl also tried out Gessell's idea, in 1932.
Like most communities in Europe at the time, it suffered from mass
unemployment and a shortage of money for public works. Instead of
spending the town's meagre funds on new works, the mayor put them on
deposit as a guarantee for the stamp scrip he issued. By paying
workers in the new currency, he paved the streets, restored the water
system and built a bridge, new houses and a ski jump. Because they
would soon lose their value, Wvrgl's own schillings circulated much
faster than the official money, with the result that each unit of
currency generated 12 to 14 times more employment. Scores of other
towns sought to copy the scheme, at which point - in 1933 - the
central bank stamped it out. Wvrgl's workers were thrown out of work
again.

Similar projects took off at the same time in dozens of countries.
Almost all of them were closed down (just one, Switzerland's WIR
system, still exists) as the central banks panicked about losing their
monopoly over the control of money. Roosevelt prohibited complementary
currencies by executive decree, though they might have offered a
faster, cheaper and more effective means of pulling the US out of the
Depression than his New Deal.

No one is suggesting that we replace official currencies with local
scrip: this is a complementary system, not an alternative. Nor does
Lietaer propose this as a solution to all economic ills. But even
before you consider how it could be improved through modern
information technology, several features of Gessell's system grab your
attention. We need not wait for the government or the central bank to
save us: we can set this system up ourselves. It costs taxpayers
nothing. It bypasses the greedy banks. It recharges local economies
and gives local businesses an advantage over multinationals. It can be
tailored to the needs of the community. It does not require - as Eddie
George, the former governor of the Bank of England, insisted - that
one part of the country be squeezed so that another can prosper.

Perhaps most importantly, a demurrage system reverses the ecological
problem of discount rates. If you have to pay to keep your money, the
later you receive your income, the more valuable it will be. So it
makes economic sense, under this system, to invest long term. As
resources in the ground are a better store of value than money in the
bank, the system encourages their conservation.

I make no claim to expertise. I'm not qualified to identify the flaws
in this scheme, nor am I confident that I have made the best case for
it. All I ask is that, if you haven't come across it before, you don't
dismiss it before learning more. As we confront the failure of the
government's first bailout and the astonishing costs of the second,
isn't it time we considered the alternatives?