1.

“Local currencies such as the Brixton Pound are about localising, whereas digital currencies such as Bitcoin are about decentralising and internationalising. Meanwhile, so-called demurrage currencies — deliberately engineered to lose value over time — are about energising the volume of transactions, as people have no incentive to hoard them. (Freicoin, for example, is an attempt to create a demurrage version of Bitcoin, neutralising the hoarding impulse built into Bitcoin’s psychological structure.) Then there are timebanks — community systems where people directly exchange labour time, which is about humanising and reconnecting exchange.”

2.

“Then there’s my friend Matthew Slater, who has developed an open-source software package that allows you to start a whole range of different currencies. Would you like it time-based, commodity-based, mutual credit, or fiat? His package can do it all. It’s like a Swiss army knife of options. In this, perhaps we can see one vision for the future of money — a future based on diversity, where we can move in and out of exchange technologies as we need.”

Excerpted from a long and well written essay by Brett Scott, the author of The Heretic’s Guide to Global Finance (2013):

(it’s nice to see tireless monetary commoners like Matthew honoured in essays like this)

“To delve deeper into the nature of exchange we need some first principles, and these take time to uncover. The best guides in this half-lit territory turn out to be not economists, but rather the loose bands of monetary mystics and iconoclasts who are developing strange new exchange technologies. They are a scattered tribe, with elders including the likes of Bernard Lietaer, Ellen Brown and Thomas Greco, sages passing on tips on how to breach the Monetary Matrix. I find myself sitting in a pub in Stockwell, south London, with Matthew Slater, a nomadic developer of open-source currency systems, and discover that he no longer bothers with a bank account or a fixed address. ‘Once you’ve broken through appearances,’ he says, ‘there’s no going back.’

I was introduced to Slater by a common friend named Jem Bendell. The two of them met in an Indian hippy colony called Auroville in Tamil Nadu, and Bendell is now a professor of sustainability leadership at the University of Cumbria and an undercover monetary revolutionary. I have an enduring memory of a TED talk in which he ripped a banknote into pieces, trying to make the point that the paper itself doesn’t have value. Everyone in the room winced, as if to say: ‘You could have given that to me!’, but Bendell was getting at a powerful idea.

If money is an object, it must be an enchanted one, charged up with value by a subtle cultural process. Why else would anyone exchange a box of coffee for a rectangle of paper? Shopkeepers accept the paper because they believe that it has abstract value — because, in turn, they believe that others believe it, too. The value is circular, predicated on each person believing that others believe in it. You hand over your money and claim something from the shopkeeper, almost as if the coffee were owed to you. Then they take the claim that was previously yours and use it to claim something from someone else. We all trust each other to value money — but this still means that every monetary transaction is a leap of faith. And faith has to be carefully maintained.

The idea that money rests on belief makes some people uncomfortable. There’s a popular assumption that money emerged, in some dimly imagined past, out of barter — that it was just a more precise means to make direct exchanges. Mainstream economists still trot out this explanation, although anthropologists such as David Graeber have shown that there is little evidence for it. It’s a reassuring myth, one that obscures the deep difference between barter and monetary exchange. In the former, nothing is left unresolved and no faith is required. It’s a closed circuit, a like-for-like swap. By contrast, money transactions are never closed; you pass on an abstract, faith-based claim in exchange for a tangible good. At any given moment, the economy consists of only a limited number of actual goods and services, which people attempt to claim with money. If there are too many claims floating about, then the underlying value allocated to each one must decrease. This is what we call inflation, and it is a source of permanent anxiety in monetary communities. Which brings us to our first major psychological lever for maintaining faith in money: how the money is created.

Banknotes in the early 19th-century US often used to trade at a discount to metal coins. People distrusted them, and the ability of those who controlled their production to make as many as they wanted; there was something comforting about the hard metallic certainty of coins and their obvious connection to scarce metals. Remnants of this mentality are still found in ‘goldbugs’ and ‘sound money’ advocates, people who think that gold and other precious metals have an intrinsic value lacking in government-backed electronic or paper money. When central banks issue more money (which commercial banks subsequently amplify via fractional reserve banking), the goldbugs shout: ‘Can’t you all see that government money is madness! Run to gold!’

It’s the dissidents who seem mad, while the people swapping useful goods for bits of metal, paper or meaningless electronic data look perfectly sane

But gold is no more intrinsically valuable than official government money. It fails the desert island test of value: would you want it if you were stranded alone somewhere remote? All it really has is beauty and scarcity, plus an ancient cultural link with the idea of currency. Gold reveals the basic tension in the textbook definition of money — the idea that it can be both a store of value and a means of exchange. For the most part, when something is truly valuable in itself, people are disinclined to part with it (why swap rum for something else when you can just drink it?). The monetary enchantment appears to work best when its tokens merely appear valuable, while containing no true value. That’s how you convince people both to accept them and to give them away, rather than consuming them.

And so the second trick to making money believable depends on how it appears. The British Museum is full of the kind of shiny trinkets with which vainglorious monarchs liked to parade around — a whole aspirational structure imprinted into useless metals and cowrie shells. Seashells and golden baubles like these are excellently suited for widespread exchange: you might not be able to do much with them, but they’re easy enough to keep and powerful people appear to collect them, which is good enough for most of us. Do such artefacts ‘store’ value? Of course not. That’s just a socially sanctioned pretence, a pragmatic, covert, wink-wink, let’s-not-talk-about-this charade. Nevertheless, over time, the fantasy becomes such a deep habit that no one person can stand up and point out the absurdity of the situation. At that point, it’s the dissidents who seem mad, while the people swapping useful goods for bits of metal, paper or meaningless electronic data look perfectly sane.

This gives us our third major psychological prop to the monetary faith: what are the sanctions for not using it? If enough people believe in it, you will lose out if you don’t follow suit. Similar network effects arise with social platforms such as Facebook — in theory, you can opt out, but only if you don’t mind the penalty of social exclusion. What’s more, when integrated into a national legal system and backed by the threat of violence, the sanctions for dissent become rather persuasive. At the unsubtle end of the spectrum, the monarch may simply throw you in jail for not using her preferred currency.

Still, as the government of Zimbabwe learnt the hard way, you cannot order people to believe in money if the underlying story isn’t convincing enough. In 2008, cultural belief in the Zimbabwe dollar began to evaporate (a process euphemistically known as ‘hyperinflation’). The underlying economic activity in the country — based largely on agriculture — was falling into disarray. Despite strenuous attempts at coercion, the government was eventually forced to turn to ‘hard’ foreign currencies, more convincingly backed by robust economies. By 2009, the process of disenchantment was complete: the Zimbabwe dollar was dead. A newspaper called The Zimbabwean started running ads printed on the old notes, saying: ‘It’s cheaper to print this on money than paper.’

Money is a complex cultural technology. Sometimes it breaks down, but that just gives us all the more reason to tinker with its blueprints. Each new system, though, will have its own psychological side effects and trade-offs. We know what mainstream currencies such as the US dollar are good for: overcoming barriers between buyers and sellers who don’t particularly know or trust each other. The trouble is, by reducing the need for personal trust relationships, mainstream money encourages social atomisation, to the point where arms-length purchasing starts to seem like the only valid kind of transaction. Look at the obsession economists have with measuring gross domestic product in monetary terms. GDP is supposed to reflect what is created in society, but if my grandad builds me a table in his workshop, it’s not included in GDP, and if I buy a table in Ikea, it is. The former is not considered valid production, whereas the latter is. That is arbitrary, and obviously something has gone wrong.

The problem might be that mainstream money is simply too efficient. It numbs people into forgetting that it’s a socially pragmatic delusion, and so we take it for granted, just as we take oxygen for granted. But oxygen is vital for our survival, whereas money is only an intermediary tool, cushioning us from the base-level economic production that actually sustains us. There’s an ecological dimension to this, of course, which is my overriding concern. Our ability to exchange without knowing where things come from blinds us to the real core of the economy: not money, but the physical things we must wrench from the ground by human effort, which is underpinned by agricultural systems, and energised by sunlight, water and soil.

The more we abstract and fetishise money as a thing in itself, the more we lose sight of its sources and its goals. We get confused, and feel disempowered relative to those who wield larger flows of it. Sealed off from inquiry in its hermetic shell, money distorts our perceptions of one another. We can’t seem to remember that it is merely one means of exchange among many. What energies would we unleash if we were to break open that opaque shell and split the monetary atom?”