The post The Pandemic as a Catalyst for Institutional Innovation appeared first on P2P Foundation.

Michel Bauwens believes that because societies are complex adaptive systems, the only way to move towards a new, stable system is through a chaotic transition. The current pandemic shock will serve as a wake-up call, exposing the fallacies of our current systems. What we need forward are strong commons-based institutions that can provide a complimentary, counter-balance to powerful nation-states and existing multilateral organisations.

Podcast notes

In this with Michel Bauwens, we explore both the epistemological and political/regulatory layers of the transition from the “old” to the “new” ways of organising society. We dig into concepts like “trans-national institutions” and explore the changes we could expect in both regional and international governance of the economy and society.

Michel Bauwens is founder and director of the P2P Foundation, research director of CommonsTransition.org (a platform for policy development aimed toward a society of the Commons) and a founding member of the Commons Strategies Group.

Michel is a real lighthouse when it comes to collaborative, commons-based production models and works tirelessly since more than a decade in collaboration with a global group of researchers in the exploration of peer production, governance, and property.

Here are some important links from the conversation:

> Michel Bauwens, Corona and the Commons http://liminal.news.greenhostpreview.nl/2020/03/23/corona-and-the-commons/

> Michel Bauwens and Jose Raomos, “The pulsation of the commons: The temporal context for the cosmo-local transition” (Draft), https://docs.google.com/document/d/1sHhuecKxfB8HRH8o9aOfdlKNqaPQ8lc91502FXXv8e4/edit#heading=h.99i7fcsrn7tf

> Bologna regulation for the care and regeneration of the urban commons, https://wiki.p2pfoundation.net/Bologna_Regulation_for_the_Care_and_Regeneration_of_Urban_Commons

> P2P Accounting for Planetary Survival — Commons Transition, https://commonstransition.org/p2p-accounting-for-planetary-survival/

> REPORTING 3.0, https://reporting3.org/

> Robert I. Moore (2000), The First European Revolution: 970–1215, https://www.goodreads.com/book/show/712195.The_First_European_Revolution

> Bernard A. Lietaer, The Mystery of Money, https://www.goodreads.com/book/show/8198838-the-mystery-of-money

> Material flow accounting, https://en.wikipedia.org/wiki/Material_flow_accounting

> Resources, events, agents (accounting model), https://en.wikipedia.org/wiki/Resources,_events,_agents_(accounting_model)

> David Ronfeldt, Tribes, Institutions, Markets and Networks, https://www.rand.org/content/dam/rand/pubs/papers/2005/P7967.pdf

> Jamie Wheal in Rebel Wisdom: War on Sensemaking 3, the Infinite Game, https://youtu.be/mQstRd7opv4

> French land trust “Terre des Liens”, https://terredeliens.org/

> Bernard Stiegler, The Neganthropocene, https://www.goodreads.com/book/show/40203892-the-neganthropocene

Key insights

1. There are two main layers of the transition from the “old” to the “new”: Epistemological and Political/Regulatory:

– The epistemological layer needs a new educational approach, since the current one is largely reductionist and rooted in the “old” system.

– The political and regulatory space need stronger commons-based institutions and governance protocols, where the nation state becomes a “partner state” and you have a public commons protocol, like for example in the Bologna regulation for the care and regeneration of the urban commons in Italy.

– We will also see the emergence of trans-national institutions that connect local constituencies globally and virtually and which are able to protect planetary boundaries.

2. We’re moving towards a mutation of consciousness where Western countries are increasingly questioning modernity/progress paradigm, while many Asian countries still think they can get capitalism right (modernity-nature). Nonetheless, the fact that we’re currently consuming five times our planetary resources to maintain the capitalist economic model might indicate that we’re moving towards a next “pulsation”, or regenerative reaction, to a period of unsustainable extraction.

3. There’s a need of coherence driving decision-making mainly based on accounting using energy flows, which go beyond double-entry accounting — creating winners and losers — making transparent the three-dimensional, real impact of activities.

 Boundaryless Conversations Podcast is about exploring the future of large scale organising by leveraging on technology, network effects and shaping narratives. We explore how platforms can help us play with a world in turmoil, change, and transformation: a world that is at the same time more interconnected and interdependent than ever but also more conflictual and rivalrous.

This podcast is also available on Apple Podcasts, Spotify, Google Podcasts, Soundcloud, Stitcher, CastBox, RadioPublic, and other major podcasting platforms.

Transcript

This episode is hosted by Boundaryless Conversation Podcast host Simone Cicero with co-host, Stina Heikkilä.

The following is a semi-automatically generated transcript which has not been thoroughly revised by the podcast host or by the guest. Please check with us before using any quotations from this transcript. Thank you.

Simone Cicero:
Michel, is such a pleasure to have you on this podcast! We know each other I think from, you know, the early 2010s, probably something like that. So it’s almost 10 years, maybe more. And, you know, when we started this podcast, we really wanted to have the conversation on the on the commons and P2P commons based production into this conversation into this podcast. And, you know, as you know, I am also personally very much passionate about this idea of open source, for example, and open collaboration, based on the commons. So my question for you as a starting point, say to explore the world of P2P commons based production is is much more related to try to understand with you why this is not as big a deal as it should be, you know. And so, what are the structural issues that, as for your understanding, are harnessing the further development of these paradigms in the world?

Michel Bauwens:
Right. Well, I guess to start with, I’d like to basically maybe even challenge what you just said. Because, you know, you have to remember where it came from right, where basically we just had open source movements in the early 2000s. Now we have urban commons — and I did a study in Ghent which show the tenfold increase in urban commons from 50 to 500 in just one city — that’s one thing. Then we have the makerspaces, the fab labs and something that’s called a multi factory. There’s about 120 of them in Europe right now already and this is like real production, where craftspeople mutualise their you know, production in a common space using open source principles. And also, I would like to say that there’s already a lot more political expression of this, right, there is the regulation in Italy in 250 different cities, there is a whole plank of activity in France around the municipal elections, and you know, with a real commons political program at the local level. So, of course, we’re not where we want to be, but I just want to stress that we also have been growing at the same time. So I just want to make sure that that is said.

Simone Cicero:
For sure.

Michel Bauwens:
Yeah, yeah. But so I, you know, I think of course one of the issues and that’s one of the statements we wanted to discuss is, is about the value regime, right? So my analysis is that we live in a world that only recognizes extracted value. So in other words, in order to create value, you either work with people or with natural resources and you extract a surplus. And that surplus is translated in financial wealth. And then we are going to do philanthropy or we’re going to do taxation. And so we’re doing redistribution. And this, this has a number of paradoxical effects. And one of the profound effects is that if you do generative work, if you do care work, you don’t get funded unless you get this redistributive money. So a typical example would be, you have in France a community land trust called Terre des Liens. They have 775 million Euro in capital and you know, they buy land from the markets and put it in a trust and then they give cheap rent and ecological contracts with organic farmers. They have already in 2016 published a report showing that the fact that they don’t use toxic pesticides in their form of agriculture means that they’re saving the French state 300 million euros per year. So that’s, you know, amount of money in water pollution, depollution that is not spent, because they do this generative activity. And I hope you can see the problem there. Right. So if you’re a farmer, and you’re destroying your soil year after year, and some studies say there’s like 60 harvests left in Western Europe, you know, if we continue with this, de-substantiation of minerals in our soils. You’re going to be basically getting, you know, billions in European funding from the agriculture program, but if you’re an organic farmer you’re not going to get this. So I want to say this is important because the common in some ways and an alternative to capital, but you still need capital. So capital privatizes the commons, that’s how capitalism emerged. And so what people are doing right now, I would say is using the commons as an alternative to capital because they don’t have capital. Right? So if you don’t have capital, then you’re going to use mutualization as an alternative. This combined idle sourcing, combined many, many, many small contributions to try to, to get at a substantial amount of infrastructure. And so, why is this important because as long as the current system works, as long as the extractive system works even if it is destructive, it kind of creates a structural situation where generative activity is marginalized. And this is just, you know, a fact of life. Right? And now, if you agree with me — or maybe don’t agree with me — that we are reaching a point of no return in the current system. In other words, continued extraction at this scale, an overuse of the planetary resources at this scale, creates resource issues, creates future problems with food and water, creates climate change and — as we see nowadays — creates a huge issue around pandemic distribution. So, I would say that it might be that the time you know before these alternatives, you know, become more important is not so far away as we think. Now, so the first argument would be around structural weaknesses for me is the value regime, right? In which value regime are we operating? And what is it favoring? And what is it de-favoring?The second issue, though, I think, is that we live in a hybrid economy, in a hybrid society. So we have different ways of exchanging value. We have the pricing system, which you know, only is dominant for the last two centuries. It wasn’t before; it was a it was itself marginal until two centuries ago. You know, we have maybe 10% people in the cities and 90% people in the countryside were almost not affected by the pricing system. We have the gift economy, which is, I think, quite marginal. Then we have commoning, which is working on a shared resource, and then we have redistribution. So those are four different ways of exchanging value. And I think one of the critiques you know, like self-critique we could make of the commons movement is the idea that it’s a, it’s a totalistic alternative, right? So what I would argue differently is that the commons on its own is not sufficient, just as the market on its own is not efficient, sufficient. And the states on its own is not efficient. Even more so, I would argue that believing this is a form of totalitarianism, so you’d have fascism and communism as an absolutism of the state. We have a bit of right wing libertarianism and neoliberalism as a absolutism of the market. We also could have commonism as some kind of absolutism of you know, of horizontality. And so I think it’s much more fruitful to think of combinations. In other words, if you’re a market player, you could start thinking, you know, how can we use the commons. And actually, of course, we see that capitalists actually doing that, right. I mean, all the new — the things you do with your platforms and, you know, normally most of the platforms are capitalistic, what I call net article platforms — that’s exactly what they do. And they have become commons extracting economic systems. They directly,you know, get value from cooperating humans, right? So if you look at Uber, Airbnb, they no longer just hire people to produce, they actually let us exchange and then they get taxed from our exchanges, broadly speaking. So capitalism is certainly doing that. And so what I’ve been suggesting for the last 10 years is that commoners should do the same. One of the historical theories about capitalism is that it emerged in Europe because we had, you know, medieval cities, free medieval cities where the merchant guilds had autonomy, which didn’t happen in any other region in the world, because always the market forces were subsumed and dominated by the Empires and the Royal, the monarchic forces. But in Europe, we had a distributed system, fragmented system, of power in the Middle Ages and that allowed the merchant classes to slowly create a world that worked for them. And so basically, what I’ve been suggesting is that commoners should do the same; that we should be thinking not about, you know, doing on our own 100% pure way, but we should be thinking: what kind of markets work for commoners? What kind of state form works for the commons?

Simone Cicero:
Yeah, that’s, sorry I’m interrupting you, but I want to bring you some first reflection that reconnects with some older interviews that we’ve been recording the last few days. So, for example, when you say that the commons doesn’t need to be totalistic, you know, not approach that somehow like we need to do it alone outside of the society of markets, but more something that can appear on top of existing markets. It reminds me about David Ronfeld’s tribes, institutions, markets and networks. So this idea that essentially they evolve on top of each other and this is something that we also had the chance to discuss quickly with John Robb a few few days ago. And if I connect with your remarks at the start, that it’s a value issue and also you say, you know, as long as we have extracted value, it’s hard to imagine that, you know, something different comes up as long as society somehow praises this kind of extractive approach. And this is really interesting, I think. I mean, when you say for example, care work is not funded, it makes me think about Bernard Stiegler’s Neganthropocene idea, that care needs to become central. And, and so somehow this brings us this reflection that if we don’t see more commons based production, you may also be an epistemological problem. We may also be dealing with to this idea of, you know, as Heidegger’s said we face the world as standing reserve that we just want to consume or basically we just can think about consuming. So it’s these big, these huge epistemological issues related to science and rationalism. And so this is one of the big issues. And on the other hand, that is a political issue. Because when you say, you know, basically, if this information needs to come on top of existing institutions and markets, it means that we need to take it politically, we need to have a political discussion on how we run our markets and what kind of production we, I would say we encourage with our policies. So there are these two topics. And you also mentioned the point of no return so at some point, we were going to figure it out that if it doesn’t change, we’re gonna have very hard times and we are already living through hard times. You mentioned the pandemic. It’s crazy, today we are all three of us at some level of lockdown, you know, you’re locked down in a room because you’re finishing your quarantine, and me and Stina we’re locked in our houses in Paris and Rome. So I feel like the point of no returning somehow is already here, for some reasons, but so the question is: how do you see that happening? Is the epistemological transformation really key? And is this aspect of cosmology and integrating the technology and the cosmological vision as we are seeing for example in China somehow, something needed? Is it something that you see happening? How do you see that unlocking? Is it a political procedure? Epistemological? That sort of thing.

Michel Bauwens:
Let me give you some examples. So I just finished writing an essay, which I really happy about is called “The pulsation of the commons”. And so I’ve been looking at different schools of thought like biophysical economics and cliodynamics, which is a historical school, and the cognitive cycles and the movement of Karl Polanyi. And they all come to a very similar conclusion, which is basically saying that history moves In waves, in pulsating pulsation, so you have extractive moments in history and then you have regenerative reactions, and typically for regenerative reaction is the revival of the components. So in, you know, 10th century 11th century Europe in 12th century Japan in 15th century China, what you see is that the extractive regime has done so much damage that there is a huge popular revolt that in that time takes on a religious and spiritual language. And so, basically, you know, we can take Japan also in the 16th century and happen again. So, you have like a completely deforested country, which will be subject to civil war and then, you know, so many people have died and then the Shogun takes power. And for three centuries, Japan has succeeded in creating it’s called the Tokugawa period, a nation that lives within its regional planetary boundaries. And it has a stable population. So it can be done right, it’s actually possible to have a civilizational form that lives within natural boundaries with a stable population. It’s been done in the past. And so that’s that’s like something that you see happening all the time. So for example, I was reading a book is called the first European revolution, it’s in 975, after the period of capitalization and you know, all these feudal lords are fighting and killing each other and raping their the women in their population and everything and stealing the gold from the churches. You have the monks and the people organizing demonstrations and within 70 years, the whole of European Society has changed. And so this kind of pulsation between extraction and regeneration is not unusual. It’s actually I would say the rule now with capitalism because of technology, because of oil, you know, we kind of thought we were out of it, right? We thought we escaped this, but this is no longer the case. We can’t escape it. We, you know, we use four or five planets, use five times more resources than the earth can regenerate. We have climate change. So basically, I believe we have now reached that point on a global scale. Now there is a difference between Asia and Europe, in Asia, in Europe, we already have at least one third of the population in Europe that questions all the ideals of modernity. So there’s already kind of a mutation in consciousness, I would say. In Asia, they are still much more believing in the system, and they think finally they can get there. So they, so that I would say that the the majority of the people in Asia believe in capitalism, and that a majority of the people in Europe are losing their faith in capitalism. And so you see all these people changing how they do health, how they do, you know, think about young people in work today. I mean, this is a real issue, where most young people cannot find meaning in a traditional job, or they they want something else, they want to live other values. So I would say in general, that we actually see mutation of consciousness. And let me end with one example because I think it’s important. So mutation in consciousness is not just a continuation of the old. So when we have the Christians coming after the Roman Empire, in the Roman Empire workers or slave work is something bad, is something that a free person doesn’t have to do. But in the Christian world, in a feudal world, Ora Labora, so you have to pray and work at the same time. So actually working is transforming the world, is making the world a better and more divine place. So that’s a complete complete shift in consciousness. And I think today, a lot of people want to care for the earth, want to be at the surface of the planet. And the system hasn’t yet changed to make that possible. But I think the desire is already there.

Simone Cicero:
So we can say maybe that, for your understanding, we are witnessing this epistemological change. So maybe it’s the time to see how it plays out to the political level?

Michel Bauwens:
Well, it plays out I think at the moment, first of all, with a total lack of trust in the institutions, right. 20 years ago, 70% of people were saying, I trust politicians, I trust doctors, I trust hospitals. Today’s more like 17%. So they, I think the majority of the people do not see it, have not a clear vision of the alternative. But they already have a clear vision of what they reject. And you probably remember this quote from Gramsci where it says the old system is dying but is not dead yet and a new system is being born but it’s not born yet, so it’s a time of monsters. You know, citation like that and he was living in the same moment we are living now because at the moment he was living is you had in the 19th century had Smithsonian capitalism, which was a total domination of capital over labor and why workers in the 1850s were dying at 30. And, you know, World War I and World War II were a transitional periods where two new regimes — fascism and communism — were competing to offer something new because the old system wasn’t working. And then we got a huge change which was the welfare system, right. So after 1945 we have a compact between capital and labor, and it creates — at least in the western states — it creates a welfare state. Well, then the way I formulate this is that the change now is, we need a compact with nature, because the compact between capital and labor was done at the expense of nature by not recognizing externalities. And then so politically — and this is one of the terms that we wanted to discuss — is we don’t have a nation state system that’s territorial. So people live in a territory they, they like their locality. So at least some people do, they feel attached to the region, a lot of people feel attached to their nation. And then we’ve built a multilateral system that is on top of that. And that is, so we have political and economic institutions like the IMF and the World Bank, that were mediating institutions, and they’re not working anymore. They’re not working well anymore. Then we have another world, which is the word that I think you and I work with, which is a transnational trans-local world, which is where people live in virtual territories. So let’s say you do permaculture so you at some level you’re local. You’re you know, you’re doing your garden. But then when you communicate about permaculture you’re communicating with the global permaculture community. And in that world, the nation state doesn’t even exist. It’s just invisible. It’s not part of your view. Right. And so that second world for me is the word that we’re building with the commons with Knowledge Commons. And so we talk about Cosmo local, global order, which is everything that’s global is everything that’s light is global and shared and everything that’s heavy is local, which is an alternative to both neoliberal globalization which is a globalization of matter and people moving around the world all the time. We spend three times as many on transportation, I’m making things now. And then we have a world of national protectionism of “okay, let’s keep the foreigners out. Let’s do everything locally”. And so what we try to present is a third view, right, is a view of “Yes, we need to re-localize a lot of our production”. Because if you look at corona, the reason we are such a mess is that we have neoliberal just-in-time systems that are totally dependent on the weakest link and then when China you know, got in crisis, we didn’t get our medications. And there’s no supply line to create the making of ventilators and masks and so we lost every resilience that we had in terms of combating disruption anyway. So, yes, so what I’m saying is that the open source germ form shows how we can do it. We have a global cooperation of experts globally about ventilators. And then we need to find local places where we can make it. What we don’t want is to isolate ourselves, you know, from the knowledge that’s available in all of humanity.

Stina Heikkila:
Thank you. I will jump in with a question. I thought it was — you already answered to some of the questions that I had — but I was reading the other day your a piece that you wrote in Liminal on the corona and the commons. And there were some interesting remarks that you made about, you know, that for sure the systems that we have are sort of failing, like the nation state and, and the multilateral system. There’s a lack of trust that is growing but still, that things might have been even worse if we didn’t have these systems in place, because somehow they are doing their role. So I’m curious to hear about that coexistence and how you see that will pan out. What will be the frictions between the old and the new?

Michel Bauwens:
Right, so I think we have a two fold-problem: one is that we have, you know, weak, commons institutions. We don’t have strong commons institutions yet. And the other problem is that we have state forms which cannot cooperate with these commons, right? And I think Italy has given some examples of how this could be done, because after the Bologna regulation, the regulation for the care and regeneration of the urban commons, you have 250 cities which took it over and according to the calculation between 800,000 and 1 million people who are involved in these projects. So you have there already what I call a “partner state protocol”, a public commons protocol. So you have in Italian cities, a way in which citizens can do a project that can be recognized by the state and can be supported in what they call the five, the quintuple governance multi-stakeholder model. So this is a typical thing that exists in Italy but doesn’t exist in other countries yet. And I think it’s a good example of, you know, how you can smooth the cooperation between those two worlds. Because what we have now is we have all these open source communities now with all the expertise that is needed to this ventilators and valves, but we also see that the government are not ready or able to work with them. So there are several issues. And of course, one of the issues is certification regulations, which should probably be relaxed in an emergency time because even if an alternative is not 100% effective, it can still save a lot of lives that you can’t if you don’t have anything. But you know, beyond just emergency measures, what it shows us is that what is lacking today is the interface between the state and the civil society, the state and the commons. There is no interface and I think that’s a huge weakness on both sides, because right now the state would — and also maybe say that in some more theoretical ways I think the state can see territory, it cannot see flows — and so we need a partner state with which is not just the issue of, you know, being a partner with civil society and allowing civil society to be autonomous, but it’s also related to the ability of the state to see things and accept the fact that flows enrich the nation. I am not sure that beyond the neoliberal market flows, commodity flows, that people in the states and traditional politicians are actually able to see how open source and international global maker spaces can enrich a territory can enrich, you know, the wealth of a nation state. I don’t think they see that work well.

Simone Cicero:
That’s a very important point, as for my understanding because so far I think what we have been seeing in the last — you know, basically from forever — is that, you know, gradual (something that you also mentioned), this gradual integration of institutions up until we reach this supranational let’s say multinational transnational state, you know, with the UN, for example, as a way to somehow take over this role of controlling and regulating and at the same time. What you mention is that this trend basically disconnected the citizen from the policymakers and from the regulation, regulatory process itself. On the other hand, maybe it’s a good idea to borrow Daniel Schmactenberger’s considerations on on the fact that when you have this huge power growing at the edge of the system, so where basically every nation state -but within time I would say every individual — has technological potential to create such a big harm and often coupled with Guerilla like, you know, basically biological warfare or like we said, you know, we’ve witnessed that with the drone attacks to the Saudi plants, you know.

Michel Bauwens:
Yeah, that was amazing, yes.

Simone Cicero:
So the question is, when these two trends, let’s say generate friction between each other so that they need to to scale our need for a coherent regulation for example, at a multinational transnational level, and at the other hand, we have this need to probably go back into a more indigenous and local context of of creating wealth and managing the commons. Are we left with some kind of, you know, conundrum that we cannot solve?

Michel Bauwens:
Yeah, okay. I you know, I won’t imply that it’s easy, but so let’s take the example with corona. So we can criticize the state and there were many failures and everything. But imagine that there is no state, then, you know, in the US, you would have every state out of the 50 states will be competing with each other. They wouldn’t take into account each other. One city would do social isolation and the other wouldn’t. I mean, that’s not acceptable either, right? There are some challenges that do require transnational frameworks. And in some way, you could say that the nation state system already works that way. And that’s not so bad. So the fact of the WHO, you know, was able to advise, and it’s an international organization. And it is followed by a lot of states. But it’s an international expression, right. And I want to say something else, which is that the regime that we are living with is, you know, it’s weak multilateralism, and it’s only economic and political. So the IMF, the World Bank, the United Nations, and they are mediating institutions to keep the peace because before World War II, they didn’t have them. And so they thought “We want to keep the peace we need these mediating institutions”. Now, one mediating institution that I know we need right now is actually some institution that could protect planetary boundaries. And I’ve done a report last summer called p2p accounting for planetary, was again, “p2p accounting for planetary survival”. And the theme is that we need accounting tools — share the accounting tools — that enable us to see the world differently. And that allows us to see externalities. And of course, they are not externalities, but the economy — our current economy — sees these things as externalities. So the thing is the economy is the center and then these marginal things on the outside, but actually the planet is primary. And we know we are guests. So we are actually at the edges in a certain way. And so that kind of reversal of perspective, I think needs to be institutionally validated. And so one project that I really like and I think is totally on the mark is called Reporting 3.0. And one of their proposals is called the Global thresholds and allocations Council. This is a form of, they call it multi capital accounting. So you don’t financialized but we have to see the metron energy flows in our systems. And so what they propose is basically that this group of scientists and experts, the global thresholds and locations Council, would be in charge of setting the limits in which states and individuals and companies and coops can operate right, because your freedom stops where you endanger the life of another. I think international is not good enough because if let’s take the human rights issue, right, we you have the UN Human Rights Council, but then there’s China and Saudi Arabia are members. And now human rights are very important, but it only affects some people, but the planetary survival affects everyone. And so this is sort of a vision I have is to have this to have globally shared accounting platforms, and shared supply chains where we can actually do Stigmergy, right. And that’s that I would say it’s an institution of the open source movement that works very well in free software. And once we have accounting, we can also apply it to production. That’s a huge, huge shift in perspective.

Simone Cicero:
Can you add a little Michel, on how would you see Stigmergy playing out in progress?

Michel Bauwens:
Yes, so if we move to open collaborative systems — and I think the blockchain systems are already that right — so that means like open source, everybody can come in and can leave at any time. So there is no single company that integrates the whole system that dominates our system. It’s an ecosystem. And it’s an open ecosystem. So what we see in these ecosystems is sort of all contributive accounting, which is practiced by different open source systems, which is where you can recognize non market generated activity as having its own value. So if you look at human history, and Bernard Lietaer talks about this in his book, The mystery of money: it talks about Yin and Yang money, male and female, warm and cold currencies. So now we only have cold currencies, extractive currency, he says we need to go back to the double system, which we had until the Middle Ages in the 14th century, which is we need warm currencies, which recognize non market generative care activities. So for example, in Indonesia you have money systems which regulates the watershed: people are paid to care for the watershed, and they can use that currency. So in the system that Reporting 3.0 proposes — this is more like a thermodynamic accounting systems — but again, it’s an open system everybody can see. So the theory is the following: in order to be in a steady state economy, so an economy that keeps the level of resources for the next generations, we cannot grow more than 1% a year otherwise it’s exponential. So basically, you calculate, you know, like the all the chemical elements of the table of Mendeleev. And that already exists. You can find it online. The American Chemical Association follows the flows of matter in these different elements. And so you’d have a commission of experts that would follow this, you know, how much copper is there, how much copper do we expect to find every year? What is the bio-circularity of copper? 70%. Every time you use copper, you re-use it, you can only use 70% of the copper. And that gives you boundaries, right? And within these boundaries, you’re free, but you cannot cross those boundaries. And stigmergy is that if I, let’s say I make shoes and I need leather. I can see all the other leather producers as well. So I can adapt in real time my behavior to the behavior of the ecosystem. And so there is another kind of accounting it’s called flow accounting. REA (resources, events agents), which no longer has double entry, and this is an important point. So if you use double entry accounting, you only see what is coming in and out of your own entity. And it’s a narcissistic accounting because the ecosystem doesn’t exist for you. Once you have flow accounting or REA accounting, you see the whole 3D ecosystem. You see every transaction, how it fits in the 3D ecosystem. Now, I want to go one step further, if you don’t mind. Because what we want to avoid is eco-fascism, right, a kind of planned economy where everybody is rationed. So here’s a potential solution to this. Let’s say you want to decarbonize and what we do now in the neoliberal economy is to do everything with competitive bidding. Competitive Bidding is anti-holistic because you win the competition by externalizing as much as you can. So you solve one problem, but you create anothers. In order to win, you have to be really reductionist. If you do a circular finance, let me explain what that means. You create a public ledger, that public ledger allows every citizens every collective to have its decarbonisation efforts to be verified. So you have it verified, you have been tokenized. And it either through taxation, or through contributions, those who profit from that positive externality, you fund these tokens and you create a circle. It can be very easy. I’ll give you an example Belgium, a small city — 20% of the kids used a bicycle. So it creates pollution because, you know, 80% cars. You create traffic accidents, noise, everything. SO “okay let’s pay these kids mileage mileage based currency” — I forgot the name but, you know, it exists in Bonheiden — they let them then use that currency in the circular economy, the local circular economy, so recycle makerspaces, Fab Labs. So, now they went to 60%. So considering cycling generative as compared to the extractive effects of cars and you recognize it creates value, so you have a priority but you leave people free to choose how they’re going to do it. You know, to use their creativity in answering those societal challenges. I hope that makes sense.

Simone Cicero:
No, it makes a lot of sense. And I think maybe my last question for this conversation today, or my last reflection that I want to offer — and maybe Stina wants to add more — but, you know, every time that we talk about for example, this moving out of competitive bidding into circular finance, and we speak about, you know, the need for institutional enforcement, you know, multinational institutions to enforce these regulations, which is of course, very meaningful — I find it very meaningful — but, you know, for example you will have witnessed that in the last few weeks, there were lots of people talking about how corrupt is the World Health Organization. So, there is this issue — I’m not saying that — but I’m saying that a lot of people are saying, you know, these are corrupt institutions not telling us for example, that masks are useful, you know, because they don’t want to make us, you know, freak out or something like that. So, in general, I think the question on potentially dealing with the corruption of the institutions, and in general the scarce capability to work, because of the complexity of the matter that they regulate. It is something that should make us think about, you know, what is the other route? And when I was talking with John Robb — we were talking with John Robb a few days ago — he made a reflection with us, basically saying “I want to be able to connect with the global system on my own terms”. If I am, you know, creating a local system — for example, caring about my resilience — I can connect with me on my own terms. And this is quite different as an approach or an epistemological political approach, you know, either we end up with these multinational institutions that everybody trusts, which is I believe a very difficult, you know, a very improbable outcome, or we may end up with these local institutions that connect with, connect between each other on their local own terms. So, maybe these connections that we are going to create, these multinational inter-networks and connections are more like you know, gonna be produced as tools.

Michel Bauwens:
Yeah, yeah, I think this is the thing that, you know, fundamentally libertarian people like John Robbs don’t get. This is actually the core of what I’m trying to tell you, that you have the two: we are living through physical bodies, and we live in a territory. And that territory is not just a local, it’s no, it’s a historically evolved situation where the communities that were destroyed by capitalism became the imagined community of the nation states. And we shouldn’t underestimate the attachment of most people to this identity, right? And we see, actually today that forces that represent the revival of the nation state are winning. They’re not losing, they’re winning. And the people who, you know, usually on the left who don’t feel this identity with a nation state, they’re losing. And then on the other hand, you have the libertarian view, right? And it’s all about networks iner-connecting networks. And I think what is missing is that the nation state is a very contradictory institution, but it also represents a “common good” institution. It’s a social contract between different parts of the population. Because what you have in the virtual world is just the same. You know, it’s not an ideal place. It’s a place with hackers — you know, I mean bad hackers now — the kind of people who steal your credit cards and stuff. So, it’s the interaction between the two, right? So we need strong, commons institution. I’m trying to give you a few examples of what I see as potential new commons institutions. And then we need to work on the interrelationship between both. Because for example, you talk about WHO, you say they’re corrupt. Why are they corrupt? They are corrupt because they are international. So Western countries don’t have enough masks. So they want to preserve the masks for the doctors and the hospital systems. So they have an interest in not pushing masks. In Asia where everybody has masks, the information we get is that masks work. In Belgium, I’m getting information that masks don’t work. I checked it: masks actually work. But the corruption of the WHO is because the nation states are the only agents that have power there. So they’re gonna negotiate. And there’s a nice term, it’s called “super competent democracy”. And so I think we need more independence for the trans-national expertise as a way of counter balancing the, you know, the corrupt selfish power of nation states. But we can’t have a completely new system that ignores nation state when the nation state is still dominant and powerful. Does that make sense?

Simone Cicero:
Totally, totally. I think one insight that I’m driving from this conversation is that we probably need to care about the local and indigenous regional, you know, many, many terms we are using to describe these systems where we as citizens, we can be more actively engaged in producing on top of the commons. But we also need to care about these interrelationships, inter-relational institutions that need to connect these nodes. That’s the part that I’m more concerned about, you know.

Michel Bauwens:
Yeah, that’s what we’re missing and, you know, we had it in the Middle Ages and was called the Catholic Church. Right? This was an institution that existed in parallel with the regional powers that was organized on a European scale. And so it could identify with, let’s say the interests of Western civilization, not just, you know, not just a local perspective of the regional Lord

Simone Cicero:
Good point

Stina Heikkila:
This links well into the question that I had also because earlier you spoke about this mutation of consciousness that we can start to somehow see emerging, where people are tired of this endless capitalism that is destroying the planet. So I see the link between what you mentioned in terms of this kind of radical transparency, where you would be able to basically see the impact in real time of a decision, right? So what is the cultural shift in that mutation of consciousness? Like how could we nurture citizens who could, you know, look for the right kind of choices?

Michel Bauwens:
Well, I think it should start probably in school because right now, the modern school is an agent of alienation. You know, so we decided in the 16th century in Europe, that the body was separate from the mind that the human was separate from nature. And all our institutions reinforce this. So that’s what you learn in school. You know, you learn all the abstract knowledge. But you don’t know anything about cleaning your room and about growing stuff. And for example, if you live in a country like Thailand, you’d see that all the children of the farmers don’t want to be farmers anymore. Right? So there’s a complete break between tradition and the relationship to the land, local, and then when they go to the school, it’s all about the nation state and science and engineering and you know, all good stuff. But you know what I’m trying to say, right? So I saw this documentary — I’m sorry, I don’t remember the name of the city, but it’s in Finland, I believe, in northern Finland — and it’s the first carbon positive city in the world. And what you see there is that the children are involved in this. So the children think about heating, they think about eco, they think about organizing the school in a way that, you know, it doesn’t use so much energy. So they started building like, how to say, a warming system that works on the floor. And so the kids are inventing all kinds of things. And so they are really growing up with a different kind of consciousness. So I think that, you know, that a large part of the answer is generational. At some point, we’re going to have to educate our children in entirely different ways than ways we were educated. You know, we’re largely lost already, in a way, because we’re so used to consumption and to all these separations. So even if we are ideologically sympathetic to these innovations, to be honest, in our daily lives, very few of us are actually living differently. And so, you know, changing our mind is the first step but to actually change the whole body-mind has to be mobilized. And I think this is something — you have to do some kind of programming of a worldview — and that has to be done very early.

Simone Cicero:
Well, Michel, I think we covered a lot of ground in this conversation. So I’m happy to offer a little bit of a reflection to wrap it up. I think we’re witnessing again and again, the fact that it’s a generational issue, it’s an educational one. And it looks — I don’t want to say that it looks like we understand what needs to be done — but somehow, more and more we understand that aspects of the current system need to change. We need to re-embed most of our economy to our region on a local scale. We need to, you know, develop these regulations and we need to change the educational system, but sometimes it looks like — or at least it was — you know, a trajectory where it was very hard to stop for a moment and to rethink, you know, the new systems. And, you know, sometimes — I was afraid to say that — but sometimes when I see that the systems are recovering, rebounding after the corona first hit, first wave, I’m thinking, you know, maybe in the future we’ll miss the corona times, where we had to stay at home.

Michel Bauwens:
So we can reset our thinking, right?

Simone Cicero:
Exactly and like, my question is, are we doing it or not?

Michel Bauwens:
Yeah, I think we’re doing it. So here’s the way for me to see it: you have a stable system and the only way to go to a new stable system is through a chaotic transition because societies are complex adaptive systems. So we are ready since 2008 in the chaotic transition. And then what we need is you know, pedagogical catastrophes. We are going to learn because we are going to be shocked. And corona is the first shock, the first true shock — maybe the second if you count 2008 — but corona is a wake up call, and I think that it will have long term effects. I think it is, you know, we’ll try to go back to normal in some way. But I think in many ways people have woken up, for example, to the fact that our state systems no longer work. That you know, we don’t have ventilators, we don’t have masks. How is that possible? The most advanced Western countries are not coping with this pandemic as they should. And they lost tens of thousands of people because they were not organized in the proper way. And a lot of people will lose their income, you know, they will have to rethink their place in the world. So I think this will be a multi year shock and it will have effects but it’s not enough to have one shock. We’ll have more, but maybe this is the first one.

Simone Cicero:
Yeah, I mean, just as a closure, I think, you know, I was listening to Jamie Wheal a few days ago on a podcast and I think he said something interesting: that sometimes, you know, that there’s this conversation now around this idea of “Game B” — also this idea that we need to make transition towards a new civilization. And it’s interesting to say that, you know, parts of this new civilization are already here. And sometimes we iconise, let’s say we imagine this transition as something very different, while the reality is it’s gonna start by steps, you know, through maybe this new disruption that we are living through these days is going to push us in this direction. A little step, and then another one, and then another one. And we end up maybe in a few years with a system that is completely different. So hopefully.

Michel Bauwens:
I think that’s how it works, yes, there is no, you know, there is, okay…. So you know, I was quite unhappy as a youth and I went to therapy. And you know, I did it for about seven years, and there is not a single therapy where I felt “this is it”. And yet after seven years, I was different. You know what I mean? So, I suddenly realized that I had changed. But there was no there was no like, revolutionary moment. And I think in the West, we’re too focused on this idea of, you know, the revolution that comes from the French and the Russian revolutions. But actually, even those industrial revolutions were different in every country. And it was a religious civil war in England. It was, you know, the military class which took power in Germany. The Tsar then liberated the serfs in Russia. So it took so many different forms, right? And I think this is going to be the same. We, you know, we shouldn’t wait for this magic moment. You have all these little changes and at some time, it will feel “Wow. Now the logic is already different”.

Simone Cicero:
Yeah, maybe maybe Michel we just need to give up our tendency to try to model everything because this transition is not gonna be modelled very easily. So Michel, thanks very much. That was an amazing conversation. And really, we thank you for this and I’m sure that our listeners will have lots of food for thought. And for sure we had it, so thanks again.

Michel Bauwens:
Thank you, thank you. Thank you, Stina, as well.

The post Commons-based peer production at the edge of a chaotic transition appeared first on P2P Foundation.

All the powers of the old-world have entered into a holy alliance to exorcise this spectre: liberal States and dictators, banks and FANG, regulators and speculators.

Where is the State that hasn’t attempted to muzzle freedom of communication and information, or to expand surveillance of its own citizens? Which major online service hasn’t monetized their users’ data without their knowledge or closed user accounts without possible recourse? Which banker hasn’t publicly opposed the right of everyone to have personal and absolute ownership of one’s assets through cryptocurrencies?

Two things result from this fact:

1- Peer-to-peer is already acknowledged by all world powers to itself be a power.

2- It is high time that peer-to-peer supporters should openly, in the face of the whole world, publish their views, their aims, their tendencies; that they counter oppressive forces with their diverse and energetic initiatives. To this end, peer-to-peer contributors will assemble in Paris from the 8th to the 12th of January 2020 at the Paris P2P Festival, the first event dedicated to all forms of free interplay between peers: technical, political, cultural, social, and economic.

If we indulge in allusion to a much more famous Manifesto, it is because we believe that p2p technology projects (Bitcoin, blockchains and Web3, distributed Web and Solid, self-sovereign identities, decentralized protocols…) need to be put in perspective.

In 2019, people’s protests and social demonstrations have flooded the streets of every continent: Sudan, Chile, Hong Kong, Catalonia, Algeria, Iran, India, and of course, in France, our Gilets Jaunes. In many cases, governments reacted not only through police or military crackdown but also with censorship of electronic communication: the internet shutdown in Iran, the censorship of social networks in Hong Kong, the prohibition of decentralized identity systems in Spain… Unfortunately, it is now well-established that internet censorship effectively protects the police states that use it.

Therefore, it is no surprise that we’re seeing an increase in infringements of freedom of the press and physical attacks against those who spread information. Antoine Champagne, journalist and co-founder of reflets.info, will come to the festival to talk about the current state of the protection of journalists and whistleblowers.

Along with the cypherpunk tradition, we believe that cryptography and decentralization are essential means to protect individual and collective civil liberties. We hope that talks on the history of the cypherpunk movement and on the history of decentralization will spark conversations about this point of view among the festival participants.

Peer-to-peer technology is a concrete way to arm the resistance against oppressive powers by providing the resilient and confidential communication channels needed to coordinate social movements in hostile environments. Multiple initiatives in this domain will be presented, from the research work of the LIRIS-DRIM team (CNRS) on streaming and Web request anonymization, to Berty‘s decentralized messaging protocol, to talks and workshops on libtorrent and ZeroNet, Ethereum’s network protocol, cjdns, ZKP and identity, and homomorphic encryption.

For the general public less comfortable with the nuts and bolts of p2p cryptography, the documentary Nothing to Hide will give evidence of how mass surveillance impacts everyone and why we have come to accept it so easily. The festival will also host a show on mentalism and social engineering and a serious game which aims to help everyone learn about effective cybersecurity practices.

Bitcoin and cryptocurrencies are another branch that stems from the cypherpunk movement. Over the last few years, the importance of having a form of money that is independent from political powers and financial institutions became obvious. At first it was ignored, then it prompted only laughs and sarcasm, and finally, open hostility. Now states and mega-corporations try to compete with their own digital and centralized currencies.

Hence the necessity of articulating and educating the public about what makes decentralized currencies so special! We will tackle this challenge in many ways: a talk on Bitcoin by the founders of Cercle du Coin, a screening of the documentary Protocole with its director in attendance, workshops introducing how to use wallets and cryptocurrencies, presentations and workshops on Libre Money (Monnaie Libre), Dash, Ark…

Since the inception of Ethereum, the scope of the blockchain, this decentralized ledger which stores cryptocurrency transactions has exceeded its monetary applications. Blockchain-based Dapps, DeFi and DAOs refer to new ways to perform peer-to-peer interactions and new approaches for managing common resources in more open and less inegalitarian ways. The audience will be introduced to several programmable blockchains such as Ethereum, Holochain, Tezos, or Aeternity.

DAOs, or Decentralized Autonomous Organizations, are a way to introduce self-governed and transparent rules in place of the arbitrary exercise of centralized power in organizations. We will review the most interesting DAO initiatives such as Aragon, DAOstack and MetaCartel, with a panel, talks and two workshops: co-designing a DAO using DAOcanvas and participating in a decentralized jurisdiction with Kleros. Lessons learned with iExec and Paymium will shed light on decentralized marketplaces and exchanges, another form of decentralized and programmable entities.

But blockchains are not the only way to decentralize the internet. The Solid standard, created by Tim Berners-Lee, aims to re-decentralize the Web, which today lies under the control of a small number of global mega-firms such as Google and Facebook. In France, this standard is actively supported and extended by several teams gathered in the Digital Commons Consortium, present at the festival. They will give talks and workshops covering the Virtual Assembly and Startin’Blox.

Blockchains and distributed Web are closely associated with open source and free software, considered a type of digital commons. More generally, the question of the commons, is defined as a shared resource that is co-governed by its user community according to the community’s rules and norms and is an essential aspect of peer-to-peer networks.

The P2P Foundation, which will give one of the opening talks of the festival, claims the autonomy of the commons with respect to both the private and public sectors. An event within the festival, the Public Domain Day, organized by Wikimedia France and Creative Commons France, will invite open conversations about multiple aspects of intellectual property in the age of the commons: open science and open education, free licences and development aid, and the implications of IA and blockchain on art production. We will also screen a documentary telling the tragic story of Aaron Swartz, the freedom activist behind Creative Commons, and Hacking for the Commons, a brand new documentary about the clash between supporters of intellectual property and those who stand for open and free knowledge. Several members of the Coop des Communs will also participate, such as the Digital Commons Consortium and Open Food Network. Finally, a talk by The Commons Stack will show how blockchain, DAOs and commons can be tightly coupled.

The last major theme of the festival will be shared governance and peer collaboration, as these are critical to all the other topics mentioned above, from blockchain upgrades to management of the commons to the ability of people to act as free citizens and economic agents. We will open the festival with the Citizens’ Convention for the Climate, the first experiment of direct democracy embedded in the institutions of the French republic, as a response to the demand for real democracy expressed the Gilets Jaunes, in the context of climate emergency. The association between climate and collective intelligence will also be discussed during a talk and workshops on the Climate Collage. Tools, practices, and ideas for distributed governance and collective sense-making will be discussed and experienced with Jean-François Noubel, Open Source Politics, the Open Opale collective, and a Warm Data Lab by Matthew Schutte.

In short, peers and commoners everywhere support every revolutionary movement against the existing social and political order of things.

In all these movements, they bring to the front, as a leading question in each, the intellectual and physical property question, no matter its degree of development at the time.

Finally, they labour everywhere for a unanimous agreement on initiatives supportive of civil liberties and the construction of the commons.

Peers and commoners disdain the concealment their views and aims. They openly declare that their ends can be attained only by the overthrow of the prevalent logic of concentration of power, wealth, and information.

Free Peers of All Countries, Unite!

Lead image: Close view of Hong Kong Lennon Wall by Ceeseven under the Creative Commons Attribution-Share Alike 4.0 International license. Special thanks to Kirstin Maulding.

The post The P2P Festival in Paris: Unite the Peers appeared first on P2P Foundation.

The nightmare for the U.S. financial industry is that a technology company—whether from China or a homegrown juggernaut such as Amazon.com Inc. or Facebook Inc.—replicates the success of Alipay and WeChat in America. The stakes are enormous, potentially carving away billions of dollars in annual revenue from major banks and other firms.

That threat may now be materializing. On June 18, Facebook unveiled a white paper outlining ambitious plans to create a new global cryptocurrency called Libra, to be launched in 2020. Facebook reportedly has high hopes that Libra will become the foundation for a new financial system free of control by Wall Street power brokers and central banks.

But apparently Libra will not be competing with Visa or Mastercard. In fact, the Libra Association lists those two giants among its 28 soon-to-be founding members. Others include Paypal, Stripe, Uber, Lyft and eBay. Facebook has reportedly courted dozens of financial institutions and other tech companies to join the Libra Association, an independent foundation that will contribute capital and help govern the digital currency. Entry barriers are high, with each founding member paying a minimum of $10 million to join. This gives them one vote  (or 1% of the total vote, whichever is larger)  in the Libra Association council. Members are also entitled to a share proportionate to their investment of the dividends earned from interest on the Libra reserve—the money that users will pay to acquire the Libra currency.

Needless to say, all of this has raised some eyebrows, among both financial analysts and crypto-activists. A Zero Hedge commentator calls Libra “Facebook’s Crypto Trojan Rabbit.” An article in The Financial Times’ Alphaville calls it “Blockchain, but Without the Blocks or Chain.” Economist Nouriel Roubini concurs, tweeting:

Another Zero Hedge writer calls Libra “The Dollar’s Killer App,” which threatens “not only the power of central banks but also the government’s money monopoly itself.”

From Frying Pan to Fire?

To the crypto-anarchist community, usurping the power of central banks and governments may sound like a good thing. But handing global power to the corporate-controlled Libra Association could be a greater nightmare. So argues Facebook co-founder Chris Hughes, who writes in The Financial Times:

This currency would insert a powerful new corporate layer of monetary control between central banks and individuals. Inevitably, these companies will put their private interests — profits and influence — ahead of public ones. …

The Libra Association’s goals specifically say that [they] will encourage “decentralised forms of governance.” In other words, Libra will disrupt and weaken nation states by enabling people to move out of unstable local currencies and into a currency denominated in dollars and euros and managed by corporations. …

What Libra backers are calling ‘decentralisation’ is in truth a shift of power from developing world central banks toward multinational corporations and the US Federal Reserve and the European Central Bank.

Power will shift to the Fed and ECB because the dollar and the euro will squeeze out weaker currencies in developing countries. As seen recently in Greece, the result will be to cause their governments to lose control of their currencies and their economies.

Pros and Cons

Caitlin Long, co-founder of the Wyoming Blockchain Coalition, recently agreed that Libra was a Trojan horse but predicted it would have some beneficial effects. For one, she thought it would impose discipline on the U.S. banking system by leading to populist calls to repeal its corporate subsidies. The Fed is now paying its member banks 2.35% in risk-free interest on their excess reserves, which this year is projected to total $36 billion of corporate welfare to U.S. banks—about half the sum spent on the U.S. food stamp program. If Facebook parks its entire U.S. dollar balance at the Federal Reserve through one of its bank partners, it could earn the same rate. But Long predicted that Facebook would have to pay interest to Libra users to avoid a chorus of critics, who would loudly publicize how much money Facebook and its partners were pocketing from the interest on the money users traded for their Libra currency.

But that was before the Libra white paper came out. It reveals the profits will indeed be divvied among Facebook’s Libra partners rather than shared with users. At one time, we earned interest on our deposits in government-insured banks. With Libra, we will get no interest on our money, which will be entrusted to uninsured crypto exchanges, which are coming under increasing regulatory pressure due to lack of transparency and operational irregularities.

United Kingdom economics professor Alistair Milne points to another problem with the Libra cryptocurrency: Unlike Bitcoin, it will be a “stablecoin,” whose value will be tied to a basket of fiat currencies and short-term government securities. That means it will need the backing of real money to maintain its fixed price. If reserves do not cover withdrawals, who will be responsible for compensating Libra holders? Ideally, Milne writes, reserves would be held with the central bank; but central banks will be reluctant to support a private currency.

Long also predicts that Facebook’s cryptocurrency will be a huge honeypot of data for government officials, since every transaction will be traceable. But other reviewers see this as Libra’s most fatal flaw. Facebook has been called Big Brother, the ultimate government surveillance tool. Conspiracy theorists link it to the CIA and the U.S. Department of Defense. Facebook has already demonstrated that it is an untrustworthy manager of personal data. How then can we trust it with our money?

Why Use a Cryptocurrency at All?

Why has Facebook chosen to use a cryptocurrency rather than following WeChat and AliPay in doing a global payments network in the traditional way? Yan Meng, vice president of the Chinese Software Developer Network, says Facebook’s fragmented user base across the world leaves it with no better choice than to borrow ideas from blockchain and cryptocurrency.

“Facebook just can’t do a global payments network via traditional methods, which require applying for a license and preparing foreign exchange reserves with local banking, one market after another,” Meng said. “The advantage of WeChat and AliPay is they have already gained a significant number of users from just one giant economy that accounts for 20 percent of the world’s population.” They have no need to establish their own digital currencies, which they still regard as too risky.

Meng suspects that Facebook’s long-term ambition is to become a stateless central bank that uses Libra as a base currency. He writes, “With sufficient incentives, nodes of Facebook’s Libra network would represent Facebook to push for utility in various countries for its 2.7 billion users in business, investment, trade and financial services,” which “would help complete a full digital economy empire.”

The question is whether regulators will allow that sort of competition with the central banking system. Immediately after Facebook released its Libra cryptocurrency plan, financial regulators in Europe voiced concerns over the potential danger of Facebook running a “shadow bank.” Maxine Waters, who heads the Financial Services Committee for the U.S. House of Representatives, asked Facebook to halt its development of Libra until hearings could be held. She said:

This is like starting a bank without having to go through any steps to do it. …  We can’t allow Facebook to go to Switzerland and begin to compete with the dollar without having any regulatory regime that’s dealing with them.

A Stateless Private Central Bank or a Publicly Accountable One?

Facebook may be competing with more than the dollar. Jennifer Grygiel, assistant professor of communications at Syracuse University, writes:

[It] seems that the company is not seeking to compete with Bitcoin or other cryptocurrencies. Rather, Facebook is looking to replace the existing global financial system with an all-new setup, with Libra at its center.

At least at the moment, the Libra is being designed as a form of electronic money linked to many national currencies.That has raised fears that Libra might someday be recognized as a sovereign currency, with Facebook acting as a “shadow bank” that could compete with the central banks of countries around the world.

Long thinks Bitcoin, rather than Libra, will come out the winner in all this; but Bitcoin’s blockchain model is too slow, expensive and energy intensive to replace fiat currency as a medium of exchange on a national scale. As Josh Constine writes on TechCrunch:

[E]xisting cryptocurrencies like Bitcoin and Ethereum weren’t properly engineered to scale to be a medium of exchange. Their unanchored price was susceptible to huge and unpredictable swings, making it tough for merchants to accept as payment. And cryptocurrencies miss out on much of their potential beyond speculation unless there are enough places that will take them instead of dollars. … But with Facebook’s relationship with 7 million advertisers and 90 million small businesses plus its user experience prowess, it was well-poised to tackle this juggernaut of a problem.

For Libra to scale as a national medium of exchange, its governance had to be centralized rather than “distributed.” But Libra’s governing body is not the sort of global controller we want. Jennifer Grygiel writes:

Facebook CEO Mark Zuckerberg . . . is declaring that he wants Facebook to become a virtual nation, populated by users, powered by a self-contained economy, and headed by a CEO–Zuckerberg himself– who is not even accountable to his shareholders. . . .

In many ways the company that Mark Zuckerberg is building is beginning to look more like a Roman Empire, now with its own central bank and currency, than a corporation. The only problem is that this new nation-like platform is a controlled company and is run more like a dictatorship than a sovereign country with democratically elected leaders.

A currency intended for trade on a national—let alone international—scale needs to be not only centralized but democratized, responding to the will of the people and their elected leaders. Rather than bypassing the existing central banking structure as Facebook plans to do, several groups of economists are proposing a more egalitarian solution: nationalizing and democratizing the central bank by opening its deposit window to everyone. As explored in my latest book, “Banking on the People: Democratizing Money in the Digital Age,” these proposals could allow us all to get 2.35% on our deposits, while eliminating bank runs and banking crises, since the central bank cannot run out of funds. Profits from the public medium of exchange need to return to the public rather than enriching an unaccountable, corporate-controlled Facebook Trojan horse.

Reposted from Truthdig. Header image: Facebook CEO Mark Zuckerberg. (Mike Deeroski / Flickr)(CC BY 2.0)

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Walking down the high street of a place described as one of the UK’s most ethical towns, the first thing you notice is the absence of national chain stores and fast food outlets. Instead, you find a diverse mix of independent shops selling organic food, clothes, art, antiques and furniture, as well as cafes and restaurants and an abundance of charity shops.

This is Totnes – a small, historic market town in the south-west of England that has garnered a reputation as a thriving hub for art, music, theatre and alternative lifestyles. Noticeboards around the town advertise everything from yoga lessons to Zen meditation, together with posters for various events – including the next Extinction Rebellion non-violent direct action training session.

In many shop windows today, there are stickers which read “Totnes pound accepted here”. Sadly, after 12 years of operation, the Totnes pound will come to an end on June 30, 2019. This highly symbolic initiative inspired other local currencies including the Bristol pound and the Brixton pound, which encourage people to spend locally and keep money in the community.

But the gradual shift to a cashless society and a lack of uptake by local government agencies have ultimately led to the Totnes pound’s demise. Rob Hopkins – co-founder of community-led charity Transition Town Totnes and initiator of the local currency – thinks the Totnes pound has helped to build a sense of community and strengthened the town’s identity, with the £21 note reflecting the local sense of humour.

The impact of austerity

The Totnes pound is just one example of the kind of outside the box thinking that has kept this local community resilient in the face of austerity. Since 2010, the pressure on local authority budgets across England has been intense, with a 50% decline in central funding support. The result has been cuts to public services and less money circulating in local economies.

In Totnes – as elsewhere – there are visible signs of these trends, with the closure of local bank branches and “to let” signs on vacant shops. According to Francis Northrop, former manager of Transition Town Totnes, smaller rural communities like Totnes face difficulties because they lack the economies of scale which make cheap goods and services more accessible in big cities.

Leer más: Retail decline, in maps: England and Wales lose 43m square metres of shop space

Totnes has responded by developing a new ethical economy that puts community values at the core. The closure of the Dairy Crest factory in 2000 convinced many locals that the answer was not to wait for inward investment from big businesses outside of the town. Instead, the focus is on internal investment: harnessing community wealth to address community needs.

But unlike anti-austerity efforts seen in larger cities – such as Preston – a small town like Totnes cannot rely on anchor institutions including local government, universities or hospitals, to redirect their spending into the local economy.

Indeed, one such institution – Dartington College of Art – relocated to Falmouth in 2010 with the loss of an estimated £6m a year in local spending from 900 students and staff. Instead, Totnes has had to show it’s possible for small towns to withstand such losses, by drawing from a toolbox of different methods to build community wealth.

A new ethical economy

The response has grown from more than a decade of community trust building, since the launch of Transition Town Totnes in 2006. Initially set up to promote local resilience in the face of climate change and peak oil, Transition Town Totnes now coordinates an extensive range of local projects, and forms part of a global Transition network, with initiatives from around the world sharing knowledge and ideas.

Some of these projects focus directly on combating the effects of austerity. For example, Caring Town Totnes is a collaboration of around 80 organisations seeking to counter the impact of budget cuts on local health and social services.

Current Transition Town Totnes manager Jenny Gellatly is also working with the Common Cause Foundation to explore how it may be possible to place compassionate values at the heart of the future transformation of the town. During a recent visit for my research, she explained to me how initiatives like these promote caring for neighbours, friends and family, to help ensure that the most vulnerable people in the community get the support they need.

Other projects focus on building up the local economy and making it more self-sufficient. An important breakthrough came with the launch of the Reconomy Center, to support new enterprises and promote local investment. The centre hosts an annual Local Entrepreneur Forum to crowdfund low carbon, ethical and sustainable business projects.

A number of organisations also came together to produce a Local Economic Blueprint, which highlights the economic benefits for small independent businesses in Totnes of sourcing goods and services from other local businesses and suppliers, to ensure more money circulates in the economy.

The next critical step was the launch of the Totnes Community Development Society – a not-for-profit that raises funds and implements local development projects. It’s currently implementing the Atmos Totnes project, to transform the disused Dairy Crest site into a school for food entrepreneurs and a business incubator, with affordable housing.

In the face of severe challenges, Totnes has shown how a community can mobilise to achieve a more ethical and resilient local economy. It will be fascinating to observe how the town changes in the years ahead, and to see what the next initiative will be, to replace the Totnes pound.

Author Brendan Barrett is Specially Appointed Professor, Center for the Study of Co*Design, Osaka University

The post Demise of Totnes Pound won’t Stop this English Town Pushing Back Against Austerity appeared first on P2P Foundation.

Most of that transformation will come from the efforts of ordinary people at creating the building blocks of the successor society on the ground, and from those building blocks replicating laterally and coalescing into an ecosystem of counter-institutions that expands until it supplants the previous order.

Some of it will come from political engagement to run interference for the new society developing within the shell of the old, and pressuring the state from outside to behave in more benign ways. Some of it will come from using some parts of the state against other parts, and using the state’s own internal procedural rules to sabotage it.

Some of it will come from attempts to engage friendly forces within the belly of the beast. Individuals here and there on the inside of corporate or state institutions who are friendly to our efforts and willing to engage informally with us can pass along information and take advantage of their inside positions to nudge things in a favorable direction. As was the case with the transition from feudalism and capitalism, some organizational entities — now nominally within state bodies or corporations — will persist in a post-state and post-capitalist society, but with their character fundamentally changed along with their relationship to the surrounding system.  If you want to see some interesting examples of attempts at “belly of the beast” grantsmanship and institutional politics, take a look at the appendices to some of Paul Goodman’s books.

A great deal, I predict, will come from efforts — particularly at the local level — to transform the state in a less statelike direction: a general principle first framed by Saint-Simon as “replacing legislation over people with the administration of things,” and since recycled under a long series of labels ranging from “dissolution of the state within the social body” to “the Wikified State” to “the Partner State.” The primary examples I have in mind today are the new municipalist movements in Barcelona, Madrid, Bologna, and Jackson and the dozens and hundreds of cities replicating that model around the world, as well as particular institutional forms like community land trusts and other commons-based local economic models.

There is no “magic button” that will cause the state to instantaneously disappear, and it has currently preempted the avenues and channels (to paraphrase Paul Goodman) for carrying out many necessary social functions. So long as the state continues to be a thing, I prefer that its interventions in society and the economy take the least horrible forms possible, and that its performance of the necessary social functions it has preempted be carried out in the most humane and humanly tolerable ways possible during the period of socializing them — i.e., returning them to genuine social control by non-coercive, cooperative forms of association. I prefer that reforms of the state be Gorzian “non-reformist reforms” that lay the groundwork for further transformations, and bridge the transition to a fundamentally different society.

In dealing with cases like catastrophic climate change, where lifeboat ethics comes into play and it’s justifiable to forcibly shut down economic activities that actively endanger us, when the regulatory state has already preempted the avenues for otherwise shutting down such activities, stepping back and allowing the state  to actually do so — especially when it’s acting against entities like corporations which are abusing power and privilege granted by the state in the first place — may be the least unsatisfactory short-term option. When the state has created and actively subsidized the entire economic model that threatens the biosphere, intervening to partially curtail and reverse that model is probably the form of intervention I’m least likely to lose any sleep over.

To take a case from ten years ago as an illustration, something like Obama’s stimulus package was necessary, given the existence of corporate capitalism on the current model and its chronic crisis tendencies towards surplus capital and idle productive capacity, to prevent a Depression. So long as capitalism and the state existed, some such intervention was inevitable. Given those facts, I would prefer that the hundreds of billions of dollars in stimulus spending go towards fundamental infrastructures that would bridge the transition towards a more sustainable and less destructive model. I recall reading at the time that for $200 or $300 billion dollars — about a third or less of the total package — it would have been possible to build out the bottlenecks in the national railroad system and transfer around 80% of long-haul truck freight to trains, thereby reducing carbon emissions from long-distance shipping to a fraction of their former value. Instead, Obama elected to dole out the money to “shovel-ready” projects, which meant local infrastructure projects already promoted and approved by local real estate interests and other components of the urban Growth Machines, to promote further expansion of the ultimately doomed model of car culture, sprawl, and monoculture.

Given that massive deficit spending to avert Depression was inevitable, it would have been far less statist to simply spend money into existence interest-free along the lines suggested by Modern Monetary Theory, either by appropriation for government projects or simply depositing it into people’s checking accounts as a Citizen’s Dividend, than to finance deficit spending by the sale of interest bearing securities to rentiers. It would have been less statist to carry out quantitative easing functions by eliminating the current central banking model of authorizing banks to expand the money supply by lending it into existence at interest, and instead creating new money by simply issuing in the form of a Basic Income. It would have been better to make the bank bailout conditional on banks marking mortgages in default down to their current market value and refinancing them on more affordable terms. You get the idea.

Which brings us back to the Green New Deal.

Getting back to our earlier principle that, if the state has already entered the field, I prefer state interventions that are less shitty rather than more shitty, I would definitely prefer that tax money be spent building public transit that partially reverses or undoes a century of social engineering through state subsidies to highways and civil aviation, to interventions that continue to subsidize the further expansion of car culture.

The question is, to what extent does the Green New Deal actually do this?

Insofar as it proposes shifting public funding from the automobile-highway complex and civil aviation system to local public transit and intercity passenger rail, or reducing fossil fuel extraction and shifting to renewable energy, I think it’s about the best line of action we could possibly expect from a state given the likely realities in the near-term future.  

But there are two main structural problems with the Green New Deal as proposed by Michael Moore, Jill Stein, and Alexandria Ocasio-Cortez. First, it takes for granted most of the existing economy’s patterns of energy use and simply calls for decarbonizing actual power generation.

As an illustration of the general spirit of this approach, Alex Baca mentions a Berkeley parking garage:

It’s got “rooftop solar, electric-vehicle charging stations, and dedicated spots for car-share vehicles, rainwater capture, and water treatment features” — not to mention 720 parking spots. It cost nearly $40 million to build. At night, it positively glows. And it’s a block from the downtown Berkeley BART station.

That America’s most famous progressive city, one where nearly everything is within walking distance, spent $40 million to renovate a parking garage one block from a subway station suggests that progressive Democrats remain unwilling to seriously confront the crisis of climate change.

In fairness to Ocasio-Cortez, she does favor shifting a considerable share of public subsidies from highways to public transit. But the overall thrust of her approach is far more towards decarbonizing power generation than changing the ways we use energy.

The Green New Deal, Baca says, “has a huge blind spot.”

It doesn’t address the places Americans live. And our physical geography — where we sleep, work, shop, worship, and send our kids to play, and how we move between those places — is more foundational to a green, fair future than just about anything else. The proposal encapsulates the liberal delusion on climate change: that technology and spending can spare us the hard work of reform.

Baca points, in particular, to the car-centered urban design model — promoted by decades of social engineering by the automobile and real estate industries in conjunction with urban planners — which locates housing and work/shopping in monoculture enclaves widely separated from one another and linked by freeways. More than anything, we need to return to the kind of urban layout that prevailed before widespread car ownership: compact population centers with a mixture of residences and businesses where people can get to work and shopping by walking, wheelchair, bicycle, bus, or streetcar. And rather than just replacing internal-combustion vehicles with electric ones and coal plants with solar panels, we need to travel fewer miles and consume less power.

Baca’s focus on urban layout, as on-the-mark as it is, doesn’t go nearly far enough. Equally important is industrial organization and the need to relocalize production and change the fundamental ways that production and distribution are organized.

Because of a combination of massive subsidies to energy consumption and transportation, entry barriers that promote cartelization and enable oligopoly firms to pass on overhead from waste and inefficiency to consumers on a cost-plus basis, socialization of the cost of many material and social inputs to production, and artificial property rights like trademarks and patents that facilitate legal control over the disposal of products whose manufacture is outsourced to overseas firms, we have market areas, supply chains, and distribution chains many times larger than efficiency-maximizing levels if all costs were internalized by capitalist firms. And even when production within a plant is rationalized on a lean or just-in-time basis, the existence of continental or trans-oceanic distribution chains means that the old supply-push model of the mass production era is just swept under the rug; all the in-process inventories stacked up by the assembly lines and warehouse inventories of finished goods that characterized Sloanist production have just been shifted to warehouses on wheels and container ships.

Ultimately, what we need is a relocalized economy on the lines described by Kropotkin, Mumford, and Borsodi, which capitalizes on all the advantages offered — but ignored — by the introduction of electrically powered machinery in the Second Industrial Revolution. Namely, we need high-tech craft industry with community and neighborhood workshops using general-purpose CNC machine tools to produce for consumption within the community, frequently switching between product runs as orders come in on a just-in-time basis. This would eliminate not only a huge share of the transportation costs embedded in the current system, but additional costs associated with mass marketing in an environment where production is undertaken without regard to existing orders, and the cost of waste production (planned obsolescence, the Military-Industrial Complex, car culture and suburbanization, etc.) that is used as a remedy for idle production capacity.

Building “infrastructure” as such is not progressive. It’s only progressive when it’s compatible with things like industrial relocalization and the replacement of the car culture with compact mixed-use communities.

Second, the Green New Deal is very much an agenda for saving capitalism in the same spirit as the original New Deal. It’s an anti-deflationary program to create new outlets for surplus labor and capital and provide “jobs” for everyone, instead of directly confronting the fact that technical progress has drastically reduced the amount of labor and material inputs required to produce a high standard of living and seeing that the leisure and productivity benefits are distributed fairly.

This was central to the Green New Deal model proposed by Michael Moore several years back, and it’s central to Alexandria Ocasio-Cortez’s version.

The Wikipedia article on “Green New Deal” attributes first use of that phrase to Thomas Friedman, who envisioned it as a way to “create a whole new clean power industry to spur our economy into the 21st century.” And the creation of new “green” industries as a huge source of “jobs” has been the chief selling point of every Green New Deal proposal since. More broadly, it’s the defining theme of the whole “Progressive Capitalist” or “Green Capitalist” paradigm promoted by Warren Buffett, Bill  Gates and the like. The idea is to use new technology as a weapon against capitalism’s chronic problem of surplus capital without a profitable outlet, by enclosing it as a source of profit, and using it to create new industries and new support infrastructures that will provide a new “engine of accumulation” or “Kondratiev wave” to soak up capital for another generation or so. This creation of new industries is one of the “counteracting tendencies” to the tendency for the direct rate of profit to fall that Marx described in volume 3 of Capital.

And that’s basically the same vision promoted by Michael Moore: run those Ford and GM factories at full capacity and put millions of auto workers back to work building buses and bullet trains, and employ millions more building solar panels and wind generators. The problem is that the cheapening and ephemeralization of production technology is rendering a growing share of investment capital superfluous at such a rapid rate that building buses and trains and generators will barely put a dent in it. And in any case, a major share of existing production is waste that just needs to be ended, not run on a different power source;  while replacing necessary transportation with more environmentally friendly forms is a great idea, the fact remains that most existing transportation is also unnecessary and should be eliminated by restructuring the layout of cities and industry. The buses and bullet trains may take up the slack left by ceasing to produce cars for a few years, at most.

There is simply no way to invest enough money in producing alternative energy, trains and public transit to guarantee 40-hour-a-week jobs, get the assembly lines moving in Detroit again, and prevent the bottom from falling out of the capital markets, without enormous levels of waste production.

So to the extent that AOC and her friends want to keep oil and coal in the ground and promote decarbonization, and end America’s subsidies to car culture, I wish them well. But “green jobs guarantees,” promises of economic expansion through new “green industries,” and similar approaches aimed at prolonging the long-term survival of capitalism, are a dead end.

Where does that leave us? What do we do in the meantime?

In framing the alternatives, I start from the assumption that our primary purpose is actually building the post-capitalist society, and that our engagement or lack of engagement with the state is a secondary course of action whose main purpose is to create a more conducive, less harmful environment in which to do the building. If you want to vote strategically for the sake of damage mitigation, or try to push the state in less environmentally harmful directions, or shift its existing interventions in a more environmentally favorable direction, more power to you.

It was this kind of thing that Antonio Negri and Michael Hardt referred to, in Declaration, as part of a symbiotic strategy between the horizontalist left with its practice of building prefigurative counter-institutions, and leftist parties attempting to influence state policy. It’s fine for grassroots movements engaged in constructing a new society outside the state to throw support behind political actors who are taking specific measures to push things in the right direction, or enlist their help in running interference for us and creating a more favorable environment for the process of building the new society. But it’s absolutely vital to retain total autonomy and freedom of action, and resist being turned into the social movement auxiliary of a political party as Van Jones tried to do with Occupy, and not let leftist parties in government divert suck up all the energy and oxygen from those engaged in building counter-institutions like Syriza did to Syntagma after coming to power in Greece.

Our most important strategic focus must be on institution-building. The most important form of institution-building is at the local level, and some of it may or may not entail incidental engagement with local government.

Pressuring local government to scale back zoning laws that mandate sprawl and monoculture, and to stop actively subsidizing sprawl through below-cost extension of utilities to outlying developments, may well be fruitful. But the most productive path in local decarbonization will be the work of actually retrofitting suburbs and strip malls into mixed-use communities with diversified local economies.

These things will become a matter of necessity for survival, as the combined effect of Peak Fossil Fuel and monkeywrenching efforts aimed at keeping it in the ground make long commutes prohibitively expensive for growing numbers of people, and growing numbers at the same time are forced by rising unemployment, underemployment, and precaritization to supplement or replace their wage incomes with direct production for use in the social economy.

When it comes to strategic action to promote decarbonization, direct action to make the fossil fuel industries unprofitable and fossil fuel projects unworkable in practice are at least as important as any local “carbon free” initiatives. Physical obstruction of pipeline projects, the use of the legal system and bureaucracy to sabotage them with their own system of rules, divestment efforts, and sabotage of existing pumping stations and other vulnerable nodes, together offer great hope for making such projects increasingly risky and decreasingly attractive and hastening post-carbon transition.

And it’s the people engaged in open hardware and micro-manufacturing efforts, hackerspaces, neighborhood gardens, community currencies, community broadband projects, squats in abandoned buildings and vacant lots, community land trusts and cohousing projects, tool libraries and other genuine sharing efforts, who are actually building a society that will function on zero waste and sustainable energy.

In the end, I think it’s a mistake to put our hopes in a party or in progressive celebrities like Bernie Sanders or AOC, no matter how much better they are than more mainstream politicians. I have much more modest hopes for whatever level of political engagement with the state I choose. A political party — the Millennial wing of the Democrats, the Greens, DSA — will not be the avenue by which we create a post-state, post-capitalist society that’s worthy of the human beings who live in it. Our main goal, and most attainable one, is simply using whatever opportunistic center-left non-entity is most likely to get elected to stave off the immediate fascist onslaught and buy time. At best, in the most ideal situation — and this is at least plausible as the demographics of both the country and Democratic Party shift toward leftish Millennials — we might hope for a caretaker state that offers a somewhat less virulent social democratic model of capitalism and allows a relatively benign atmosphere for our own efforts.

But if you want to see the actual future, look at what people are building on the ground. As a character in Marge Piercy’s Woman on the Edge of Time put it, revolution, was not uniformed parties, slogans, and mass-meetings; “It’s the people who worked out the labor- and land intensive farming we do. It’s all the people who changed how people bought food, raised children, went to school… who made new unions, withheld rent, refused to go to wars, wrote and educated and made speeches.”

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Republished text from The Money Question

Modern Monetary Theory

Introduction

In the space of little more than a decade, Modern Monetary Theory has spread from a relatively small group of academics to become a mass movement for economic change.

In general terms, MMT is a macroeconomic paradigm based on an understanding of monetary and fiscal dynamics that stands in stark contrast to neoclassical, neo-Keynesian, and other mainstream approaches. It is most well known for the claim that since monetarily sovereign governments issue their own currency and determine the unit of account, there are no purely financial constraints on public spending. However, at its core is the recognition that money is a creature of public law and state authority, not private exchange, and thus monetary systems can and should be designed in ways that best further public purpose.

Most modern economies use a ‘fiat’ currency, which gains acceptance because it can be used to meet legal obligations imposed by the state, and needn’t be convertible to a physical commodity (such as gold). Such countries face no technical limit to the amount of money that can be created. Therefore, there are no monetary constraints on a nation’s prosperity – there are only the physical limits of the economy’s productive capacity, and administrative, social, or political constraints on utilising that capacity.

While MMT has roots in historical and theoretical discussions over the nature of money, and its contemporary scholarship features relatively technical analysis of the monetary operations of governments and central banks, it has also acquired a broad appeal among progressive campaigners. No one group claims sole ownership over the theory, but prominent groups include the Modern Money Network and Sunrise Movement in the United States, Red MMT in Spain, Rete MMT in Italy, and the Gower Institute for Modern Money Studies (GIMMS) in Britain.

In the United States in particular, politicians and campaigners have drawn on MMT principles to promote dramatically increased public spending on social and environmental priorities, such as a ‘Green New Deal’. Their arguments have begun to affect the national conversation over economic policy.

MMT in 10

L. Randall Wray, an early member of the group of academics who refined and popularised MMT, explains the paradigm in 10 points, intended to capture the logic of the MMT position in a comprehensive way. The details of some of these points are unpacked further down this page. Paraphrased, they include:

1. Money is an IOU, because the issuer promises to accept it back in payment of debts they are owed. That IOU is denominated in a ‘socially sanctioned money of account’, usually established by a centralised authority: the state.
2. Taxes (or other obligations) drive the currency. Sovereign states can impose obligations that give the currency value, since it can be used as payment.
3. Anyone can issue money; the problem is to get it accepted. People who try to issue an IOU in the unit of account without support from the sovereign will struggle to make their promise credible.
4. ‘Redemption’ of money refers either to accepting it as payment of taxes, or converting to gold, foreign currency, etc. on request. However, the latter is no longer promised by the central bank in countries with non-convertible, floating exchange rate currency regimes.
5. There is no chance of an involuntary default on sovereign debt, ‘so long as the state only promises to accept its currency in payment’ – in other words, so long as the debt is denominated in a floating, non-convertible currency issued by the sovereign itself.
6. Functional Finance: the public finances should be managed in a ‘functional’ manner, i.e. with an eye to the actual effects of decisions in particular contexts, in order to achieve full employment with price stability. This doctrine stands in contrast to ‘sound finance’, which evaluates budget decisions against predetermined beliefs about the desirability of deficits and/or surpluses.
7. The Job Guarantee, a policy whereby the public sector will employ anyone willing and able to work at a fixed wage, is a critical component of MMT as a macroeconomic framework. It is thought to anchor the currency and provide greater price and financial stability than the alternative (i.e., than maintaining a pool of reserve (unemployed) labour).
8. Hyman Minsky’s lessons on financial instability: that periods of stability and growth see continual changes and increased risk-taking in financial markets, which lead to a build-up of instability such that ‘a slight reversal of prosperity can trigger a crisis.’
9. The government’s debt is a non-government asset, following from a view of sectoral balances across the macroeconomy. The non-government sector (including households, firms, and the rest of the world) must, as a simple fact of accounting, hold assets that correspond to the liabilities of the government sector.
10. The central bank is neither independent nor potent – conventional monetary policy, which operates primarily by manipulating the overnight interest rate on lending between banks, is weak and its impact is at best uncertain. In addition, monetary policy implementation always and everywhere requires the coordination and support of the treasury. This final point often leads to a preference for managing macroeconomic conditions through coordination between fiscal and monetary authorities, typically in the form of ‘permanent zero interest rate policy (ZIRP).

Wray’s 10 points reveal that MMT, like other schools of economics, is a theoretical paradigm where certain dynamics in the economy follow logically from fundamental premises, and from which policy insights can easily be drawn.

Thought Genesis and History

Chartalism

MMT was initially known in academic literature as ‘Neo-Chartalism’. Chartalism is a theory that stresses the importance of social context for the existence of money. It is typically contrasted with the ‘orthodox’ (‘M-form’, ‘Metalist’, or ‘commodity money’) view, which holds that money was invented to facilitate exchange, and that its value was initially determined by the value of a physical commodity (e.g. gold or silver) from which it was made. By contrast, Chartalism holds that ‘the value of money is based on the power of the issuing authority, and not by any embodied or backing precious metal’ (Wray, 2000).

Several important intellectual precursors to MMT held this view. George Knapp argued in 1924 that ‘the attempt to deduce [money] without the idea of a State [is] absurd’. This was an explicit contradiction of commodity money – Knapp claimed that ‘the soul of the currency is not in the material of the pieces, but in the legal ordinances that regulate their use.’ Several years later, Abba Lerner also contributed to this standpoint with an article entitled ‘Money as a Creature of the State’.

Neo-chartalism reorients the emphasis of monetary theory on the currency systems prevalent in the world today, which, almost without exception, are fiat currencies issued by sovereign governments. The phrase ‘taxes drive money’ captures this recognition that the state creates the value for a common currency by leveraging its centralised authority. It does so by imposing non-reciprocal obligations (e.g. taxes and fines) that can only be paid by tendering the currency.

Functional Finance

Building on the lessons of neo-chartalism, MMT next draws important conclusions about the nature of public finance and government spending.

MMT scholarship has since applied the chartalist understanding of money and taxation through analysis of the economy’s sectoral balances, an approach pioneered by Wynne Godley. As Stephanie Kelton argues, ‘proceeds form taxation and bond sales are not even capable of financing government spending since their collection implies their destruction.’ When the fiscal authority (Treasury) receives tax payments, the banking system loses the same quantity of money in reserves. Similarly, the purpose of bond sales is argued to be the same: draining reserves, and thereby relieving pressure on the policy interest rate, due to the incentives faced by banks holding excess reserves. The central bank provides the reserves necessary to ensure bond sales clear.

This accounting logic gives a concrete, practical face to the occasionally abstract theory of money that MMT is ultimately based on. It also has radical consequences for how to understand the options for fiscal policy faced by a monetarily sovereign government.

In 1943, Lerner wrote another article, ‘Functional Finance and the Federal Debt’. There, he staked out the position that:

‘government fiscal policy, its spending and taxing, its borrowing and payment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound.’

Put differently, this means that there should be no concern over the size of the government deficit on the grounds of ‘debt sustainability’ (or other axioms about the desirability of running a budget in balance or in surplus). Insolvency of a monetarily sovereign government is impossible.

Nevertheless, government spending adds to a real economy where productive resources are used and prices are set; public spending must take these ‘productivity enhancing’ factors into account. This is the ‘functional’ in Functional Finance – fiscal policy should be operated with a view only to the function it serves in achieving real economic effects. MMT scholar Bill Mitchell expresses the principle as:

‘the desirable deficit outcome at any point in time to be a function of the state of non-government spending and the utilisation of the productive capacity of the economy.’

Financial Instability

Alongside Knapp and Lerner, MMT is indebted to Minsky, who proposed that ‘money manager capitalism’ – the form of economic order that became ascendant in the post-war world – is inherently unstable.

In short, the implication of Minsky’s view was that a period of stable and growing prosperity leads caution among private firms to lapse. Firms, households and banks undertake ‘innovations’, engage in speculative activity, and start to take on more risk, increasing fragility in the economy. As the cycle continues, short-term debt is increasingly used to cover interest charges on earlier investment. This behaviour makes a crisis almost inevitable over a long enough stretch of time (Minsky, 1982).

The privileged position Minsky occupies in the lineage of MMT has affected contemporary thinkers. Many hold that the public financial architecture must recognize that there there are multiple sources of new purchasing power and investment beyond government spending. The resultant purchasing power has consequences for economic activity, the distribution of wealth and income, and financial stability, and so must be addressed by any comprehensive paradigm. Public authorities must be on guard against the effects of private money markets, even while the government operates Functional Finance (for an example, see Warren Mosler’s ‘Proposals for the Treasury, the Federal Reserve, the FDIC, and the Banking System’).

Policy recommendations

It is important to recall that MMT is not prescriptive of specific spending priorities. It simply undermines any objection to increased public spending that is based on an idea of monetary scarcity, or that the nation ‘can’t afford it’. Instead, as according to Functional Finance, spending proposals should be assessed on the basis of their effects on society and the economy.

Nevertheless, the intellectual framework for understanding the modern economy that MMT provides offers several priorities and directions for building government institutions. Éric Tymoigne and L. Randall Wray have written that:

‘Financial stability, price stability and full employment… are important goals that have to be met independently from one another by putting in place structural policies that work independently of the current political climate, and that manage as directly as possible the goal that needs to be achieved.

MMT rejects the traditional trade-off between inflation and unemployment, and does not rely on economic growth and fine-tuning to reach full employment.’

An important plank in the MMT framework that helps to achieve these goals is the Job Guarantee. The JG is a ‘buffer-stock’ scheme for the job market where the state functions as ‘employer of last resort’. Anybody who wants a job on the public scheme can have one at a fixed wage; the scheme, therefore, absorbs workers displaced from private sector employment. Mitchell (2000) claims that the JG wage ‘prevents serious deflation from occurring and defines the private sector wage structure’ (in the sense of providing a viable outside option for those on low wages).

MMT reverses the typical role played by a nation’s economic institutions, in that typical MMT policy platforms see fiscal policy, and not the manipulation of interest rates by the central banks, as the proper tool for controlling inflation. For MMT advocates, this is a simple consequence of the fact that taxes destroy money, and also follows from Wray’s 10th point: that a policy interest rate is a weak tool for manipulating spending in the real economy.

For the part of the JG, Mitchell proposes a ‘Buffer Employment Ratio’ or incomes policy to keep the lid on inflation resulting from the increased government spending such a scheme would require. (Importantly, MMT advocates acknowledge that there are other sources of inflation beyond excessive demand, and other tools that can address inflation in general, ranging from better financial regulation (Minsky) to reducing accounting control fraud (Bill Black) to improving market governance and competition law (Fred Lee)).

Critiques & Responses

Despite its growing popularity, MMT has not enjoyed an easy reception from the mainstream of economic thought and commentary. Eric Témoigne and Wray classify critiques of the paradigm into five categories: ‘views about origins of money and the role of taxes in the acceptance of government currency, views about fiscal policy, views about monetary policy, the relevance of MMT conclusions for developing economies, and the validity of the policy recommendations of MMT’ (2013).

Some have questioned whether MMT really offers any novel lessons for macroeconomic policy that aren’t already implicit as components of a more conventional view, mainstream view. For instance, Simon Wren-Lewis has argued that:

1. ‘MMT seems obsessed with the accounting detail of government transactions;
2. This seemed to lead to ideas that I thought were standard bits of macroeconomics.’

Similarly, an article published in mid-2018 at the Institute for New Economic Thinking (INET) by Arjun Jayadev and J. W. Mason claimed that ‘the analysis underlying [MMT’s policy proposals] is entirely orthodox.’ They elaborate:

‘The difference between MMT and orthodox policy can be thought of as a different assignment of the two instruments of fiscal position and interest rate to the two targets of price stability and debt stability. As such, the debate between them hinges not on any fundamental difference of analysis, but rather on different practical judgements—in particular what kinds of errors are most likely from policymakers.’

Jayadev and Mason accordingly target the switch in policy emphasis from interest rate-fixing at the central bank to fiscal policy as the main tool of macroeconomic stabilisation, a point that Wren-Lewis also sees as the main divide between MMT and more ‘mainstream’ economic thinking.

However, the INET authors’ argument addresses ‘the logic of the functional finance position rather than MMT as a body of thought’, and they admit to ‘make only limited references to MMT literature’.

This has led MMT scholars to respond that the economic paradigm they have developed goes far beyond the implication of functional finance, and rests on fundamentally different premises about the economy from mainstream views (such as Kelton’s argument about the impossibility of bond finance or taxation to fund government spending). The INET critique also gives no room to the ideas on investment and financial dynamics adopted from Minsky, which lead to differences between MMT and the mainstream in terms of understanding the business cycle.

Finally, MMT advocates take issue with the assumptions about human behaviour and macroeconomic dynamics used to structure the very formal model used by Jayadev and Mason in their analysis (see Mitchell for more detail). For example, MMT denies that there is a ‘natural’ rate of interest at which the economy will reach full employment, if only it is set by the central bank (which can be prevented by the zero lower-bound). In that sense, MMT advocates do not see their theory as a ‘preference’ for fiscal policy over monetary policy as a tool of macroeconomic stabilisation. Instead, from an MMT perspective one of those tools (monetary policy) can never achieve what it claims it can achieve, whereas the other can.

Economic theory as a ‘lens’

One category of objections to the MMT narrative concerns how it relates to the institutions and practices established to manage government spending and monetary policy in reality. Some critics have claimed that MMT has few lessons for modern economies. They argue that legal structures – such as central bank independence and laws prohibiting monetary financing of deficit spending – mean that MMT is only true in a stylised world, and therefore lacks relevance to the real one.

This as Bill Mitchell writes,

‘MMT identifies two levels of reality. The first level defines the intrinsic characteristics of the the monopoly fiat currency issuer which clearly lead us to understand that such a government can never run out of the currency it issues and has to first spend that currency into existence before it can ever raise taxes or sell bonds to the users of the currency – the non-government sector…

The second level of reality [is] the voluntary institutional framework that governments have put in place to regulate their own behaviour. These accounting frameworks and fiscal rules are designed to give the (false) impression that the government is financially constrained like a household – that is, in context, has to either raise taxes to spend or issue debt to spend more than it raises in taxes.’

Elsewhere, he describes MMT as a lens ‘which allows us to see the true (intrinsic) workings of the fiat monetary system.’

The power of MMT, then, lies in its ability to reveal the gap between what is necessarily true about monetary systems, and other, contingent facts that are only true under present circumstances. It shows that gap for what it is: a political construct that persists only because our society so chooses. Structures like central bank independence must be argued for on their merits, and cannot be referred to as ‘how the world really works’. Ultimately, MMT has become a much broader project than a single economic theory, and is consistent with insights from historical, anthropological, legal, and sociological approaches to understanding money, the economy, and society. Increasingly, the future of MMT is interdisciplinary.

References

Bell, S. (1998). Can Taxes and Bonds Finance Government Spending?. Levy Economics Institute of Bard College, Working Paper No. 244, July

Bell, S. (2001). The role of the state and the hierarchy of money. Cambridge Journal of Economics, 25, 149-163

Knapp, G.F. (1973). The State Theory of Money. Clifton, Augustus M. Kelley [1924].

Lerner, A.P. (1947). Money as a Creature of the State. American Economic Review, vol. 37, no. 2, May, pp. 312-317.

Lerner, Abba P. (1943). Functional Finance and the Federal Debt. Social Research, vol. 10, 1943, pp. 38-51

Jayadev, A., and Mason, J.W. (2018). Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them? Institute for New Economic Thinking, September. Available at: https://www.ineteconomics.org/perspectives/blog/mainstream-macroeconomics-and-modern-monetary-theory-what-really-divides-them

Minsky, H. (1982). Can “It” Happen Again? A Reprise. Hyman P. Minsky Archive. Paper 155. Available at: https://digitalcommons.bard.edu/hm_archive/155/

Mitchell, W. (2016). Modern Monetary Theory – What is New About It? Available at: http://bilbo.economicoutlook.net/blog/?p=34200

Mitchell, W. (2000). The Job Guarantee and Inflation Control. Centre of Full Employment and Equity, Working Paper No. 00/01, January

Mosler, W. (2009). Proposals for the Treasury, the Federal Reserve, the FDIC, and the Banking System. Draft, September. Available at: http://moslereconomics.com/2009/09/16/proposals-for-the-banking-system-treasury-fed-and-fdic-draft/

Tymoigne, Éric and Wray, L.R. (2013). Modern Money Theory 101: A Reply to Critics. Levy Economics Institute of Bard College, Working Paper No. 778, November

Wray, L.R. (2000).‘The Neo-Chartalist Approach to Money’. July. Available at SSRN: https://ssrn.com/abstract=1010334

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by Antonin Calderon & Jean Rossiaud (Leman Currency / APRES-GE in collaboration with Gaëlle Bigler (FRACP / URGENCI)

This is the third issue of the series we started in October, on the theme of “local currencies”, after a general presentation of the advantages and challenges of local currencies through the example of the Leman currency (October 2018) and the avenues for collaboration and synergies between local currencies and sustainable food (December 2018), we propose today to reflect in terms of production/supply chains, for different types of agricultural products, and starting once again from the Geneva experience: from seed to production, from production to processing, from processing to distribution, from distribution to consumption. The five key agricultural sectors on which Leman and the Chamber of the Social and Solidarity Economy (APRES-GE) are currently working are the following:

• Beer: from hops to pints
• Vegetables: from pitchfork to fork
• Bread: from seed to bread
• Wood: from tree to stere
• Wine: from vine shoot to glass

This is why it is particularly interesting to bring the different actors in a production/supply chain together around the same table, in order to reflect together on current and potential value flows – and the resulting cash flows. Many economic actors generally do not have the time to take this step back. The local currency offers producers a great opportunity to strengthen the links between them, and between them and consumers, and thus to strengthen the local economy in the face of competition from globalized markets. The service provided by the local currency is “economic facilitation”: it is a form of brokerage that allows producers to better choose their local suppliers, and in case of overproduction to sell stocks in the payment community.

The beer production/supply chain: from hops to pints

Let us take the example of the beer sector to illustrate what we are saying. The development of artisanal breweries is currently in full expansion and their operation is easily modelable. The main links in this chain are: farmers, malthouse, breweries, distributors, as well as bars, restaurants or grocery stores. The diagram below illustrates this.

If you still don’t know it, you should know that 90% of beer is made up of water, which is used as the basis for adding malt, hops and then yeast. To this can be added additional ingredients, such as coffee, fruit, spices or other condiments or herbs.

Farmers (1) grow the cereals, which will then be processed into malt by the Malting plant (2). At the same time, hops (2”), a climbing plant, must be cultivated and its flowers harvested and dried; yeast (2”) must be produced, usually in a laboratory.

These three ingredients are used by artisanal breweries (3), with water, for the production of beer. Other goods are also needed to produce beer, including bottles, capsules, labels, glue, and of course water. These products are considered as secondary in the beer production chain, although they are obviously necessary. More and more often, breweries collect their bottles, through a deposit system, and reuse them.

Then, the distributors (4) are responsible for transporting the drinks produced in bars, restaurants and grocery stores (5), where they are sold for consumption, and in particular to employees (6) of the various companies in the beer industry. Indeed, some of the beer consumers work in the sector.

A new activity should also be integrated into this beer sector: mushroom houses (4′). They work with breweries, recovering the used malt (spent grains) and using it as a substrate on which mushrooms (especially shiitake and oyster mushrooms) will grow. The recovery of the substrate is currently being studied for use as protective packaging, for its lightweight and shock absorbing properties.

All these actors also have costs for premises, energy, production and transport machinery, IT, printing and administration. This is what we call the secondary network of suppliers.

The following diagram summarizes the primary network of the beer sector, by modelling the flows of goods/services, as well as the cash flows that allow these exchanges.

The economic relationship

The local currency is above all a tool for establishing economic links between the actors of a sector. While stakeholders are convinced of the value of creating a strong local economy, they do not always have the time, energy or even the knowledge to analyse all current and potential flows in their own economic production/supply chain Pressed by short-term economic constraints and lack of liquidity, they usually go as fast and cheap as possible, whereas their real economic interest in the medium or long term would be to favour a concerted and solidarity-based approach, for example in a pooled credit system.

Working in their own local currency encourages economic actors to be aware of the specificities and various constraints within the chain and puts everyone in commercial contact with their potential suppliers and customers: the farmer with malting, malting with breweries, distributors with breweries, and bars, restaurants and grocery stores with distributors.

The stakes are not only economic and ecological. Admittedly, it makes it possible to increase the volumes of activity of each individual and the wealth produced on the territory; and the development of this territory, in short circuits, reinforces economic resilience and ecological sustainability (reduction of CO2 emissions). On the social and political level, the economic network thus created breaks the isolation of each actor and it is the social fabric that is strengthened. Together, it will be easier to defend your collective interests and become stakeholders in public policies to promote local agriculture.

Monetary liquidity for the sectors

The pooled credit system offered by a complementary local currency such as the Leman in the Lake Geneva region provides significant liquidity to the production/supply chains. Indeed, each actor is granted an operating credit line (currently between LEM 1,000.- and LEM 20,000.-, depending on its size) that can be used without interest rates and without limit as long as it remains below the established threshold. The potential for economic exchange for the entire economic chain concerned is therefore increased by the sum of the credit limits of all its players.

This ancestral system of credit pooling, which has practically disappeared today, swallowed up by the contemporary banking system, is nevertheless a very simple and very stable system. The network as a whole is by definition always totally balanced “at zero”: the sum of the positive amounts is always equal to the sum of the negative amounts, and there is no monetary creation. The more money turns, the more wealth is produced. The lack of liquidity is a barrier to activity. Shared credit therefore replaces bank credit very advantageously.

Conventional bank credit is expensive – when it is granted, because banks often refuse risk. It raises the price of products, because it is necessary to include the cost of money (interest) in the selling price, and weakens the seller in a competitive market occupied by large groups that lower prices.

By working in local currency, we recreate a parallel economy, and we avoid pressure from large groups and foreign products. Getting started with the complementary currency, particularly for agricultural sectors, must be seen as a survival and development strategy. But we must play the game together, companies, employees and consumers, so that the currency can continue to supply the local economy continuously, without stagnating in bottlenecks.

Towards healthy irrigation of the production/supply chains

The main challenge is therefore to avoid the formation of pockets of local currency retention, which indicate an economic blockage. Such a blockage is beneficial if it allows the actor in question to question himself about his partners who do not accept the local currency. It may be time to change it, and to opt for suppliers who also fit into the logic of relocation and social and environmental responsibility.

This is where the services of local currency “facilitators” come into play: they work with companies to integrate suppliers into the payment community, if they meet the conditions of the charter and, if not, to find new partners.

On the other hand, pockets of local currency are problematic if companies cannot put as much currency back into the circulation as they accept: the currency then loses its primary function, which is to facilitate trade. The risk of devaluation of the currency (it will be exchanged below its official value, for example 120 units will be requested for a good/service worth 100 in state currency) is therefore significant.

Two types of actors can find themselves structurally in this “bottleneck” position. First, the company that would occupy a central place in the supply chain, and would have no or too few substitutes. In the “beer” sector, it is the malting industry, with which all local breweries have an interest in working in local currency. Secondly, the company at the “end of the chain”. In our example, it is the farmer who grows the cereals that will then be processed into malt. The following diagram shows this problem of pocket retention of local currency at the end of the supply chain.

For these two cases, there is a simple theoretical answer, but it is not so easy to put into practice, because it already requires a dense economic network: the payment of part of the salaries in local currency. However, the money supply redistributed monthly is a powerful lever for boosting the local and sustainable economy through consumption. This is explained in the diagram below.

We have therefore seen that producers in the agricultural sectors have a clear interest in using the local currency to resist competition from large groups and foreign producers. However, this success is based on the balance of flows. Strengthening the local economy therefore requires organization and patience, as it involves bringing all its stakeholders into the payment community into a virtuous circle.

It is up to the local currency to carry out this work of economic facilitation and credit pooling, and it must be given the means to do so. Once this work is done, in the same way that an irrigation system would be installed in a crop, money can then flow in a virtuous way by creating value in the local and sustainable economy, and by strengthening economic resilience, in the face of systemic financial crises. 2008 should be a lesson to us!

In a future newsletter, we will take the example of one or more particular companies and how they use local currency on a daily basis to make sense of their work: an economic sense, of course, but also the feeling of participating fully in improving the common good.

This post is also available in / aussi en: French Spanish

Photo by practicalowl

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It was just a montage of words uttered over a video in the summer of 2018. Soon the words went viral. They helped unseat a Wall St-friendly Democrat – one primed to be the next Congressional leader. They were uttered by Alexandria Ocasio-Cortez.

This race is about people vs money. We’ve got people. They’ve got money. A New York for the many is possible. It doesn’t take a hundred years to do this. It takes political courage.

She was right. It did not take a hundred years. All it took was one summer, political courage, a big idea – The Green New Deal – and hard graft. A Green New Deal would subordinate the financial system to the interests of society and the ecosystem, and help transform the economy away from its addiction to fossil fuels, she argued.

The big idea, her hard work and courage were all that was needed to harness latent power: the power of the people of the Bronx.

Her story will underpin the theme that follows. Citizens’ latent and untapped power in countries with sound taxation systems to hold financial elites to account – and implement a Green New Deal. It can be used to transform the balance of power between the people and the private finance sector. It is power that lies in abeyance, repressed by the dominant moneyed class. But suppressed also by the narrow, myopic view that we, and our politicians, have of the potential economic power of citizens.

Video explainer on the Green New Deal

To harness citizens’ power, it is important to understand that taxpayers have agency over global financial markets. Around the world, taxpayers subsidise, embolden and enrich centres of financial power like those of Wall St and the City of London.

The bank bailouts after the Great Financial Crisis demonstrated that citizens and their publicly financed institutions have the power to protect capitalism’s rentiers from the discipline of the ‘free market’. Thanks to the backing and firepower provided by millions of honest, taxpaying citizens, central banks deployed immense financial power and bailed out the globalised banking system – stemming a cascade of debt deleveraging that could have contracted the money supply, credit, and economic activity and deepened the crisis.

Thanks to taxpayers, central bankers prevented another Great Depression. It was a great power deployed in the name of citizens, but without their authority – or even their knowledge.

To grasp and deploy this financial power in the interests of society and the ecosystem, citizens need to understand that this was and is ultimately our power. It is latent power, not used by citizens to defend the public interest, but by technocrats to defend the interests of private wealth.

To grasp and deploy this financial power in the interests of society and the ecosystem, citizens need to understand that this was and is ultimately our power. It is latent power, not used by citizens to defend the public interest, but by technocrats to defend the interests of private wealth.

Money and debt

The reason for our political impotence can be found in the fog and mystery surrounding the creation of money and the operation of the monetary system. Thanks to the economics profession’s neglect of money, debt and banking, there is a great deal of misunderstanding and confusion about money and the financial system.

Arguments rage about whether money is just ‘created out of thin air’ – or whether gold or bitcoin are real money. Whether bankers and/or governments can just ‘print’ money ad infinitum. Or whether there are limits to the printing of money. The ignorance and confusion is probably no accident. It helps protect the private finance sector from scrutiny: ‘all the better to fleece you with’ to quote the wolf in the fairy tale.

Sensible people (including the Bank of England) agree that money, as Joseph Schumpeter explained, is nothing more than a promise to pay, as in, ‘I promise to pay the bearer’. As such, money is a social construct, based on trust or promises to pay and upheld by the law.

When someone applies for a loan from a bank, the money is not in the bank. Instead, licensed commercial banks ‘create’ money every time a borrower promises to pay. They make the loan by entering numbers into a computer, and (digitally) depositing funds into a borrower’s account. The borrower promises to pay back the money created by the banker. As guarantee the borrower offers collateral, signs a contract, and agrees to pay interest on the loan.

For that trust to be upheld, the institutions that create money (licensed commercial banks) are supported and regulated by a publicly backed central bank issuing the currency. Regulation ensures that trust between banker and borrower is enforced.

Private bankers can only create new money and operate effectively as part of the monetary system, which includes a central bank. While commercial bankers can digitally create new money at the bidding of a borrower, they cannot print currency or mint coins. Only the central bank can do that. The central bank’s great power is to issue the currency – sterling or the dollar or the rupee –in which new money is created. And to help determine the value of the currency.

That power can be exercised by central banks only because of the collateral backing the currency they create. That collateral is made up of citizens’ tax revenues. The more taxpayers that back the currency, the sounder the tax-collection system, the greater the value of the currency.

This process is illuminated if we compare the collateral that backs up the US Federal Reserve with that of Malawi. The central bank of Malawi, like the Federal Reserve, issues a currency. But Malawi has far fewer taxpayers than the US.

Thanks largely to colonialism and to IMF policies, Malawi also lacks important public institutions: an independent central bank; a sound tax-collection system; a system for enforcing contracts or promises to pay (criminal justice); and a well-regulated accounting system for assessing assets and liabilities. Consequently, Malawi’s currency – the kwacha – has little value compared to the dollar.

Even worse, due to the absence or weakness of public institutions, Malawi is reliant on other people’s money – obtained via other monetary systems. Access to foreign monetary systems mostly takes the form of loans in dollars, sterling or yen – that are heavily conditional. While some of the money may benefit the Malawian people, the cost of repayment to foreign financial institutions invariably takes its toll on the nation’s financial resources, its human and ecological assets.

It is the lack of monetary autonomy provided by sound public institutions, including a tax-collection system, that renders citizens in countries like Malawi relatively powerless, and vulnerable to predatory foreign lenders.

It is the lack of monetary autonomy provided by sound public institutions, including a tax-collection system, that renders citizens in countries like Malawi relatively powerless, and vulnerable to predatory foreign lenders. It also explains how and why poor countries remain dependent and subordinate to rich countries.

Regrettably the IMF and World Bank actively discourage low-income countries from investing in the vital public institutions essential to a sound monetary system – one that would restore their financial and economic autonomy.

Citizens in countries with sound monetary institutions and a tax-collection system enjoy considerable potential power and agency over the globalised financial system.

Taxpayers – not banks – underpin the financial system

Understanding how taxes prop up the value of a nation’s currency for private financiers is a first step in understanding citizens’ potential power. The world’s mobile financial speculators and rentiers prefer to deal in currencies underpinned by stable public institutions, financed and backed by millions of taxpayers. While of course there is trading in many emerging market currencies, speculators prefer to hold sterling, dollars, euros and yen. These currencies are backed by strong economies. But their value is ultimately derived from citizens – willing, honest, law-abiding taxpayers – who provide the revenues that underpin the currency.

Taxpayers do not just pay direct and indirect taxes every day, month or year. Because new taxpayers are born every day, citizens will pay taxes for decades into the future. If our publicly financed state institutions remain stable, tomorrow’s new-borns will go on paying taxes into the future.

To understand the duration of taxpayer power, it helps to look back at the history of the British financial system. Back in 1748 the British government issued perpetual bonds, which were debts with no maturity date for repayment, but which paid interest to lenders at 3 per cent each year. The government had no difficulty selling these bonds (known as ‘consols’) to the public. Public confidence – that the British government would fulfil its obligations to pay interest on the loans in perpetuity – was high. That confidence was justified, as interest was paid on the bonds each year until finally they were redeemed in 2015.

No other asset has that kind of long-term, safe backing.

Ambitious and manipulative Becky Sharp in Thackeray’s classic nineteenth-century UK satirical novel Vanity Fair wished that she could

‘exchange my position in society and all my relations for a snug sum in the Three Per Cent Consols…for so it was [wrote Thackeray] that Becky felt the Vanity of human affairs, and it was in those securities that she would have liked to cast anchor.’

Becky’s envy derived from the security granted to those with funds enough to invest in the British government’s debt – known then, and for several centuries, as Three Per Cent Consols (shorthand for Consolidated debt). On an inheritance of £10,000 wealthy young women of the nineteenth century could live on the tidy sum of £300 a year; £25,000 would generate a comfortable £750 a year.

Public debt is an asset that earns income – just as a buy-to-let property earns rent for its owner. But while a buy-to-let investor has to sweat to maintain, advertise and rent out the asset, debt earns income effortlessly for the wealthy and for financiers. It does so by paying interest added at a certain percentage per year.

Unlike an investor’s property, debt is light as air, intangible, invisible. The only evidence of its existence is found in database entries, numbers on a balance sheet or in words on a ‘bearer bond’.

The differences do not end there. A building or property is subject to the laws of physics. It can age, crumble, or be razed to the ground. Football clubs are great assets – because fans are committed long-term, and willingly and regularly pay ‘rents’ to the owner of the asset, for the privilege of watching their team, or by buying a club T-shirt. But clubs can lose value by falling down league tables. Works of art – say a Rembrandt painting – are assets with greater longevity, but are also likely to deteriorate, and in any case, are subject to the whims of fashion.

Not so the government bonds of countries like Britain. While sovereign debts can be defaulted on, safe government debts do not rot with age, as Professor Frederick Soddy (1877–1956) once explained. That is because debts are not subject to the laws of thermodynamics, but to the laws of mathematics. As such, debt effortlessly earns income for investors, at mathematical rates. And if the debt is the safe public debt of nations like Britain, the US or Japan, it can do so for a long, fixed period of time.

The British government has since 1694 honoured its debt obligations without fail. In a world of globalised capital flows in which capital sloshes from one part of the world to another, the price of UK government bonds may rise and fall, but their safety and longevity is never in question. That is because the system is managed by public authority, not left to ‘the invisible hand’ – but mainly because most British citizens regularly and faithfully pay taxes.

It’s the collateral stupid

And to understand why safety is such a big issue for the private finance sector, remember this: the global financial system froze in August 2007 and then collapsed. Not because financiers ran out of money. Not because of a run on the banks. But because everyone in the sector – everyone – lost confidence in the value of assets used as collateral, particularly the value of sub-prime property mortgages on bank balance sheets.

Why did that matter? Because the value of sub-prime assets (mortgages) had been used to leverage inordinate amounts of additional finance through borrowing. If the asset or collateral against which the borrowing had been leveraged was worthless – then the leveraged debt was unlikely to be repaid from the sale of the promised sub-prime collateral.

The collapse of confidence in asset values (or collateral) led to the collapse of the globalised financial system.

And that is where we, citizen taxpayers, came in. Citizen collateral, in the form of tax revenues, did not collapse in value in the crisis. Instead public collateral maintained the authority of central banks, and gave them the power to issue new central bank money (liquidity) in exchange for assets from private bankers. The process was called Quantitative Easing (QE).

The backing of taxpayers enabled central bankers to bail out Wall St and the City of London. The safety and soundness of our taxes upheld the value of currencies, despite the crisis. This was most evident in the US. Even as the global economy tanked, and financial turmoil soared, the value of the dollar rose.

Central banks used the collateral power provided by citizens to leverage vast amounts of central bank money – about $16 trillion – to bail out the global banking system.

Public debt as a gift to financiers and rentiers

To fully understand the power wielded by central bankers, it is important to understand that each time the government applies for a loan, or issues a bond, it creates a debt – or liability – for the government. At the same time, by borrowing, the government creates a valuable financial asset for the private sector.

Governments regularly (once or twice a month) invite pension funds, insurance companies and other private financiers to finance their bonds or loans, in exchange for promises to pay interest annually, and to repay the principal in full at the end of the term of the loan (bond).

This process is in effect no different from a woman seeking a mortgage. She invites a banker to accept her ‘bond’ or promise to repay in exchange for new finance, backs this up with collateral, and commits to pay interest annually and the principal in full at the end of the loan’s term.

Once the commercial banker has issued the finance and accepted the bond, the woman has a liability – to repay the bond. The banker on the other hand, has an ‘asset’ – the woman’s bond or mortgage. It is valuable to the private bank because unlike gold the loan generates income for every year that the woman pays interest. It is probably backed by the collateral of her existing apartment. Plus, the principal on her loan will probably be worth more in real terms when it is finally repaid.

Governments raise finance from both the private finance sector, or from a central bank, in just the same way as an ordinary borrower raises money from a commercial bank. The government promises to pay interest, and offers collateral. The difference between a government’s bond and the woman’s mortgage is that a bond issued by a government with a good record of repayment is a more valuable asset. As such it serves as vital collateral (or ‘plumbing’) for the private financial system.

The woman’s mortgage is also an asset, but will be less valuable because she may not have established a good credit record, and may be backed by just one income (her own). The government by contrast, is backed by a revenue stream from millions of taxpayers.

That explains why government bonds (or government debt) are extremely valuable assets for the private finance sector. They are safe and reliable. They generate income (interest payments) on a regular basis. Debt as a security or asset can be used to borrow (or ‘leverage’) additional finance.

Just as the ownership of a property enables a homeowner to re-mortgage and raise additional sums secured against that property, so safe, valuable financial assets act as collateral for the raising of additional finance. Newly borrowed money, guaranteed against either the original debt/collateral, or against the stream of interest payments derived from the debt, can then be invested, or lent on at a higher rate of return.

At the time of its bankruptcy Lehman Brothers was said to have a leverage ratio of 44. That’s like having an asset that earns £10,000 a year, and then taking out a £440,000 loan secured against it, to go on a gambling spree

To understand leverage, think of a homeowner who borrows £80,000 against a property worth £100,000 with just £20,000 in equity or capital. She has a leverage ratio of four. In other words, she has borrowed four times the equity/capital in her asset.

At the time of its bankruptcy Lehman Brothers was said to have a leverage ratio of 44. That’s like having an asset that earns £10,000 a year, and then taking out a £440,000 loan secured against it, to go on a gambling spree. According to the Bank for International Settlements, Wall St’s investment banks started with a leverage ratio of 22 in 1990, which rose to ‘the dizzy height of 48 at the peak’.

Leverage on that scale is most easily achieved against collateral that is as safe as public debt. The scale of wealth generated would be unimaginable to a present-day Croesus.

Shadow banking and the collateral factory

There is another aspect to safe, public collateral not widely understood. That is how it is used in the shadow banking system – the private financial system that operates in the financial ‘stratosphere’, beyond the reach of states and regulatory democracy.

Non-regulated bank-like entities that have scooped up the world’s savings (e.g. asset management funds, pension funds, insurance companies) hold vast quantities of cash. BlackRock for example, has $6 trillion in assets.

These sums cannot safely be deposited in a traditional bank, where only a limited amount is guaranteed by governments. So to protect the value of the cash, the asset management fund will, for example, make a temporary loan of cash to another in need of it, in exchange for, or guaranteed by, collateral. This exchange is known as a repo – or repurchase arrangement.

As Daniela Gabor has argued, the US and European repo markets, the largest in the world, are built on government debt. In other words, ‘the state has become a collateral factory for shadow banking’.

The risks of this unregulated market for the global financial system, are scary. One reason is that while someone operating in the real world, say a homeowner, may only once be able to re-mortgage her asset or property, unregulated shadow bankers can use a single unit of collateral to re-leverage a number of times. Manmohan Singh of the IMF has estimated that by late 2007 collateral ‘churned,’ or was used roughly three times to leverage additional borrowing in speculative markets.

That’s like using the value of a single asset – one’s property – to guarantee additional borrowing from three different banks. In the real world of financial regulation, homeowners are not allowed to do this.

If we are to understand the history of how the rich have become immensely, grotesquely richer on unearned income, while earned income has fallen in real terms, leverage ratios against public assets in the both the real and shadow banking sectors explain a great deal.

In short, the ability to regularly drain a government of interest payments, and to use the asset of public debt to leverage additional finance, is why asset management firms, private equity corporations, insurance companies, pension funds and financial speculators have massively increased their capital gains. It is also why secure government debt is in such demand. Private financiers can’t get enough safe government bonds – or public debt.

The shortage of public debt and the rise of austerity economics

The Great Financial Crisis (GFC) triggered a flight away from private debt and to the safety of public debt – especially the safest – British, European and US debt.

This huge financial shock of the GFC led to a massive contraction of the global money supply, and threatened deflation – a generalised fall in prices – which would in turn lead to bankruptcies, unemployment and wage cuts.

To counteract that threat, central banks – on our behalf – expanded their balance sheets and, in exchange for collateral (much of which was dodgy or ‘toxic’), provided extraordinary levels of new credit or liquidity to the private financial system. In the process, civil servant technocrats in central banks protected free-market players from bankruptcy and the discipline of the free market – dealing a considerable blow to the ideology.

The deflation shock cried out for a massive fiscal response. There was an initial, but limited fiscal expansion, which led to what Credit Suisse called a ‘flood of safe collateral that caused public shadow money (Treasuries, mortgage-backed securities, US government agencies) to soar, fully offsetting the contraction in private shadow money (corporate bonds, asset-backed securities, and non-agency mortgages)’.

As a result of the panicky demand for public debt, the price of government bonds rose, and because of the way the bond market operates, the yield (‘interest rate’) on bonds fell dramatically. Demand for public debt, greatly eased government borrowing (interest) costs.

Pretty soon though, politicians and officials in government treasuries, cheered on by orthodox economists, right-wing think tanks and the media, soon fell back on neoliberal or ordoliberal theory, and imposed fiscal contraction – or austerity. Public investment – government spending – was either slashed or prevented from rising.

These double standards –the expansion of finance for the private finance sector, and contraction for the public sector – are intrinsic to orthodox economics, but seldom challenged by the economics profession.

These double standards –the expansion of finance for the private finance sector, and contraction for the public sector – are intrinsic to orthodox economics, but seldom challenged by the economics profession.

As a result the production of government collateral (public debt) fell.

Austerity and the simultaneous wage freezes and cuts at first worsened the crisis. Since 2010, austerity has both prolonged the crisis, and held back recovery in the US and Europe. The effect of this backward economic policy was to increase insecure, low-paid, low-skilled and unproductive employment, while lowering wages across the board.

In the US, while the initial Obama-led stimulus stabilised the economy, it was insufficient to restore long-term stability. Instead there were severe state and local government spending cuts, households were left to retrench after the sub-prime trauma, and wages fell in real terms. Between 2009 and 2014, inflation-adjusted wages in the US were flat or falling across a range of available wage measures. More recently, real wages grew, but growth rates for recovery as a whole still trail far behind the 2.0–2.2 per cent annual rates from 1947 to1979.

As a result of austerity, the issuance of safe government debt contracted. Why should this matter? Because the low supply of government debt tends to boost (in fact, crowds in) the creation of unsafe private debt, or assets. These unsafe private assets are used instead by the banking and shadow banking system to expand borrowing and credit. Central banks rightly worry that such credit expansion on unregulated, dodgy assets will probably lead to another financial crisis.

Viewing public debt through the wrong end of a telescope

Understanding the value of public debt changes our view of it. Like a loan undertaken for a project that will create employment and generate income, public debt, if invested in productive activity, is a good thing. It generates income. Not just salaries and wages for those employed; not just profits for the private sector when salaries are spent on their goods and services; but also tax revenues. Income, corporation and consumer tax revenues, then used by government to repay the debt.

Public borrowing and spending are especially important after a crisis, when the private sector is weak, and lacks the confidence to borrow, invest and spend. Yet most Chicago-school economists view public debt as a threat to the economy. Governments that cannot ‘balance the books’ are regarded as incompetent and hounded by the media.

Hostility to public debt varies, but fear is embedded in the German psyche, because the word for debt – ‘Schuld’ – is the same as the word for ‘guilt’. Saint Matthew’s ‘forgive us our debts as we forgive our debtors’ was interpreted by Saint Luke as ‘forgive us our sins as we forgive those that sin against us’.

Until we fully grasp the importance of public debt to the finance sector, immensely wealthy, globalised corporations will continue to parasitically extract rent from public assets; inequality worldwide will continue to widen; and we, the many, will become relatively poorer and powerless.

Guilt, sin and the public debt are deeply intertwined, but only in the minds of economists, journalists and the public. Debt becomes something quite different in the minds of financiers and rentiers. To Wall St. and the City of London, the safe public debt of Britain, Europe and the US is a truly awesome and even phenomenal gift.

They cannot get enough of it.

Until we fully grasp the importance of public debt to the finance sector, immensely wealthy, globalised corporations will continue to parasitically extract rent from public assets; inequality worldwide will continue to widen; and we, the many, will become relatively poorer and powerless.

When enough of us do come to understand this latent power, we will discover that another world really is possible.

Social democrats and the financial system

At the heart of neoliberal ideology – ideas shared by those that economic historian Quinn Slobodian defines as ‘globalists’ – is the belief that the state must shrink as a share of the economy. Second, that private capital markets must remain ‘free’ to roam globally and without friction. In other words, globalised capital markets must have the ‘freedom’ to be detached from the world’s states, and from democratic regulation.

As explained above, the deep irony of the ideological obsession with self-regulating capital markets, austerity and the shrinking of the state is that private financial markets cannot function without the backing of governments, their taxpayers, and the safety of public debt.

The ‘timid mouse’ that is the private finance sector cannot operate without the protection of the ‘roaring lion’ that is the public sector, to quote Mariana Mazzucato.

Given that safe public assets are so fundamental to the stability of the private financial system, why would right-wing politicians and officials contract their supply? The answer can only be: ignorance, fed by ideology opposed to the collective role of the state.

But what of the left? The Great Financial Crisis was met with shock and disbelief on the left. While many progressive economists had focused on the domestic, tangible economy – the state, markets, labour and trade – they largely ignored the intangible economy, the globalised finance sector.

Social democratic parties turned a blind eye to a global, deregulated financial system that threatened systemic failure.

In the meantime, many had embraced ‘globalisation’ – the ability to travel widely and draw money in any part of the globe; the ease with which globalisation facilitated the import of exotic fruits and vegetables; cheap smartphones; and the gifts bestowed by technology on the globalised system. These were all met with enthusiasm by social democratic parties that turned a blind eye to a global, deregulated financial system that both facilitated these activities, but also threatened systemic failure.

As a result, the left had no coherent response to the collapse of globalised capital markets. Throughout the period of austerity, the left – both in the US and Europe – found itself on the back foot, defensive of social democratic governments that had built up debts as a result of the Great Financial Crisis. Social democratic governments endorsed both QE for bankers and austerity for the majority. This approach guaranteed their downfall, and even extinction. (The French Socialist Party no longer exists as a political force or organisation, and was obliged to sell off its own headquarters.)

These failures weakened the ability of the left to argue that at a time of catastrophic private economic failure, public investment in jobs was essential to restore social, political and economic stability. Instead taxpayer-backed subsidies and assets were deployed by central banks via QE to protect private profits and capital gains.

No wonder the public revolted.

What is to be done?

A first in the many steps that must be taken to transform the economy is understanding. People cannot act to transform what they do not understand.

Understanding how taxpayers guarantee and endorse the activities of the globalised, deregulated private financial sector, must be more widespread. Only then can we begin to demand ‘terms and conditions’ for public subsidies and guarantees – and to use that power to regulate and subordinate the globalised financial sector to the interests of society as a whole. To demand that public financial assets be used for public, not private benefit.

This understanding is fundamental if we are to respond to the greatest security threat facing humanity: climate breakdown.

Armed with understanding, we will then need a plan. The Green New Deal is such a plan.

The Green New Deal

The genius of Alexandria Ocasio Cortez’s Green New Deal is that it provides a broad, comprehensive plan to transform the US economy and tackle climate breakdown. If the efforts of US Democrats led to an internationally coordinated campaign to implement it, the plan has the potential to transform many economies around the world, and to ensure a liveable planet in the future.

But – and it’s a big but – a comprehensive plan for economic transformation will require financing on a grand scale, comparable to that of a nation embarking on war. We know that can be done. Governments have always found money to finance wars.

Back in 1933, President Franklin D. Roosevelt’s plan – the New Deal – found money to fight a war against unemployment and poverty. His administration did so by overturning neoliberal economics, and implementing Keynesian monetary theory and policies. By ensuring that the monetary and financial system was managed by public, not private authority, his government raised the financing needed to lead the US out of the economic catastrophe of the Great Depression. Roosevelt’s New Deal not only created jobs and generated national income. It also tackled the ecological catastrophe that was The Dust Bowl.

Implementation of the New Deal was achieved first, because the Roosevelt’s administration had a clear understanding of the nature of money, and of the publicly backed monetary system. But its success in tackling Wall St interests was down to political mobilisation, organisation and action. Roosevelt had the political courage and the political ballast to confront, and subordinate the interests of Wall St to those of society and the environment.

Any international movement for a Green New Deal will have to summon up the same political courage in countries around the world. Campaigners will have to mobilise, organise and act to renounce the economic ideology that allows the 1% to grow fantastically rich on taxpayer-backed subsidies, bailouts and guarantees – while denying financial resources for public investment, economic and ecological transformation.

Campaigners will have to discover, and then deploy, their latent power to subordinate global finance to the interests of society and the ecosystem.

ABOUT THE AUTHOR

Ann Pettifor is a political economist, author and public speaker on the global financial & economic system, on money, monetary policy, and on the UK economy. Her latest book, The Production of Money (Verso 2017) explains the nature of money and the monetary system. She is one of the few economists to have predicted the 2008 economic crisis. During the late 1990s, she led a campaign, Jubilee 2000, which as part of an international movement resulted ultimately in the cancellation of approximately $100 billion of debt owed by the poorest countries. She is currently director of PRIME (Policy Research in Macroeconomics) a network of economists that promote Keynes’s monetary theory and policies, and that focus on the role of the finance sector in the economy.

The post The Latent, Unused Power of Citizens and the Production of Public Collateral appeared first on P2P Foundation.

Check out this video to ponder whether this is the paradigm we are in.

This extract from Social movements powering the future of money attempts to explain how the Age of ‘I win, you lose’ Nonsense (paradigm) has us blindly perpetuating the root cause of all our (biggest) challenges …

INTRODUCTION

“ … our society is filled with hatred and violence. Everything is like a bomb ready to explode, and we are all a part of that bomb; we are all co-responsible. We are all the policemen and the victim.”Thich Nhat Hanh

What is the biggest challenge the world faces?

Is it humans, money, technologies, capitalism, climate change, wars, terror, diseases, mass starvation, wealth inequality or social unrest? Or is each of that a ‘silo’ tool or outcome of the system we depend on, with symptoms running the gamut of fear, distrust, anger, hatred, envy, biases, etc.?

All these are systemic challenges: They have their root in how the system we depend on impacts our behavior, individually and collectively, to perpetuate a destructive ‘bullying’ way of thinking and extracting, especially by the most power-hungry:

To survive, you must compete and fake it till you make it because wanting to win at all costs is what’s prized.

This core root cause hides in plain sight and you even call it Business-as-usual.

However, with its logic deeply embedded into our culture, you may not see how in a world where we all need money to survive, Business-as-usual very narrowly focuses you on how money is for your self-preservation — at your individual level — preoccupying you with surviving/competing in a silo. As money buys you stuff, pays your bills or you may receive some as a reward for being a super money-chasing machine, are you even cognizant of the system of how money influences your behavior?

Essentially, the systemic role of money and its creation. Can that be how our means of survival has increasingly been vested with corporations (aka ‘artificial persons’) that exist solely to maximize shareholder value/profit? Is that how the corporatocracy has been able to take over our lives?

John Kenneth Galbraith, the late Harvard economics professor, provides this systemic insight:

Twenty-three years after the Bretton Woods Conference (officially known as the United Nations Monetary and Financial Conference), he published The New Industrial State to share how capitalism had shifted from a market society to a hierarchical“industrial system” owned by a cartel of corporations he called the “technostructure.”

More than half a century ago, Galbraith had observed that instead of being markets-driven ground-up, the economy was organizations-driven, top-down. Dominated by large industrial firms controlling around two-thirds of output in key sectors of the economy then, he saw how a global elite was usurping markets, fixing prices and controlling demand for long-term production planning.

Galbraith had further disdained the scientific pretensions and formal apparatus of modern economics, believing all that math and numbers-crunching missed the point. He was also known to have quipped:

“Under capitalism, man exploits man. Under communism, it’s just the opposite.”

In 1973, the year after taking up Mao Zedong government’s invitation to visit China in his capacity as the president of the American Economic Association, Galbraith published A China Passage to share:

“There can be no serious doubt that China is devising a highly effective economic system,” “Greater Shanghai … has a better medical service than New York …”

and considered it not implausible that Chinese industrial and agricultural output was expanding annually at a rate of 10 to 11 percent … “rivaling that of Japan.”

Rather than being Johnny-come-lately, China could have been creating the framework for a new global system based on Business-as-usual for a very long time: The Belt and Road Initiative and the Social Credit system being two of its latest endeavors. The world’s factory also harbors intentions to become the world’s Artificial Intelligence (AI) powerhouse.

Meanwhile, using money to laser focus you on self-preservation, the “technostructure” has gradually institutionalized money into our lives, drumming up artificial Scarcity to reinforce distrust and exploitative ‘I win, you lose’ behaviors — with value creation orbiting around money.

Have you observed or even experienced such Hegelian dialectic theatrics?

A problem is created using fear, panic and hysteria. Two polar opposites (good cop vs bad cop) surface, one opposing the other to create division (divide and conquer) so you (the masses) will clamor for a predetermined solution.

Over time, is that how the global elites have been able to turn money into a public utility for a global payment system — governed exclusively by Big Business — powered by us surviving for ourselves?

In this dangerous world, only they are our saviors because they NEVER see Business-as-usual as the key fundamental root cause — it is always us, the people.

“Nowadays people know the price of everything and the value of nothing.” Oscar Wilde

Money serves these key functions

• Transfer of value (buy and sell goods and services and pay debts/taxes),
• Store of value (accumulate to transact goods and services later) and
• The most critical, psychologically as a numeric unit of account (common measure for goods and services to be exchanged) so whoever has the most money and power can very easily control and manipulate you — e.g. rewarding (giving money) or punishing (taking away).

Meantime, whatever has the most meaning (e.g. love, trust, care, friendship, authenticity, innate gifts) cannot be measured. So, although we are all vastly different, money has enabled our value (e.g. time, ideas, skills, energy, passion, resources, rights, etc.) to be captured, standardized and monetized. Even weaponized, as we compete for attention, grades, jobs, promotions, market share, funding, etc.

Most of all, by transforming human value into exchange value, money allows business entities (middlemen) to systemically facilitate transactions and to take a cut. Legally obliged to pursue the bottom line, these rapacious ‘artificial persons’ have no higher god than growth. Once they take over our means of survival, we are held hostage — money lets them increase prices at their whims and fancy, including outsourcing their risks to jack up their bottom lines, and to do whatever else they want with us.

If so, doesn’t the systemic role of money make us their sources of profit and transactions, our toxic way of life? Hasn’t money turned us into (human) resources to power the system we depend on?

Byextracting our value and funneling that to the “technostructure,” our collective value and worth is rendered invisible but individuals with the winner-takes-all mentality are encouraged and rewarded.

The operating system of artificial Scarcity does not value humans

“If you’re in a system where you must make profit in order to survive, you’re compelled to ignore negative externalities, effects on others.” Noam Chomsky

Money is mandatory for urban survival. As escalating cost of living fixates you on self-preservation, too many will perceive that value only comes with a big price tag. Expectations honed by societal norms also reinforce that belief. Then as you use money to self-organize and to self-allocate yourself and your priorities, money scarcity will hammer this simple numbers logic into your psyche.

Once that becomes an unconscious lifelong habit of ‘I win, you lose’ (divide and conquer), you will be territorial over whatever it is you perceive you own. Psychologically ingrained, (the lack of) money focuses you on seeing things as you are rather than as they are. In the here and now. Systemically conditioned to take things personally, your sense of self-worth (ego) then becomes an unwitting custodian of Business-as-usual as your empathy, the long term and the system fade out of sight.

So, much like the frog in a pot of slowly boiling water, you may not even realize the human layer is disappearing — money lets you complete transactions quickly without needing to understand anyone. Already, no human is required to transact on online platforms. With billions increasingly engrossed with self-preservation, unintended and negative consequences can and will arise. As trust collapses, fear will then push you to blindly accept utter nonsense as norm.

To have you continue doing whatever it is you believe you must do to survive, unaware this is how the system influences you to systemically create booms-and-busts.

For example: As we scramble to survive for ourselves, we invariably create a mountain of debt for all. Globally, a staggering 97 percent of all the money is debt. As we chase after shelter, food, healthcare, education, energy, security, etc., so many of us powering the system willy-nilly also drive up the cost of living to mega insane heights, unaware:

“The financial system does not, in fact, consist of ‘national monetary flows.’ Nor is it made up of a mass of tiny, anonymous, microscopic firms — the ideal of ‘perfect competition’ and the economic analogue to the individual citizen. The overwhelming majority of private credit creation is done by a tightly-knit corporate oligarchy. … At a global level twenty to thirty banks matter.”Adam Tooze, Crashed: How a Decade of Financial Crises Changed the World

Our post-war world economy was originally structured to prevent speculators from trying to attack fixed currencies. To keep money within the countries they were acquired, only long-term investments could move overseas. Oliver Bullough shares in the Guardian that this was to “keep governments from using trade as a weapon with which to bully neighbours, and create a stable system that would help secure peace and prosperity.”

However, Moneyland is also “a place where, if you are rich enough, whoever you are, wherever your money comes from, the laws do not apply to you.” Bullough calls that “the dirty secret at the heart of the City’s rebirth, the beginning of the process that eventually led to today’s stratospheric inequality.”

But back in September 1970, as US businesses grappled with the initial impact of globalization, Milton Friedman’s article clumsily rallied their key drivers to make profit their social responsibility.

Then on 15 August 1971, US President Richard Nixon ripped apart the Bretton Woods agreement, officially ending liberal economic order. As currencies became legal tender (fiat), Business-as-usual ushered in a new phase of globalization tethered to neoliberal policies. The movement of capital unleashed, the rich and powerful (including institutional investors) speculated — using money to make money — the world, their global casino.

‘Hot money’ (e.g. ‘eurodollar’ and ‘eurobond’) legally moving across borders has torpedoed us back to square one, exposing us to escalating episodes of debilitating instability:

“With the creation of the Euromarket, bankers in both countries [United States and Britain] ambled on a solution to the problem of how to reconstruct the London-New York financial axis that had been prominent in the 1920s.”Eric Helleiner, Treasure islands

Was our biggest shove into artificial Scarcity(and inequality) when our world economy legally became a global casino — covertly helmed by the failed Bretton Woods institutions?

* * * * * * * * *

The Social movements powering the future of moneyebook is now available on Amazon. Depending on demand, a paperback can be in the works.

If you are ready for a paradigm shift out of ‘I win, you lose’ Nonsense, please please watch out for and sign our petition when it’s out. Once it reaches 10,000 signatories, I hope to have observed/figured out the initial guidelines to try to catalyse the shift to True Abundance where strangers anywhere can potentially empower and build trust with one another for everyone’s benefit.

To try to buck the Business-as-usual trend where Big Business retains all the key benefits, net proceeds from that very emergent initiative will be shared with the best crowd actualizers, very broadly as follows:

· 1/3 for core team

· 1/3 for best crowd actualizers and

· 1/3 for next True Abundance project.

But we have a huge chasm to cross first — to unlearn ‘I win, you lose’ so we can relearn ‘You win, we win’ by doing.

The post Self-organized to perpetuate Nonsense? appeared first on P2P Foundation.