A national conversation has begun which is alarming, yet also familiar. It talks about costs and trade-offs, losses and accounts. It is a conversation about human lives framed in the language of economics.

A recent study by Philip Thomas, professor of risk management at Bristol University, suggests that ‘If the coronavirus lockdown leads to a fall in GDP of more than 6.4 per cent more years of life will be lost due to recession than will be gained through beating the virus’.

Research like this presents us with a terrible dilemma, even leading some people to wonder whether the trade-off for trying to save elderly and vulnerable lives is really worth it, when it would cripple the economy for decades.

In times like these it helps to remember that we are presented with this misleading narrative every time we decide to act on our conscience. We are told we cannot halt the arms trade, because we will lose jobs. We are told we cannot reduce carbon emissions, because we will lose jobs. Now we are told we cannot save people’s lives, because we will lose jobs. For decades governments have used the threat of recession to badger us into maintaining an economic system that has made the poor poorer and the rich richer at the expense of the Earth’s support system. We are told this makes economic sense, but does it? 

Economics vs Chrematistics

In their book ‘For the Common Good’ economist Herman Daly and theologian John Cobb, Jr explain the difference between the practice of economics (from the Greek word oikonomia ‘the management of the household so as to increase its use value to all members over the long term’) and chrematistics (from khrema, meaning money and referring to ‘the branch of political economy relating to the manipulation of property and wealth so as to maximize short-term monetary exchange value to the owner’):

“Oikonomia differs from chrematistics in three ways. First, it takes the long-run rather than the short-run view. Second, it considers costs and benefits to the whole community, not just to the parties to the transaction. Third, it focuses on concrete use value and the limited accumulation thereof, rather than on an abstract exchange value and its impetus towards unlimited accumulation…. For oikonomia, there is such a thing as enough. For chrematistics, more is always better… “

In this definition of economics financial wealth does not trump the wellbeing of the community, as it is distinct from the actions a society must undertake to look after its members. The threat to our livelihoods that a fall in GDP represents is due to a conflation of economics with chrematistics.  

If for a moment we were to prise them apart we would see a different picture.

Whereas the lockdown has caused a drop in GDP growth (chrematistics) with the threat of recession and likely hardship for many people, apart from restricting our movements, it generally does not make us less able. It will mean many of us will not have access to society’s current means of exchange (money), but it does not represent a loss of ability, talent and willingness to contribute in the population at large. 

In fact, despite the fear and anxiety generated by the crisis, what we are witnessing is a phenomenal upsurge in generosity and creativity as people pull together to support each other with whatever they have. We are collectively defying the popular economic notion of humans as selfish utility maximising individuals and mostly showing solidarity and kindness. In the process we are realising who the real wealth creators are. They are the frontline workers in the caring economy: the nurses and doctors, the shop assistants and delivery drivers, the shelf stackers, the cleaners, the 750.000 (and counting) volunteers that have come forward to help the NHS. Online, they are the people offering free education, performances, exercise classes, financial advice, museum tours, mental health support, the list just goes on.  Behind closed doors it is those managing the domestic life: the family members doing their best to keep their children and themselves healthy and happy and sane, the friends joining together at a distance via a multitude of platforms. 

In this moment of crisis the fragilities of a globalised system have been exposed and it is ‘ordinary people’ and communities working together that are heading off socio-economic breakdown. They are demonstrating in the words of Naomi Klein in her book No is Not Enough, that ‘If the goal is to move from a society based on endless taking and depletion to one based on caretaking and renewal, then all of our relationships have to be grounded in those same principles of reciprocity and care —because our relationships with one another are our most valuable resource of all.’

The effects of Covid 19 will continue to place an unprecedented strain on societies that will require international cooperation, imagination and courage to overcome, but these efforts must not be geared towards returning to business as usual. Instead, we need to foreground the countless social and economic practices that have been developed over the last four decades by academics and practitioners dedicated to creating economic systems that serve all life on earth, and put in place mechanisms that reward people for generating real wealth and value. 

Time for bold solutions

After years of waiting in the wings Universal Basic Income (UBI) has now entered public discourse. Many pilots are underway, but the oldest ongoing experiment, The Alaska Dividend Fund, has shown no decrease in labour market participation and has ‘significantly mitigated poverty, especially among Alaska’s vulnerable rural Indigenous population.’ 

Currency experts such as Bernard Lietaer have shown that diversifying our exchange systems will make them more resilient to shocks in the global market and enable us to support social and ecological regeneration. The Human Scale Development framework developed in Latin America in the 1980s can help us evaluate whether what we are currently producing is actually meeting our real needs or pseudo satisfying manufactured wants. Together with Doughnut Economics and Steady State Economics such frameworks can help us steer a course that keeps our economic activity within the Earth’s limits. 

Vulnerable international food chains must now be replaced by regenerative local food systems. Building a vibrant food culture could simultaneously tackle obesity and youth unemployment, while ensuring future food security and restoring our soils. Land and property ownership must come under scrutiny and re-imagined to ensure food sovereignty, the regeneration of natural habitats and truly affordable and secure housing for all. The creation of worker cooperatives and support for local businesses have been shown to multiply local wealth and wellbeing, and will be needed to create more cohesive living and working communities.

In order to give people a say in shaping their lives and their communities, local authorities could introduce participatory budgeting, citizens’ assemblies and community charters.  Both nationally and internationally we must look at ways to abolish the crippling debt that is forcing people into unsafe work or destitution. We must also urgently start a discussion about the internet as a public utility. Work done by the P2P Foundation and the Institute for Local Self-Reliance can provide a guiding framework for sharing the wealth created by our communal efforts and make sure we all have access to its vital services.

The unintended social experiment precipitated by the virus presents a once-only window of opportunity to re-think our economic and social organisation in ways that can help us survive both the Corona epidemic and the greater threat of climate change that is now playing out. Instead of making people and planet fit around the numbers, it is time for numbers (financial mechanisms, exchange systems) to start fitting around people and planet. 

GDP does not measure what we value most. This crisis must be an opportunity to challenge what we have allowed corporations around the world to do with the natural environment (conveniently referred to as resources) and people (labour) in the name of economic growth. Thatcher was wrong: there are alternatives. Many of us have been working on them for decades. We are ready to take our rightful place at the table to help us turn the corner into a possible and hopeful future.  

Lead image by Tim Mossholder

The post No more business as usual – Rethinking economic value for a post-Covid world appeared first on P2P Foundation.

The invisible hand of the free market governs everything and the hardworking get prosperous while the lazy suffer poverty.

Sounds pretty familiar and very rational, doesn’t it…

But check it out again with the religious equivalents of the core terms replaced in:

God of the creation governs everything and the faithful get in heaven while the heathen suffer hell.

As you can easily notice, ‘Invisible Hand’ is a replacement for ‘God’, ‘free market’ is a replacement for ‘the creation’, ‘the hardworking’ is a replacement for ‘the faithful’ and ‘the lazy’ is a replacement for ‘the heathen’.

That’s because Capitalism is a Christianity replacement.

So much that it even replicates the Church organization of Medieval Christianity:

The economists (clergy) continually advocate (preach) free market economics (the faith) and interpret the economy (holy book) on behalf of the society (the believers). The critical economists (heretic priests) are outcast by the establishment, not given airtime, ridiculed or censored.

Whatever happens in the economy is interpreted and ‘somehow’ explained by the economists (clergy), and in those explanations, anything good that happens is due to free market economics (the faith), and anything bad that happens is due to straying away from free market economics (having any other faith).

According to the sermon, all that the hardworking (faithful) need to do is to work hard (have faith) and keep staying the course. Because ‘the invisible hand’ will fix all problems, crises, issues without them needing to do anything in particular. All they need to do is to have faith, and putting their trust in the religion by trusting the clergy of the church. Whose only solution to every single problem is more free market (more faith), and if a solution does not work at all, its because the society was not faithful to the free market enough.

Most interestingly, this setup also mirrors the development of Christianity and its Church from their inception to late modernity:

While the economist community that is comprised of economists sanctioned by the religion acts as the clergy of the religion, modern media which took the place of individual church buildings as a medium of communication acts as their medium to preach the religion to the society. This setup is amended by the education institutions and scientific institutions which act as the appendages to the Church, where children are educated/indoctrinated to the religion and its tenets from an early age by instilling them with ideas of competition, consumerism, materialism based success and in general a complete worldview that is created based on the religion’s tenets. The higher education and scientific institutions continue the education/indoctrination, creating the subsequent generations of clergy to preach the religion and run the institutions.

Incredibly, this arrangement also replicates the relationship of the medieval church and the nobility

Medieval church in middle ages acted as the opinion-shaper which molded the society’s opinion and beliefs to comply with then-existing feudal/aristocratic system.

The church advocated hard work and poverty, material conservatism to its faithful. Whereas clergy, especially higher members of the church lived much more comfortable and wealthy lives compared to average population, to the extent that highest members of the church being de facto princes in their own right.

The church also acted as the agent which rationalized the power of the minority rich, who were the feudal aristocratic nobility: While the faithful needed to suffer poverty and work hard, the nobility could enjoy material wealth, luxury and live extravagant lives because it was their god given right to rule.

So the medieval church basically acted as the propaganda/conditioning organ of the establishment by conditioning the public to accept the existing arrangement and rationalize the power of minority elite over them. The people worked hard to create economic value while the minority rich elite collected most of that economic production as theirs without doing any comparable work, because they were the property-owners of the region. Their ownership of that property was rationalized as a god given, holistic right.

Which is exactly the case with modern church of holistic economics: The economic church continually rationalizes the existing system and excuses/explains the power of a minority extreme rich segment who controls the system despite the suffering of a large majority to create the wealth that concentrates in the hands of a very tiny minority. Just because they have been able to concentrate ownership of entire economy in their hands.

Which results in dysfunctional, broken societies.

The above infographic is not even up to date with the latest state of affairs, since now one needs an income of $500,000 /year to be able to enter top %1 in US.

Americans now need at least $500,000 a year to enter the %1

The income needed to exit the bottom 99% of U.S. taxpayers hit $515,371 in 2017, according to Internal Revenue Service data released this week. That’s up 7.2% from a year earlier, even after adjusting for inflation.

Since 2011, when Occupy Wall Street protesters rallied under the slogan “We are the 99%,” the income threshold for the top 1% is up an inflation-adjusted 33%. That outpaces all other groups except for those that are even wealthier.

The role of the church of holistic economics is to justify that situation by advocating that the owners of the economy who amass ever increasing amounts of wealth solely due to their ownership/control of the economy, have that much wealth and control because of their ‘hard work’. Whereas the Church is tasked with also keeping the system going by continually advocating for the policies which created this picture of dysfunctional inequality.

The recipe from the holy book is always the same: More deregulation, more ‘free market’ (faith), more hard work for the faithful. Despite this would inevitably end up making the dysfunctional situation worse, more faith is the only thing the faithful should do.

And the church even affects the believers’ behavior towards others

The believer of the system of Capitalism does not even want to entertain any other idea or system – because if he or she does that, s/he will have broken faith, which means that s/he wont be able to attain salvation (get rich). Because if he entertains any other idea or system, he will lose faith in the religion, therefore he is going to be lost and he is going become a heathen (poor). The only way to salvation (getting rich) is hard work (having faith).

This also explains how people who are basically exploited by the system still keep ‘voting against their own interests’ as it is said – its because they believe that this temporary suffering will pass and they will get rich only if they keep faith.

It doesn’t stop there – the exact behavior of the faithful in Middle Ages against heathens and heretic ideologies is also replicated:

Socialism and similar non-Capitalist systems are heresies – a lack of faith – and giving any thought to any non-Capitalist (non-Christian) system is a lack of faith in God.

Furthermore, the poor (heathen) deserve poverty because they were not hardworking (faithful) enough, while the rich (the faithful) deserve all the riches they have because they were hardworking (faithful) enough. So the believers believe if they also work hard enough, they will be saved as well – and become rich.

Hence the brutal, medieval attitude of the believers of the Church of Capitalism towards the downtrodden or the poor in the society in places like US: Its because they are heathens, they deserve what’s coming to them. If only they were faithful, they could also do much better.

Even if the believer himself is not doing any better, that is…

The believer justifies his situation by just believing that he is doing better even if he actually isn’t doing any better – because, since he is hardworking (faithful), he has to be doing better, right? Because the belief says hardworking is rewarded.

Because recognizing the situation and admitting that despite working hard, the promised riches and comforts did not materialize would be a giant blow to the believer’s psyche, the believer just rationalizes and elevates his situation even if he is not doing well. Look, he is hardworking among the flock of the Church, and therefore he has various small amenities – like a car, an air conditioner, a rented house or a house which was bought at an opportune time point when one could easily buy a house.

By attributing these amenities which are pretty much standard in entire developed world to Capitalism, the believer not only reinforces his religion in his mind, but also thwarts off any potential heresy and the subsequent cognitive dissonance by validating the religion.

He has these things because the god of his religion gave them to him for having faith…

This is the underlying motive behind the tendency of not only the Church clergy’s, but also the ordinary believers’ tendency to attribute anything good that happens to Capitalism. Even if Capitalism had nothing to do with it. Its a self-defense mechanism to avoid cognitive dissonance.

The Crusades

Because Capitalism is the ‘true religion’, and because the elite which benefits from Capitalism wants to increase their riches, the religion must be spread.

Hence, the establishment and its church undertake great effort to spread the religion to any place that is heretic: The clergy incessantly advocate the religion to those who don’t believe in it, and whenever possible and if necessary, the establishment itself directly subdues heretics by force and commands their wealth.

This takes the form of never-ending propaganda by the Capitalist establishment to propagate the system to any country that is outside the system or strays afar from the system, like the immense funding that the private think thanks and the US state apparatus spend in funding different foreign movements and foreign political parties which are in alignment with Capitalism.

The propaganda done to these countries takes the same shape that it takes at home: Anything bad that happens in a heretic country is because of their heresy. And anything good that happens somewhere is because of their faith.

Which materializes in anything bad happening in those countries being due to Socialism or other heresies, whereas anything good happening being due to their scarce observance of Capitalism, the faith. So even if the US sanctions a country to starvation, the ensuing starvation is Socialism’s fault.

And if a country or a society does not heed the call through ‘peaceful’ means like these, then the crusades happen: The foreign country is subjected to sanctions, economic warfare, regime change operations and coups, escalated in that order. And if the foreign country is still non-compliant, the final stage is invoked – the foreign country is attacked or invaded in order to force a compliant capitalist government, aka forced conversion to belief.

Do they really believe what they say?

Akin to the people of those times, it is certain that a large swath of the the believers actually believe in their religion.

And in a similar vein, a large swath of the lower and mid to upper segments of elite (clergy and nobility), do believe what they are saying.

However, just like those times, the upper elite in the Church and nobility are definitely aware of the game that is being played, what is false and what is true, and they participate in the game and do what they do only to keep their power and wealth going at the expense of their own people. Except, a small minority of easily influenced personas among them who actually do believe in what they are told.

That explains the phenomenon of highly educated, intelligent figures in establishment saying incredible things which do not make rational sense – things which sound like what a village idiot would say. Those things appeal to the emotions and beliefs of the believers and enable and rationalize the policies and power of the very elite which repeat those incredibly unreasonable talking points.

A segment of educated mid to upper class professionals also are true believers – because despite their rational, and even in certain cases, atheist outlook which does not accept actual religion, they have taken up Capitalism as a Christianity replacement in order to have a belief which explains the world and gives them promises of a better future that is in their hands. While at the same time rationalizing and explaining the suffering and poverty that they see around them, to ease their conscious.

As seen, Capitalism is a direct replacement for Christianity. It replicates not only the core beliefs and explanations of Christianity, but also replicates the church system and the feudal aristocracy. It functions as a vehicle to keep the power of a minority elite over the society while justifying and sanctifying their position of power and wealth at the expense of rest of their countrymen.

What’s the problem?

The problem is that medieval Christianity and Church kept the society stagnant, backwards, kept its people suffering and helped a non-working or minimally working elite hoard the society’s resources. They kept those resources from being used for betterment and prosperity of society and instead used those resources for their extravaganza. A waste. Modern religion of Capitalism does the same to modern society.

It keeps majority in poverty, in a state in which they are ever harder-working but are receiving little from the economic value they generate. Then it gives that economic value to those who own the economy, who will just hoard that wealth as personal power instead of actually investing it to better the society as was promised. On top of that the same elite use their control of the economy to subvert politics through election funding and corporate media, to take over government and implement more policies that will remove limits to their power and ownership of the economy. This further worsens the economic inequality, impacting entirety of the society.

In the end you end up with large segments of people – actually the majority – suffering in poverty, overworked, disenfranchised, uneducated, not even able to feed their children, not having any hope of breaking out of their situation through education because they cant even access education, dying if they cannot pay for exorbitant privatized healthcare, losing all trust in the society and hope for the future, feeling the need to put their faith in actual religious extremism, extremist movements, ultra-nationalism and in some cases, anything that will just shake the system even if it would be destructive.

Endless numbers of youth who could receive education to become scientists or researchers who could bring great advancements to society, to cure diseases, to fix problems, instead waste their talent away working underpaid jobs without being able to pay for their education…

Hard working people receive only a small fraction of the actual economic value they generate, with the majority of the value going to non-working majority shareholders as profit, ending up people having to overwork in stressed jobs and leaning on pharmaceuticals to keep themselves going, being able to get nowhere near what their parents’ generation was able to get in terms of life standards and security of future…

Even the small to medium businesses go bankrupt because population at large doesn’t have money to buy products or services. This is amplified by the pressure which large players that control concentrated wealth put on small and medium businesses because large players can easily out-compete them, and this pressure speeds up the devolving cycle of concentration of wealth…

This causes the system to start using actual religion and to propagate religious extremism in order to keep the society passive. This stems from the need of the people seeking a relief from their misery, but it greatly speeds up due to establishment’s efforts to use it to protect the status quo, bastardizing the religions and turning them into a tool and violating the sanctity of those actual religions’ core tenets to exploit them for self gain. This ends up in an increasingly radicalizing and reactionary populace which starts to become dangerous for the modern social fabric…

So much that the eventual result even hurts those who benefit from the system, with a religious or extremist segment rising from among the population and gaining power, and subduing or prosecuting anyone who does not fall in line. Including anyone from among the incumbent rich elite – forcing these people either to give up their beliefs, their lifestyle and obey the new dominant extremist societal worldview, or suffer the consequences…

The damages which a belief-based mechanic of societal control for self-aggrandizement does are varied and innumerable. Societies throughout history either fixed the economic injustice which created these, or they collapsed in a myriad of ways.

So what can be done?

The foremost thing to do is recognizing the above mechanics and behaviors and observing them at work in the society and daily actions of the ordinary people and the elite.

This brings in the necessary awareness to deal with the problem, independent of where the person is within the social strata.

The non-elite

If you are a member of lower segments of the society, you must realize that hard work will not bring prosperity in a system that was designed to work unfairly, and even if it brings some material rewards, the rewards will be much less than the actual hard work done. It is an unjust system – its not even ‘rigged’ in that way, the system is just what it is – unjust.

Instead, you must follow a route of pushing change through all means possible, voting for pro-people politicians and parties which fight against inequality to put them in positions of power in all levels of society ranging from municipal seats to parliaments, congresses to presidency. And if possible, you must also join grassroots people’s movements for effecting that change. Because grassroots movements, just work.

Anything to address the unfair system and change it to a more egalitarian system will make everything phenomenally better. Advocate change, criticize the existing unjust and destructive system. Help others see the unjust system as it is.

Buy from cooperatives, work in a cooperative if you can. Support organizations and groups which seek to address inequality, do your business with them and solve your problems through them. Become the change which the society needs.

If you are a member of higher segments of the society, especially as a member of educated white collar professional segment who works in private enterprises, you must realize that even with better, and in some cases noticeable compensation which you may be receiving, you are still getting only a fraction of the actual economic value you generate. The situation gets much better if you actually have a share in the company you work, like the stock options that are so popular in places like Silicon Valley, but even in that case the people who work in such enterprises are estimated to be receiving only up to 10% of the economic value they generate.

Increasing inequality and the lack of purchasing power of the general public not only hurt the prospects of the company where you currently work, but also they diminish the chances of the startup which you may attempt to start in future.

At the same time increasing inequality creates a rift in between you and your society, alienates them from you and pushes you into becoming a minority within the society you live. Even if different urban or suburban regions separate you from the disenfranchised majority, eventually the cows would come home when the society falls into extremism and seeks targets to persecute.

Therefore both for your own benefit and for the benefit of the society, you must fight against inequality by not falling to the trap of the religion that justifies this outrageous state of affairs.

Similar to other segments: Vote for politicians and parties that fight inequality. Take action and volunteer for groups that seek to bring change. Prefer to work in organizations that have less inequality or in organizations which seek to bring a more egalitarian distribution of generated economic value. In your workplace, use your technical knowledge and if possible and legal, the means of the organization you work for, in order to push for a more just economic system. Try to address and diminish the power of religious advocacy of the establishment in conditioning the masses.

Work in cooperatives, or in enterprises which have more egalitarian structures. Any company which gives its employees an acceptable share in the ownership of the company and a say in how it is run, is much better. Any company which does even at least a bit of that is a better choice compared to private organizations that are run as private tyrannies.

You as an educated professional, have a lot of impact when you attempt to change the society. Use it to full extent. Without your compliant cooperation, the existing system cannot continue, and with your participation in movements of change, a more egalitarian and futuristic system can rise.

THE ELITE

If you are a member of the current elite, though you are currently the beneficiary of the current system, you must realize that the system is self destructive, and no amount of self-reinforcing pseudo-religious philosophy can change the system’s internal mechanics.

As you can understand by researching the histories of societies which have fallen into extremism after the collapse of societal contract due to rampant inequality and disenfranchisement of the majority, the existing established elite rarely escapes the resulting fallout.

In the wave of rising extremism, the elite must either follow suit and subscribe to the extremist beliefs and practices, or suffer prosecution, even death. This happens the same even if you are an actual subscriber of such beliefs – as the society becomes more extremist, you are expected to follow suit, else you are perceived as non-compliant and eventually end up being targeted and getting persecuted.

There is little chance that your worldview and lifestyle will fit any potential extremist movement which may rise in your society. What’s worse, even if your worldview and lifestyle fit the philosophy of the rising extremist movement at the start, in the long run you would find out that you somehow ended up being viewed as a ‘moderate’ who is not compliant with the creed. You first get reviled by your non-compliance, then you get persecuted if you don’t comply.

Your choices would be either complying by dropping your current beliefs and lifestyle and obeying whatever the mainstream of the increasingly extremist society comes up with, or leaving everything behind and escaping abroad. That is, if you can find any reasonably developed society which escapes the ever-increasing inequality and subsequent social collapse which Capitalism is effecting on all developed countries…

The better choice is taking just a few steps back. Taking just a few steps back by allowing a percentage of the immense wealth that is concentrated in the hands of your minority to be channeled to address the rampant inequality through social programs, social services, investments, through putting concentrated wealth back into the economy by distributing it to majority of people in quantity, through distributing it to people who will spend that money to generate actual economic activity which will end up benefiting the businesses and organizations which you hold a stake in…

You don’t lose anything in the process either – you very well know that after a certain point, that kind of wealth cannot be used, cannot be spent for personal purposes in any meaningful manner, and it can only exist in the form of control of economic organizations through ownership of stocks and investments.

It’s a power scheme. It exists as the relative power which you have compared to other players in the form of wealth. And the relative power of the wealth you have compared to all other players would not tangibly change if every player loses a given percentage of their wealth. Even a large scale distribution of a fraction of that wealth would not upset the cards which the players among your segment hold.

So, choose the better option by taking a few steps back by merely not objecting to the political and social movements which seek to address this unworkable state of affairs, and even by directly supporting them to fix this chasm in the society together.

Conclusion

Leaving the self-reinforcing religious belief that enables and propagates the societal breakdown is in the interest of everyone in the society. There is no logic in insisting in continuing a self-destructive system which is destroying itself in front of your eyes in a predictable manner due to its internal mechanics.

No amount of justification, self-delusion or religious mythology, no amount of belief in the system will change the system’s internal mechanics. Its internal mechanics will continue dragging the system towards its eventual self-destruct, irreverent of the belief which you may put in the system. There are even worse potentials than societal collapse due to our civilization having very powerful weapons of mass destruction at this point in history. Extremism and different forms of societal collapse carry the potential of igniting conflicts which may destroy parts of the world or even human civilization.

Instead of believing in the pseudo-religion of holistic economics, we must believe in ourselves, the people.

We must work together to create a better society by putting our faith in ourselves, by putting our faith in our society, by putting our faith in a better future.

Because we can make such a future happen.

This article has been reprinted from Ozgur Zeren’s blog. You can find the original post here!

Featured image: “All-religions” by uttam sheth is licensed under CC0 1.0 

The post Capitalism is religion appeared first on P2P Foundation.

Photo by Ron Guest

1. Versions Of Culture

Nothing, beyond the natural world happens ‘outside of culture’ and even our basic elements of existence — atoms, cells, time, chemistry, etc can be fundamentally manipulated and altered by it. For that reason, defining what we mean by ‘cultural’ always needs classification, like Cultural Commons (everything we do, make and say and, crucially, share ), Cultural Democracy (how we hold the power we have to make, say, do, share/not share) and Cultural Industry (how we give service to each other, by association) are equally all encompassing.

“Art and culture make life better, help to build diverse communities and improve our quality of life. Great art and culture can inspire our education system, boost our economy and give our nation international standing.” says the Arts Council’s website, before they offer a hashtag to explain why #culturematters…

There are differing representations of culture from sociology to ‘the arts’ to online versions, to a ‘commodified’ sense of ‘cultural heritage’, which has been generated to ‘drive growth’, we are told…

But it’s clear that culture IS our economy; it IS our education system and our ‘international standing’. In no way is ‘culture’ distinct from ‘the economy’. Equally clearly if it actually IS these things, it has to be more than just an instrument through which they are ‘improved’. At the root of our usage of the word ‘culture’ is a reference to how we grow stuff; in other words, how we produce versions of culture; businesses, buildings, stories, institutions, whole areas of ‘science’ and ‘art’; how, in fact, we reproduce ourselves in every way bar the absolutely fundamentally biological one (and culture has much to say about that too!).

‘Art’ may ‘make life better’ or even ‘help build communities and quality of life’ and we might even want to agree that some art is ‘great’ — or not. Saying the same of culture is a very different proposition. Culture isn’t a ‘means’, or an incentive, or an ‘inspiration’ or a ‘driver’. Nor is any artefact ‘culture’ in any way that any other artefact is not ‘culture’. You can’t ‘have culture’ — or not. It is all culture. I hope we can establish that as broadly agreeable. If it’s not animal, vegetable or mineral or any other naturally occurring phenomena — it’s culture. OK…?

If that’s established — ? — , I’d like to move on to one of the other few things of almost equal ubiquity and central to all cultural production: Creativity. Without this, culture is static. If Culture is the arena in which we recreate ourselves, creativity is, at some level, the means by which we do it.

Creativity then, is also a primary ‘commodity’ in a market economy for the exchange of cultural goods and services. It is therefore noticeable that the means by which we have, culturally and economically speaking, come to generate value from creativity, is largely ignored in many debates about ‘culture’ — and most surprisingly in debates about how we finance the arts, where creativity is so central…

2. Financing Creativity

So, how do we finance creativity itself and how do we turn creativity into financial value? Let’s take the second question first:

After Jeremy Bentham’s Utility Theory, Intellectual Property (IP) has become the means through which creativity is turned into economic or monetary wealth. Curiously, it is a means which is ignored in the state funded arts ‘sector’ by all bar a few. Accordingly, those engaged often talk about risks and reputations, but rarely rights and responsibilities. All are natural by products to the act of creation, but discussing ‘IP’ seems to make ‘us’ uncomfortable.

It’s not surprising: Handling IP for ‘The Cultural Commons’ is a complex subject with multiple stacks of issues which overlap incessantly. Likewise, it is a subject also often ignored in left leaning debates about funding structures and cultural policy. To some IP is a necessary evil, while to others it is simply an evil and should be resisted. Either way, it is ignored. The reality though, is that given most laws in most jurisdictions, it is, as Mark Getty termed it ‘the oil of the 21st Century’ and isn’t going away.

UK investment in intangible assets protected by IPRs has risen from £47 billion in 2000 to £70 billion in 2014. Likewise, “copyright-intensive industries contributed an estimated 8.4% (€168 billion) of UK GDP and 6.3% (1.9 million) of UK employment per year during the period 2011–13.7”.. The figure is rising exponentially and is forcing us to ask questions about when temporary and long term monopolies are necessary to create incentives to ‘create’ and, most importantly — ‘who for’? This is where the notion of ‘commons’ enters the fray…

For pragmatisms sake, it might help to identify the £92 Billion ‘worth’ of UK Creative Industries and the £1.6 Billion of lottery, government and philanthropically funded ‘arts and culture’ as the ball park (sculpture park?) in which we will try to carve out ‘our cultural commons’. Under the working title of CultureBanking® I’ve been doing just this and examining the financial ecologies operating across both sectors and seeking ways to re-connect, or ‘re-common’ both the tangible and intangible assets that feed them. The production and redistribution of wealth via lottery ticket consumption is also held in question as a method which is disinterested in it’s production of wealth and fails to enable the wealth producers to have any role in the management of the resources they contribute to.

3. ‘Cultural’ Assets

In relation to our material commons, it might be argued that there is a paucity of any sense of ‘us’ or ‘we’ in our ownership of Cultural Assets. There is now less that ‘we’ as a nation clearly own together than at any time since, at least, shortly after the second world war. Even social enterprise and many co-ops still produce private assets. It would be disingenuous to suggest that the growing hoards of CIC’s, Trusts, Foundations and Charities in this ‘sector’ do not compete with one another for all available ‘philanthropic’, ‘strategic’ ‘project’ or ‘revenue’ capital, whilst also competing with a myriad of private enterprises for earned income.

Monopolies also apply in our charities and would be cultural commons as they do in our private sector. The masses of intellectual property assets created and stewarded under the banner of state or lottery funded arts programmes and the activities which create them, are often effectively privately owned, but generally excluded from benefitting either their creators or their commissioners under not for profit rules (and lack of expertise). The same is true of so called ‘public assets’ such as public museum collections. On the rare occasions assets of this ilk interact directly with ‘the open market’, they will usually benefit the organisation which owns them, which is fine, but limits this kind of resource growth from cultural capital to all but the very few ‘nationals’. They do not share wealth accrued from their IP or “cultural capital’.

Even the very ‘assets’ in the collections are highly undemocratic in their selection and management: In a meeting recently, 6 Museum Development Officers were asked if they had heard of the Cultural Gifts And Acquisitions in Lieu Scheme. All bar one said ‘no’. The scheme is a 2013 invention of the conservative government allowing individuals and corporations to give and museums to receive cultural items of ‘pre-eminence’ in return for large tax allowances ‘on behalf’ of the nation. Apparently we need a panel of experts to tell ‘us’ what ‘we’ value. In this model of, literally, cultural protectionism and acquisition, not only is there no public ‘us’, not even regional museums consider themselves involved. The results are rising initial and ongoing costs to the tax payer for preservation and display etc. This is FAR from cultural democracy. There is no operating system for managing the assets at all other than expecting tax payers to pay without at least having some involvement in selecting the artefacts they pay for! Culturebanking proposes to democratise the production of this cultural wealth and ‘sweat’ these assets in order to create future common wealth. But, above all, why should the production of the ‘national cultural wealth’ not be open to all?

“Under the (gifts and acquisitions) scheme, 70 to 80 per cent of an object’s value is a charitable gift to the nation” says Peter Bazalgette, in his preface to the CGS and AIL Report of 2016. In fact it is an exchange between an individual or corporation and a variety of charities, none of which are actually producing commons or sharing wealth, even though a condition of being ‘open to the public’ for 100 days exists. Other questions about what constitutes ‘eligible institutions’ are equally un-answered. Surely, if it is a gift to ‘us’ then ‘we’ should have use and ‘possession’ — and be able to benefit from our tax gifts? CultureBanks would have it that ‘gifts to the nation’ can pass from the many to the many, without need for experts or ‘pre-eminence’ and would create a net gain for tax payers rather than a loss.

So, what happens if we imagine this to be the case and full use of such public goods includes all rights and income generating (including tax allowances) potential?

By creating local banks of common wealth in the cultural sector and by modernising the ‘banks’ (eg, museums and archives for holding IP assets, credit unions for holding shared wealth and community foundations for distributing it) we already have, we can do all of these things.

We have spun-out a largely pseudo-public sector, which is actually not acting in any democratically agreed ‘common cause’ or being held accountable to the public. Despite organisations having articles, associations and governing documents which act ‘in trust’ and for ‘public benefit’, the reality is that the first responsibility of each is to its own survival. Our commons and public sector are ill-served and neglected.

Our legal forms down to the level of individual companies and organisations are centralised, slow to change and non accountable. Real shared (cultural) value is not possible without legal forms to support it. The cooperative sector offers some hope in this direction but not an answer of itself. Even our coops are still producing privately held wealth. To simply pretend that we can create a material cultural commons, which actually feeds people, out of words or even politics alone is nonsense. Some fundamental change is necessary in marketplaces as well the public and legal spheres. The limited resources of middle income people tied down by responsibility and rootedness also do not create a climate for popular political change and ‘wealth sharing’…

4. A Note On ‘Policy’ and ‘Strategy’

We can and we must re-democratise culture and we can and must re-democratise the distribution of resources that drive it (and those ‘it’ drives). What we seem less insistent on doing is democratising how ‘cultural’ wealth is made and held. This is our Cultural Commons. Distributed Autonomous forms of ‘Organisation’ are slowly beginning to ally as ‘creators’, bonded, not just by purpose or production but as creators of cultural capital — and assets. If that capital is held privately, capitalism continues unabated. But if we can begin to hold that wealth in common, we start to democratise the production of cultural wealth. We incentivise people’s creativity without diminishing it to exchange value alone (ref – the art market). What this means at the local level is that art in communities can be financed against that community’s production of cultural wealth. A practical example of the imbalance in financing creative assets with creative wealth might be the relative incomes distributed to Ed Sheeran as the (part) composer and performer of a song, to the skilled work of a community choirmaster who uses the song to increase wellbeing for a community choir. There is every reason to believe that such a vocal artist may also write a song for Sheeran as well. It’s clear the cultural common wealth produced needs better re-distribution to reflect efforts and contributions, especially over ‘copyright life’ of, say 70 years…

As empowered ‘creative communities’, those involved in the actual coal face production of ‘cultural’ wealth (artists, musicians, writers, designers etc) can be better rewarded materially and better represented in ‘cultural forums’ like CIF, LEPS, Local Arts Boards and Funding Boards etc . A quick scan of my own Cultural Board of the East Anglia LEP reveals not a single artist! Sensible calls for ring fencing current lottery funds for local authorities community arts programmes and re-democratising the financing of our Arts NPO’s are overdue: ‘Culture’ can no longer be ‘administered’ by self elected, primarily business oriented bodies, to drive ‘growth’ alone. But equally, the ability of these bodies members to profit directly and monopolise ‘culture’ will be curtailed by placing the ‘big units’ under some democratic scrutiny. The bath water we need not throw out though, is much of the wealth already produced. Enabling common ownership of wealth within the market can help to solve this quandary by taking that ownership out of (as much as is possible) competing political interests. That sounds simple, but is actually unheard of. What Culturebanking is proposing is to create cultural public (or common) goods circulating in the market for public (or common) causes. The innovations required are in re-education, capacity to ‘hold’ wealth (in credit unions, CDFI’s etc) and distributed forms of creative alliance which can co-operate under sympathetic legal structures of a partner state; citizen assemblies may dovetail well with such a system. It is a new task for policy and strategy to either catch up with this agenda — or just get out of the way, since people can simply do it themselves if unhindered by bureaucracy. (Something IP owners have been relatively free from when it comes to wealth production!). As well as holding ‘wealth’, holding the ‘assets’ or rights is a capacity which also needs development. The expense of working with, let’s say, a Museums Service to develop new skills of rights based trading for social purpose amongst staff would be prohibitive without technologies which can be used by all simply and with lower training and running costs.

In addressing ‘new types of investment’ and the ‘place-making agenda’. The new Civil Society Strategy still treats ‘Culture’ as something outside of industry rather than an integral part of it: ‘Culture drives growth’ rather than ‘Culture IS growth’. This is evidenced, as mentioned, in the cultural gift scheme but also in how a very limited version of ‘Culture’ is invoked to recreate itself via cultural policy. We are told that The Cultural Development Fund: “will support place-shaping by investing in culture, heritage, and the creative industries to make places attractive to live in, work, and visit.” But, unlike investment in business ( which quite explicitly seeks to OWN the wealth it creates) there is no operating system proposed for the investment we make in ‘culture’. (or in the often ‘usual suspects’ who rely on ongoing grants). ‘Culture’ is treated as a commodity, arbitrarily ‘attached to the arts’. You never hear about ‘health and culture’, or ‘manufacturing and culture’, or even, those other major lottery recipients. Heritage and sport — ‘and culture’. They all have an equal right to claim ‘culture’ as ‘theirs’. ‘The Arts’, however, have always been used to reflect highest values and achievements — a nonsense in itself — and so, quietly we are all capitulating to a most damaging and degrading version of ‘the arts and culture’. The emperors clothes remind us if we look, that ‘business’ is also a sub-set of ‘culture’ rather than the opposite fallacy we have been growing accustomed to. A genuinely asset based system of financing the arts and cultural activities, which stems from the wealth actually created (social, material, financial etc) will not speak of ‘leveraging investment’ but of banking the surpluses of wealth already created — for re-investment. That wealth is out there but either restricted by the way it is owned or simply not ‘audited’, which means that what we call ‘culture’ is effectively rented or loaned out to us via disposable, un-secured financial resources which are entirely removed from the point of value creation — by, effectively, undemocratically licensed and selected organisations. To prevent distributed ownership taking hold, financial resources also arrive in large caches of short term, ‘spend ’til it’s gone’, needs based project funds and are usually now administered by un-elected and un-accountable ‘bodies’. There’s rarely a sustaining ‘operating system’. In short, we don’t ‘bank’ that cultural value, since it is not the assets or the skills held which generate revenue, but rather, the ‘social capital’ or status attached to them (eg, ‘case-making’ for projects based on top down assessments of ‘need’ or ‘cultural value’). Social capital, in this case, is usually a future promise rather than an existing artefact, product or service. The enormous expense and capacity needed to ‘evidence’ (through exorbitant hiring of consultants etc) that this social capital is being wisely used just makes the model both self fulfilling and, often, useless — ironically. ‘Cultural’ or ‘Social’ Capital is not our Cultural Commons. This is important to distinguish as a principle when we are seriously contemplating how we finance (‘cultural’) production. The aim should be that wealth is both retained at the point of its creation and targeted to that point rather than used as an instrument for leveraging future ‘investment’ (in the same restricted version of future promises and centralised, ‘independently expert’ administered wealth).

5. IP, Creativity, Funding and Wealth Creation

Creative Industries and (would be) Cultural Commons rely on the generative effects of creativity and it’s ensuing IP rights and legacies for their sustenance. Since IP is active somewhere in all systems for incentivising and monetising creativity and since Galleries, Libraries, and Museums (GLAM) as well as individual artists and our NPO’s are all engaged in the management and creation of artistic assets (and rights), it’s absence or lack of prominence in funding discussions is a huge ‘elephant in the room’. Our public cultural sector tends to rely on good old taxation of ‘the private’ to fund ‘the public’. For many reasons which others have expanded already, the boundaries between the two grow less and less clear. I’ve also argued elsewhere that the gross debt of the UK creative sector to it’s cultural commons might be much higher than at present, based on corporation tax rates, but this would be far better ‘collected’ by creating incentives for collaboration than by punitive ‘tax and spend’ policies. From road tax, to the BBC, licensing as direct taxation is not new and ‘peer to peer’ licensing of public goods in the marketplace is an under explored but potentially powerful means of creating ‘common cause’ as well as revenue to finance it. It is, essentially, at the heart of what CultureBanking® proposes. Monetising creativity is necessary to fund the commons at least in the short, transitional term.

To democratise our production of and access to ‘culture’ though, our use of IP needs ‘re-booting’ from the ground up.

6. IP and The Commons

IP exists for individuals and organisations and can be held under as many various legal terms as it and the governance structures of a nation state or confederation, allow. IP itself consists of 4 basic forms: Trademarks, Copyrights, Patents and Trade Secrets and Designs, although in some jurisdictions a fifth; ‘Right Of Publicity’, is included. This 5th element is described as a ‘right to control how your name, likeness and persona are used by others”. Clearly names and trademarks cross over with ‘rights of publicity’ and to an extent, data. The cross over between IP and Data is an important subject in itself, but is not specifically dealt with here.

Advocates for the commons reasonably resist trade secrets and usually patents in favour of open value creation, but these should not be confused with copyright, which has been re-engineered through ‘copyleft’ movements and the ‘Copyfair’. It seems fair to say that the broad goal for commons based initiatives has been to create knowledge commons — such as wikis and open knowledge where possible. There have been proposals, such as Harberger’s Tax, to re-design the tax system as a whole to incentivise material commons with taxes on ‘holding wealth privately’ rather than just taxing wealth as it becomes productive and “use the funds to create a publicly governed digital commonwealth. This could ensure that all revenue generated by proprietary usage of HCL (or ‘culturebanked®’ ) licensed software would be used to further grow the commons”. This task of creating material commons has been addressed to a much lesser extent and is still seen as a ‘radical’ arena. The task of CultureBanking® has been to design an asset based method of raising funds for culturally common interests as opposed to the more centralised needs based, ‘cap in hand’, sponsorship, tax moneys and philanthropic methods already mentioned as well as the usual tax, lottery and philanthropic financing. Rather than seek to overhaul the whole tax system, the notion of ‘tax under license’ is a way of allocating a ‘tax rating’ to individual goods.

Harberger’s tax was, in part, a response to the non fungibility of goods under IP regimes. Self assessment of your assets’ financial value might have been a way of dealing with endlessly variable goods, but it was invented at a time when no technology existed which could have ‘automated’ such a process. Blockchains, DLT etc are a potential change to all of this…

In bringing cultural (tangible and intangible) assets into use for all, some material will still be eligible for commercial use (as now). But this use may not need a ‘constant category of ownership’ rating — as in the Harberger version. The social use of an Ed Sheeran song can now be assessed transactionally, by the day, week, year, or by apportionment. All of this can be done by automation: What cannot be done, yet, is the social accounting necessary to complement it.

The principle of using ‘IP’ as ‘securities’, is that it makes more sense to agree to share wealth from assets we know we will own jointly and separately (ie our own creativity) and therefore can share, rather than wealth we will produce within already complex relationships and often under private proprietary ‘agreements’ and ‘expert relationships’ — and are therefore unlikely to be able to own and share. Having a common category of ownership — or stewardship — is a pre-requisite to re-commoning. Creative Commons have established networks of knowledge commons, but will not and cannot establish material commons (note the SmugMug takeover of Flickr which recently sidestepped the largest ever centralised database of Creative Commons material in order to monetise their newly enclosed — ie, NOT — Commons). Once money needs to change hands, commons go out of the window…

Similarly, initiatives to harness un-used, un-claimed and ‘orphan rights’ are being proposed to create community wealth. The tendency towards centralisation of resources which do not reach grass roots communities still applies though, unless we change the nature of HOW wealth is created, we face further corporatisation — and privatisation — of Cultural Wealth. Once established on these (neo-liberal?) grounds, assets are likely to be administered by ‘the few’ for ‘the many’.

CultureBanking® aims to harness IP rights to create shared assets, which in turn, will generate future common capital. It also seeks to create transitional incentives for cultural products and services to be placed into the common ownership, whilst maintaining possibilities for private wealth creation. Thirdly, it invites a ‘partner state’ to follow on by creating endorsements and ‘easements’ for this kind of production in recognition of social use values: ‘Cultural Commissioning’ is an example of this happening, without the hypothecation of taxes from, specifically, the cultural sector.

Social accounting requires new approaches as well: Since capital, in traditional accounting is not an asset like IP, but ‘shareholder equity’, by placing IP into common ownership, the portion of common capital which is created ceases to be ‘equity’ since its liquidity cannot be accounted for against ‘profits’ or ‘losses’ of individual agents. It represents the future securitisation of common needs in capital form, but will never ‘pay out’ in terms of a dividend or ‘profit’ share. Common capital is then, in non-traditional accounting terms, a common asset or resource. A distributed ledger of shared IP is an asset register against which liquidity for common capital needs can be secured — in much the same way the private sector practices asset management. Perhaps we are talking about tax payers acting as Non-Practicing Entities or Patent Trolls ( ie extractors of wealth!) — only this time, in the public or common interest. In this way, CultureBanks® would represent a foundation of Public IP Commons Trusts (PICTs) and a new model for Cultural Democracy and Citizens Cultural Wealth. It’s not a new idea, some refer to the ‘Digital Commonwealth’, but it has become achievable!

So, how might that work?

7. CultureBanking: Register, Bank Rights, Bank Incomes, Re-distribute:

It’s worth noting that a ‘cultural sector’ outside of the ‘free software movement’, does have slightly divergent interests and requirements for private property. It would be very difficult to convince a sculptor, who has spent 10 years digging clay (an admittedly common good) to produce one sculpture that he should now donate it to the commons, or pay taxes to keep on owning it privately. Even if convinced, this system still seems to accentuate huge value differences in financial worth which have little root in social worth. Art’s ‘uselessness’ is a feature of it’s high financial (exchange) value. There also exist artists, like the Meyer-Harrisons who extol a high use value and therefore work in a common interest and yet they are almost an exception which proves a rule. As a % of arts financial value these artists, working exclusively ‘for the community’ are broadly invisible. They also produce private goods to fund their practice — so the common is actually non-existent even where we might wish it into existence.

Going beyond wishful thinking and immaterial commons requires creation of legal forms of common ownership for goods and services. Having created this common public asset class and registered rights, the next objectives will be to harvest income from ‘banked’ IP. This may be done technologically using blockchains, payment gateways, escrows and other methods already in commercial use, but could also be done more simply, at the point of transactions. Most IP is sold, auctioned or licensed (see The Eady Levy as an early example) as non rights based levies on box office takings or sales. People are also now using all kinds of ‘open’ IP repositories (eg, instructables.com) and it seems entirely reasonable to enable a more easy transition from ‘amateur’ or ‘prosuming’ markets in to commercial ones, whilst extracting something for public needs in the process. Markets are changing beyond just open knowledge though. Open knowledge is essential, but if firms add value and use resources, they need to pay themselves and the common pot. Doing both under licence is the paradigm shift which I am proposing with CultureBanking.

Some criticisms have followed predictable lines about all new tax measures being likely to be resented but if the margins for generating private wealth are broadly similar and we are opening up new markets for income generation and public finance, objections should wane. This may also encourage more open knowledge platforms and more common ownership. To some extent the platform coop movement is addressing all of the above, but is still ‘prey’ to enclosures of its output. The Peer Production License made free licensing to other cooperative platforms a condition of use — a condition which is absent from the far more widely used Creative Commons licenses. Consequently the so called ‘commons’ are entirely unprotected: The Earlier mentioned SmugMug takeover of Flickr exhibits the failure of ‘commons’ to provide a ‘business model’ for platform owners — or for rights holders and has prompted Pando Network to, alongside culturebanking, begin writing new licenses. Beyond license proliferation though, the real answer is to enable fuller control for people over the assets they create.

Those in the p2p and commons communities often reject ‘license proliferation’ but the reality is that every license is an agreement between individual parties and therefore intrinsically unique by nature. So, perhaps, licensing alone is not the way to address the production of commons — especially in a transitional stage. Equally, it is hard to see how broad sections of Creative Industries can function without IP. A print-maker, film-maker or author can hardly be accused of creating ‘false scarcity’ or expect to make a living by selling their products once — unless they licence them to a publisher, who pays them whilst extracting a contribution for the commons — as well as to meet their own needs of course. Those functions all take place under tax laws currently, but using levies, gifts and ‘tax by licence’ — ie, ‘upfront’ transaction taxes or ‘levies’ changes the possibilities in the cultural landscape immeasurably. To succeed, cultural democracy therefore relies on the cooperation of a partner state. Preparations and ‘designs’ for such a possible future are underway, though may be over ambitious at times in scope in the absence of such a willing state. But there is reason to hope this may soon change….

This ongoing work outlines the development of licenses as an instrument of governance for distributed autonomous organisations — such as CultureBanks®.. As Harold Demetz stated in 1973 (it’s taken longer than it should have to begin to act on this):

“It is not the resource itself which is owned; it is a bundle, or a portion of rights to use a resource that is owned”.

This was a sage precursor to online living: We have a mandate to share and now we have a technology to do it. Capitalism, at least as far as it’s over weening use of IP as a tool for privatisation of assets, is coming to an end. There are other developments which suggest we are moving towards an entirely new ‘regime’ or practice in terms of how we manage our ‘Intellectual Property’..

8. Design For The Cultural Commons

The first UK MA in Cultural Commons from the CASS Business School promises: “You will create and develop a liveproject (anything from a novel to a supermarket) for your new operating organisation. The organisation will be formed, it’s governance designed, its financial structure set out and all policies written using Commoning as a model”. Whilst welcome, of course (enormous credit goes to Torange Khonsari for pioneering this first step in UK academia to re-commoning) establishing new ventures with ‘commoning models’ will not enable the growth of commons if the markets and laws within which they operate are still enclosing the wealth from which these organisations must seek funding and restricting the development of self-funding. For cultural commons to grow, a more enlightened ecology of social accounting needs to replace the cash focussed one we are stuck in now.

All be it a start, ‘wishing’ and ‘naming’ commons into action is not enough: For example, deep in the bowels of universities are ‘Research and Innovation’ departments employing multiple ‘contracts managers’ whose roles are to write contracts for the ‘commercialisation of research’. Nearly all of that future Intellectual Property is bound for private, rather than common, ownership. As our universities plead bankruptcy or creak under the weight of their over weening capital ‘vapour-trails’ including massive pension debts, the idea of tax under licence from the masses of ‘Cultural IP Assets’ created — looks far from Utopian, but somewhat overdue! Whether or not those assets ‘productive lives’ will compensate the public money and effort which went into their creation is left either to chance, accountancy, or future ‘executives’ (read ‘wealth extractors’)…. a little like our cultural experts and selection committees… and definitely not ‘ours’ at all. Where the ‘ours’ disappears is where we most urgently need change.

I look forward to talking to Torange more about this situation more as we discuss the growth of ‘design for commons’ in UK universities and colleges.We need fundamental changes in our approach to IP at a granular (and legal) level across all cultural institutions…

Using CultureBanking itself as an example; moving beyond traditional IP practices requires some strength of vision, much learning, time, material innovation and some innovation around executing and drafting licenses. In developing the project, I found that the necessary cultural or creative production required was obviously subject to all of the IP laws, incentives and dis-incentives around which it sought to innovate. Theory became practice — quickly.

The standard advice of IP lawyers has been that ’Culturebanking® ‘has sufficient novelty to file for protections’ so long as no public utterance has been made about the license-able IP beforehand (‘prior art’). The idea of sharing, or creating open value is annulled in our traditional business models before it can begin.. Clearly open value is never going to become established as long as this is the standard operating system for new business development.

An immediate quandary presents itself: Can ‘CultureBanking® be ‘CultureBanked®? (even successful open source projects like MakerBot have had no useful protection against enclosures). Any IP created can be made available to all — even using a Creative Commons license — but still, what is lacking is a business model or ‘operating system’ for the production of commons and enabling people to earn a living. This operating system will require payment gateways and fund clearing methods. There are plenty of options, but what is ‘new’ about the process, is the idea of ‘peer to peer’ rights trading. Anyone, who is a creator or rights holder, has the right to attach conditions of payment to the re-use of their work. This doesn’t mean ‘protecting’ it, it simply means enabling payment and requiring that condition be met before permissions are granted. The other key to ‘doing different’ is simply understanding that an asset can be both ‘public’ and ‘private’ and ‘common’ — and even ‘club’ either at the same time, by apportioning rights, or at different times in it’s lifecycle. This is a new possibility rendered by blockchains and distributed ledger systems.

Since Creative Commons does not yet fulfil this function and since nations are at a loss to find ways of taxing multi national internet based companies, this ‘taxation under license’ seems one worth examining. CultureBanking® proposes its own methods for doing this and obviously governments might decide to commission others. What is clear however, is that if we are to move towards such a system, the power for change lies in the hands of individual organisations and all who make and hold rights. For this reason CultureBanking® is also seeking resources to educate marketplaces and key players about new ways of handling Intellectual Property. The old ways of ‘protection for protections sake’ are no good. We need open knowledge and open products and we need to be able to collaborate whilst recognising working contributions and creativity fairly. Due to the prevalence of private property though, it seems that the best aspiration at this stage, is to try to create common capital from private property. This also accepts that scarcity is very real in the arts as are single authors and groups with needs to protect their main income sources.

Jon Phillips has called for public patents — http://wiki.p2pfoundation.net/Public_Patents, there are several projects already in place to set up public data handling trusts (not something this author is endorsing) and CultureBanking® repeats this call in the area of of copyright (which is more executable as it ‘exists as of right’.) and possibly some other areas of IP on case by case bases.

Management of IP as a ‘public’ or ‘common’ good has not had the same level of discussion as ‘data’. The current ‘model’ for IP as public goods amounts to all of the post copyrighted material which does, in fact, enter into our Cultural Commons once the life of the IP is over. Rights generally revert to rights creators. In fact, even this type of material — old wall paper designs, images, songs etc can endlessly be recycled by the IP system to reproduce private wealth for private companies, who then, arguably, contribute to the public good through taxation. Same old song…

What CultureBanking® proposes is to use the IP system to license this old — and new — IP to the commons. Allowing for necessary private incomes, either a proportion of future incomes or incomes from a set date can be recouped for the public interest or commons under license — rather than by the much more clumsy method of avoidable taxation. One crucial change is the idea that goods can be more than one thing: Traditional economics categorises goods as either ‘club’, ‘private’, ‘common’ or ‘public’. What technology offers is the ability to make these divisions into a continuum, focussed on decisions and definitions(much like the current approaches to sexuality and gender) made by ‘us’ rather than ‘authorities’.

The technologies for this kind of sharing and managing individual and community rights at a peer to peer level are being developed on several fronts: Here is our collaborator, Daniel Harris, talking about the Kendraio initiative’s work in developing user centred rights management tools for digital assets: https://youtu.be/UNl70Fd_LIc

These very possible and workable changes can also have the effect of creating ‘common goods and services’, which could cut out the need for monetisation in many cases by delivering their value directly in the public interest. At the same time, where companies and individuals choose to nominate a proportion of their future wealth via public goods from IP under license (up to 100%), they might also expect ( with just cause and under public scrutiny) some form of tax credit in return. The advantage to the public being that value is captured at the point of its making or monetising rather than far down the value added chain where many built in losses from legalised tax avoidance can be incurred.

There are many instances of similar ‘hypothecations’ in tax relationships with firms already operating: One example is social investment tax relief and tax credits for providing apprenticeships is another. It is also a direct route towards Universal Basic Assets through a vehicle which the public can own and therefore share direct common ownership.

Several things need to change in order to move towards a system of ‘tax by service’ or ‘tax under license’ ( if it were seen as desirable): Broadly a partner state approach and changes in the way public and private bodies engage in accounting for value creation would be needed. For an example see resource Event Agent Accounting.

Holding funds (and rights options) in the public interest in order to finance public and 3rd sector arts and culture out of the creative industries directly (an IP Levy’!?) has many advantages: In the case of reserving, or hypothecating finances from future or ongoing rights incomes under license (‘tax under license’) several current problems are overcome. Consider the following illustrative case:

One example of the inefficiencies in tax breaks for film production has been evidenced in the ‘sale and leasebacks’ fiasco which saw UK accountants showing all kinds of spurious costs and investments on films which were never made in order to re-claim £10Bn from HMRC in dubious taxes. There have been some arrests. By CultureBanking® even ‘microrights’ (small levies on rights values) from films like Avatar, it will be possible to see specific investments out of one ‘value chain’ and into another, with clear audit trails. The eventual goal in commons oriented development would be to see those value chains merged. This is a first step in that direction. For example, in the culturebanking of the distribution rights for Avatar, we might have seen an agreement to fund, let’s say, 27 regional ‘Music In Schools’ initiatives. This social investment would have come from takings, unlike tax, which comes from profits. The tax deductibility is effectively audited from those takings and is far more difficult to tamper with. It also arrives sooner and it is no longer so ‘viable’ for investors to invest in films which either failed or never actually got made…

9. About CultureBanking®:

To become a real option to extant funding methods, Culturebanking® needs to collaborate with software and app developers, legal IP and accounting professionals, mutual and cooperative banking organisations, project managers, users and partner organisations. In order to begin this work in earnest, we also need to produce a demo of how the process will work. The first need then, is to create awareness and debate and encourage at first, the creative and cultural communities and then the wider public’s receptiveness.

The ongoing project is to develop an operating system for banking cultural assets and redistributing value accordingly, alongside the wider goals of campaigning for open IP and new funding structures for cultural democracy. This will undoubtedly also involve working with policy developers and development of legal and accounting infrastructures alongside, it is hoped, a new ‘partner state’.

Finally, whilst future proofing projects like Pando may help create the conditions for CultureBanks® to thrive, not all communities are distributed or want to be — by geography at least — as David Goodheart reminds us. My ‘design brief’ for the project came from my experience in Great Yarmouth. In a place where the ‘Cognitive Elites’ are smaller and probably don’t want to be elite, the real problem is in incentivising creativity and action by demonstrating immediate value (feeding people). Whilst people can come together (and do) their collective access to wealth and resources is limited by the local monopolies of a few trusts, charities and organisations who ‘do for’ rather than ‘with’. One arts organisation alone claims to have leveraged £158 Million into a small town of 26,000 over 15 years — more than the whole budget for that period of the Borough Council itself! Compounding this centralisation of resources is the fact that, not for profit rules usually prevent local initiatives from creating surpluses — and more basically, wages. This was my reason for proposing the idea of a ‘content collective’, ie, a ‘culture-bank’. As Pando point out, organising around ‘creative law’ is far simpler and less cost heavy than around ‘corporate law’.

Although dependence on place is viewed as a disincentive to forming distributed interests:

“DAOs will not be constituted in the form of classical entity like “company” but will just drive network effects around a content — such as video-game, music, book or software” –

Some interests need to be localised. Essentially, communities want to exist in places. The definition of the common as it was thought by Elinor Ostrom i.e ‘a good or resource held collectively by a community that sets the governance rules for it’, risks, arguably, being entirely consistent with the production of private goods if those communities are not ‘open’ (this is what IP was designed to do and what blockchain could facilitate en masse if not regulated). What CultureBanking® seeks to do is use the Content DAO (content collective?) to produce common wealth from the proceeds of making shared goods available to the wider market. Where CultureBanking® diverges from what is possible with licenses derived from PPL is in this derivation:

“ Like the free software movement this licence does not allow special rights for an original author, but insists on the right for all to use and reuse a common good.”

This suggests that derivative open licenses will always be needed. For people who produce rivalrous goods such as original artworks and rely on their sale for their livelihoods, their ‘special rights as individual authors’ are actually crucial to living! The as yet un-tapped power of new technology and license developments, is to merge these rights with the rights of any DAO or collective they might be a part of and allow individual rewards as well as collective rewards. Doing this does not sure up the production of private property over commons, but simply facilitates contributions, under license — to the whole. For example, a visual artist might create a painting which takes her a year to complete. The ‘special right’ of being paid for that years work is clearly separate from the rights which might be conferred to her from being part of a content-DAO which is able to share copies of her work for some future generative purpose. There is also no reason why a proportion, like a ‘DAO tax’, of her sales of original works might not go back to the content collectives’ shared purse as it is quite possible that ‘originals’ will not find a home in the market until many copies have been sold… Importantly though, unlike a software developer, her contribution can be valued and sold as a distinct ‘thing’ — and this is how she will be paid for her labour in creating it. Under the terms of her license, some of that payment may return to the DAO or it’s stated purpose, but not all — and her ongoing ‘recompense’ should not be entirely dependent on some collective ‘use value’ — since her very individual work has already been done.

Essentially the goal for CultureBanking is to enable communities and those ‘sharing common causes’ to share their creative assets in order to produce both private and shared wealth .

— — — — — — —

For donors, collaborators and supporters, there is an open collective account here:

CultureBanking® https://opencollective.com/culturebanks1?referral=12610#

Website: www.culturebanks.com

Twitter: @culturebanks

Please also feel free to contribute stills and video ‘assets’ at https://www.instagram.com/culturebanking/: under the common identifying hashtag #culturebanked

The Coalition for Cultural Commons is also very keen to work with people and organisations who want to reconsider their cultural rights and commons…

Contact liam@culturebanks.com

For a mission statement see also: http://wiki.p2pfoundation.net/Coalition_for_the_Cultural_Commons

— — — — —

Bio:

Liam Murphy is a Civic Entrepreneur and Commons advocate who has worked variously as a Parent, Tree Surgeon, Bookseller, Administrator, Picture Framer, Teacher, Artist, Lecturer and Writer while raising his two (now adult) children in Norwich, England.

He is currently continuing to develop CultureBanking® as a process for creating shared wealth and writing a book entitled ‘Share?’ of which this article forms one chapter.

As well as being a writer and blogger, he has carried out research into the Civic Role of Arts Organisations on behalf of the Calouste Gulbenkian Foundation and sits on various boards and groups, where he advocates for open value and Cultural Democracy. He is currently continuing to develop CultureBanking® as a process for creating shared wealth and writing a book: ‘Sharing’….

The post Culture For The Many? Intellectual Property and Financing ‘Our’ Cultural Commons appeared first on P2P Foundation.

CECOP-CICOPA Europe has decided to give a voice directly to young people and those working with them. Here is the result! Three videos illustrating employment and entrepreneurial opportunities that cooperatives in industry and services provide to young people across EU.

Cooperatives are riding the wave of changes. They represent a valuable and secure employment and entrepreneurial option for young people. Moreover, they give young workers and entrepreneurs access to ownership and control over their own future. For excluded youth, cooperatives provide not only work inclusion but also sense of belonging and place where to be heard.

To illustrate our point, CECOP-CICOPA Europe has decided to give a voice directly to young people and those working with them. Here is the result! Three videos illustrating employment and entrepreneurial opportunities that cooperatives in industry and services provide to young people across EU.

Social cooperative FAJNA SZTUKA, Poland: www.fajnasztuka.org

The cooperative was established in 2012 in Warsaw to do film and music production, photography and animation. “We try to work on films and campaigns that talk about important topics, that promotes the activities of NGOs or associations for example. Something decent! Because it is more motivating, and one cannot constantly create ads about pads and tampons…”, said to us Kuba, one of the co-founder. “The cooperative gives us the opportunity to express ourselves. Each one of us has its own style and opinions. We can create a company that does not stifle our beliefs and allows us to develop further in the direction we want.”

Cooperative ERSE, Italy: www.erseambiente.it

The cooperative was founded in Tuscany by a group of young environmental officers. “Our education and training started in university and continued afterwards while working. Each of us had gained a great deal of experience in the field, but because of a difficult economic context, none of those were long-term experiences. Then our trajectories met and we got together” explains Filippo. Why is ERSE a cooperative of independent workers? “Because it’s democratic, mutualist and people-focused. It aims at improving the working conditions of the members. A cooperative also entails a lot of responsibilities. At the end it comes down to running an enterprise and this represents for us an added value.”

Cooperative Le Relais, France: lerelaisrestauration.com

Le Relais is located in a disadvantaged area characterized by high youth unemployment. It is a multistakeholder cooperative gathering workers, users and local authorities in its governance. But beyond being a cooperative, it is a citizen project. Its main objective is the training and work inclusion of young people and adults in difficult economic and social conditions. In 25 years, the cooperative has enabled 2,300 young people to achieve their professional integration by receiving training and a first experience in the catering sector.

The post Better Jobs and Better Future: What cooperatives can do for young people? appeared first on P2P Foundation.

When talking about enclosures in the Commons, we usually think of natural or cultural resources. But there’s something else that’s vulnerable to enclosure, which I hesitate to describe as a “resource”: emancipatory imagination. One of the worst effects of capitalist realism is the endless bad-mouthing of alternatives to its toxicity. With this in mind, I’d like to share with you some extraordinary examples of imaginative prototyping exercises towards commons-oriented futures  — presented by the very people who will bring them about in the face of darker possibilities.

I recently had the honor of teaching a group of 18-28 year olds taking part in an initiative called YIP, or “Youth Initiative Program”.  YIP describes itself as a program for social entrepreneurs and personal growth. At first, I was hesitant about agreeing to participate. I believe “social entrepreneurship” wedges profiteering in as the payoff for taking people and planet into account — a well-meaning but doomed attempt. Still, it was a chance to speak and share the language of the commons with a decidedly different demographic than the usual P2P/Commons/eco crowd, so I accepted the offer.

On the second week of December I arrived at the Findhorn community, located on the Scottish Highlands, not sure what to expect. On the first day of teaching, I found the group to be very friendly, if unclear of what this commons and P2P stuff was all about. As we got started, one of the students interrupted me during the first presentation.

– “What is surplus?”

– “Oh, it’s the same as profit”

– “And what is profit?”

Uh oh, I thought to myself. As budding “social entrepreneurs”, I had expected them to be familiar with basic mainstream economics; I thought I’d find the ground primed for me to shoot down its misconceptions and vices. Shockingly, this was not the case. Some of the students were familiar with economics from prior interest and experience, but overall, they had focused on personal and group work rather than the realities and possibilities of the world beyond their immediate circle.

Over the following days the teaching proved a lot more challenging and involved than I had expected, but I wanted to make sure that the group understood everything.

“These are complex concepts, but I’m not going to dumb them down for you, because you are not dumb – you can get this”, I told them. And did they ever.

We soon found a rhythm, grasping the overall systems of the commons and P2P, cosmo-local production, etc. — not as something to rote memorize and parrot back, but by recognizing commoning as something commonplace in our interactions with the world, yet often made invisible.

During the second half of two of the sessions, I asked the students to prototype an Open Coop and a municipalist coalition five years into the future. If you are not familiar, Open Coops are locally grounded, yet transnationally networked cooperatives that are commons-generating, multi constituent, and with a focus on social and environmental work. If you want to find out more, read this article. Meanwhile, a municipalist coalition is an “instrumental” electoral vehicle through which diverse political actors, (Pirates, lefties, greens, occupiers, hackers, feminists, and those unaffiliated with political parties) can present themselves for election through bottom-up participative structures (find out more about municipalism and P2P politics here).

The remit for both exercises was to imagine the (successful) Open Coop or Municipal platform five years into the future. The groups would deliberate and prepare for a TED-style short presentation. In the case of Open Coops, they would explain how their projects would fit within the criteria described above. With P2P politics, they had to base their project on an existing city or town, taking local conditions into account but also allowing for transnational movement building with other locales.

I have done this exercise several times over the last few years with 30-60 year olds, mainly. What emerges is always exciting but, once the workshop is over, I don’t imagine most of the attendees going off to form their own Open Coops or Municipalist coalitions the next day. What happened at YIP was quite different. Not only had the group understood and internalised the logics of the Commons and Peer to Peer, but they flawlessly articulated exciting visions for commons-oriented markets and politics. The prototypes, which you can see in the videos below, were nothing short of staggering. They also felt realistic and doable. More importantly, the Yippies (no relation to Jerry Rubin and co… I think!) were genuinely excited about their ideas and looked forward to making them a reality in some form or another.

The videos were recorded on a whim and a cellphone cam, so the sound and image quality aren’t stellar, but the short presentations are focused and easy to follow.

Here is the video on Open Coops.

And here is the video on municipalist coalitions practising P2P politics.

On balance, it was a very satisfactory week, both for the students and myself. In a closing circle, they expressed an awakened interest in politics and economics, subjects which some of the students had previously found irrelevant or unsavoury. As one Yippie said, “I didn’t realise that what I disliked was capitalist economics, or neoliberal policies. I am now ready to explore the alternatives we’ve talked about this week”.

The experience at YIP has proven to be momentous for me, and I am now much more invested in bring Commons pedagogy to newer generations. They are decidedly not dumb. They can make this happen, but we need to do everything in our power to make sure they do. A toast: here’s to the Yippies and the futures they can co-create.

The Yippies have a crowdfund going to fund an internship to engage with global communities, biodynamic gardeners, alternative education, the arts, and social and agricultural initiatives. Please consider supporting them in this endeavour. Based on our conversations, I am certain they will take the opportunity to develop some of the prototypes shown in the videos while developing their understanding of the commons in practical ways. Thank you.

The post New generations meet new alternatives: the Commons and the Youth Initiative Program appeared first on P2P Foundation.

By this time many know about the hyper-exploitative business models of companies like Uber or TaskRabbit. Or about how AirBnB has heavily reduced housing stocks in cities worldwide. But in his new book, Keith A. Spencer goes further than just picking on a few high profile companies. He lays out an argument for why Silicon Valley, at its core, is a highly exploitative and problematic industry. With a look at the tech world from the vantage point of the marginalized and oppressed—those who have not benefited from the incredible wealth bubbling up in the valley—”A People’s History of Silicon Valley: how the tech industry exploits workers, erodes privacy, and undermines democracy” presents a damning thesis for why this new world of addictive gadgets and union-busting is increasingly undemocratic and dangerous.

The book is published by Eyewear Publishing.

Upstream producer Robert R. Raymond spoke with Keith A. Spencer at the offices of Salon in San Francisco, where Spencer is an editor.

Intermission music is by The California Honeydrops.

Upstream is an interview and documentary series that invites you to unlearn everything you thought you knew about economics. Weaving together interviews, field-recordings, rich sound-design, and great music, each episode of Upstream will take you on a journey exploring a theme or story within the broad world of economics. So tune in, because the revolution will be podcasted. 

The post Upstream Podcast: A People’s History of Silicon Valley appeared first on P2P Foundation.

Dick Bryan, Benjamin Lee, Robert Wosnitzer, Akseli Virtanen*

The mounting literature on cryptoeconomics shows an interesting but also alarming characteristic: its underlying economics is remarkably conventional and conservative.

It is surely an anomaly that many people who have gone outside the mainstream to disrupt and develop new visions of the future and economy so readily adopt the conventions of the ‘dismal science’.

The problem is that the orthodox economics blocks the real potential for cryptoeconomics and cryptographically enabled distributed economic-social system to facilitate the building of a radically alternative politics and economics.

At the core of this view are two realizations:

1. In their money role, cryptotokens can be an alternative unit of account, not just a means of exchange. They can invoke a new measure of value, not just facilitate new processes of trade. As such, they can have a ‘backing’ in the value of output they facilitate, not present as simply tools of speculative position-taking.

2. In their ownership role, they can be derivatives (purchases of risk exposure, not just asset ownership) designed so that people risk together, not individually. They can invoke collective approaches to dealing with risk and upside, not individualistic ones: they can enable risking together.

In this review we first follow the different framings of ‘economics’ and their implications to cryptoeconomics. The analysis then explores the notion of ‘fundamental value’: how it is utilised in the cryptoeconomics literature and how a different framing of ‘economics’ enables distinctive insights on how to creatively develop the idea of token value being founded in ‘fundamental value’. Our objective is to show how a critical reframing of economics enables token integrity to be explained and managed.

To help you navigate, here is the contents of what follows:

1. Which economics?

2. The limited working definitions of cryptoeconomics

3. The Hayekian turn: the integrity of market processes

4. Cryptotokens: means of exchange or units of account?

5. The valuation of cryptotokens

A. Developing the ECSA unit of account

B. A historical digression, but of some significance

6. Contemporary lessons from the historical digression

7. Once more on fundamental value: the ECSA approach

8. The derivative form: buying exposures to an exponential future and a big put

1. Which economics?

Economics is a broad and contested discipline. It is also an old one, with Adam Smith’s Wealth of Nations almost 250 years old, and Karl Marx’s economics 150 years old. Its dominant discourse is ‘neo-classical’ economics, dating from the late 19th century. It has, of course, significantly evolved over the past century, but the current dominant thought, directly based in that neo-classical turn, remains relatively coherent. It is dominated by an orthodoxy, quite unlike the rest of the social sciences that are conceived in theoretical and methodological debate.

The dominance of neoclassical economics is not unchallenged. There are criticisms from both the ‘right’, in the name of libertarianism (e.g. Hayek) and from the left (both a statist left like Keynesianism and an anti-capitalist left like Marxism). In that sense it is hardly surprising that there is no definition of ‘economics’ that is generally agreed.

Here are a couple of ‘standard’ definitions that come from the likes of Economics 101 textbooks that to some degree cover multiple positions in debates:

1. Economics is the study of allocating scarce resources between alternative uses.

This is a definition that points to price formation and decision making. It opens up agendas of optimisation. It is framed to privilege ‘microeconomics’ (the workings of particular markets), not ‘macroeconomics’ (the totality of economic processes, understood as more than the sum of market processes).

Here is another one:

2. Economics is the study of the processes of production, distribution and consumption of goods and services.

This is a definition with wider social meaning and context. It is not specifically about markets and certainly not focussed on optimisation. Its focus is the social, not the individual, and on systems. It is more likely to be historical and less mathematical than the economics created under the first definition. It implicitly acknowledges that the economic is difficult to disentangle from other facets of social life.

By contrast, the first definition isolates ‘the economic’ to a greater extent by focussing on price formation and decision making. In most of the 20th century, this was achieved by treating economic agents as autonomously rational, later enhanced by game-theoretic strategic rationality and later still challenged somewhat by propositions of ‘systematic irrationality’ (behavioural economics). These developments have enabled economics to become mathematically advanced and subjectable to formal modelling.

Both definitions have something to say to the token economy community, where we can recognize concurrently a potential epochal change in the way of doing economic activity and the new potential of mathematical modelling. But the two emphases need to be kept consciously in balance.

Perhaps this recognition is part of the success of Ethereum, where we can see each style of economic focus in play.

Ethereum inventor Vitalik Buterin, consistent with the first definition of economics, has defined cryptoeconomics as about:

• Building systems that have certain desired properties
• Using cryptography to prove properties about messages that have happened in the past
• Using economic incentives defined inside the system to encourage desired properties to hold into the future.

Ethereum developer Vlad Zamfir, embracing more the second definition (and citing Wikipedia), says that cryptoeconomics might be:

“A formal discipline that studies protocols that govern the production, distribution, and consumption of goods and services in a decentralized digital economy. Cryptoeconomics is a practical science that focuses on the design and characterization of these protocols.”

But it is apparent that, in the broad scoping of cryptoeconomics, it is the first definition that is the focus. Sometimes called ‘token engineering’, it scopes systems of incentives that can be applied to ‘rational’ agents. The cost of this framing is to both limit the social and economic significance of a cryptoeconomics, and to create greater possibility for token failure in practice.

2. The limited working definitions of cryptoeconomics

Specifically, the focus in cryptoeconomics on reducing transactions costs and creating individual incentives to operate optimally is in danger of not just neglecting wider social issues of production, distribution and consumption of goods and services, but of building a framework that actually makes impossible a systematic engagement with the wider issues.

If you google cryptoeconomy/cryptoeconomics, the sources that appear have a remarkable consistency. The various blogs/primers/newsletters start with almost the same sentence. They break the term ‘cryptoeconomics’ into its two component elements. They explain processes of cryptography with some precision, but when it comes to explaining the associate economics, the depiction is remarkably narrow. For example:

“Cryptoeconomics comes from two words: Cryptography and Economics. People tend to forget the “economics” part of this equation and that is the part that gives the blockchain its unique capabilities. . . .Like with any solid economic system, there should be incentives and rewards for people to get work done, similarly, there should be a punishment system for miners who do not act ethically or do not do a good job. We will see how the blockchain incorporates all these basic economic fundamentals.” (Ameerr Rosic’s ‘What is Cryptoeconomics: The ultimate beginners guide.)

Similarly:

“Cryptoeconomics . . . combines cryptography and economics in order to create huge decentralized peer-to-peer network. On the one side, the cryptography is what makes the peer-2-peer network secure, and on the other side, the economics is what motivates the people to participate in the network, because it gives the blockchain its unique characteristics.” (Introduction to Cryptoeconomics through Bitcoin)

The limited framing of economics is, perhaps, because the world lacks people with background in both cryptography and (a broad) economics. Cryptoeconomics is, perhaps, being frequently projected by people who are highly qualified in programming and engineering, but often self-taught in economics. We thought it was funny when Nick Szabo tweeted some time ago about economists and programmers:

“An economist or programmer who hasn’t studied much computer science, including cryptography, but guesses about it, cannot design or build a long-term successful cryptocurrency. A computer scientist and programmer who hasn’t studied much economics, but applies common sense, can.”

In a sense he is absolutely right, but then on the other hand, you do not create anything new from doxa (common sense), but just repeat the same. The idea that the economy (society) is common sense will create an economy that looks like a computer, taking the existing power structures as given. In good economics, the issue of power, and who holds it, how its use it governed, is the key issue.

And it’s not just the bloggers and tweeters who advance this simple economics. Within the academy, there is the same sort of emphasis emerging, including from qualified economists.

The MIT Cryptoeconomics Lab presents a couple of papers that centre on transaction costs and networking. For example, in “Some Simple Economics of the Blockchain” Christian Catalini and Joshua Gans contend as their central proposition:

“In the paper, we rely on economic theory to explain how two key costs affected by blockchain technology — the cost of verification of transaction attributes, and the cost of networking — change the types of transactions that can be supported in the economy.

. . . The paper focuses on two key costs that are affected by blockchain technology: the cost of verification, and the cost of networking. For markets to thrive, participants need to be able to efficiently verify and audit transaction attributes, including the credentials and reputation of the parties involved, the characteristics of the goods and services exchanged, future events that have implications for contractual arrangements, etc.”

The Cryptoeconomics research team at Berkeley is another example. Zubin Koticha, Head of Research and Development at Blockchain at Berkeley, begins his ‘Introduction to blockchain through cryptoeconomics’ like this:

“Although Bitcoin’s protocol is often explained from a technological point of view, in this series, I will convey the incentives existing at every level that allow for its various comprising parties to interact with cohesion and security. This study of the incentives that secure blockchain systems is known as cryptoeconomics.”

It is important to be clear here. Our objective is not a critique of these specific contributions: they may well be exemplary expositions within their chosen agenda. Our objective is to say that if we limit the conception of cryptoeconomics to these framings, then we can imagine and theorise cryptoeconomics only in the language and grammar of optimized individual transactions and incentives. Programmers too should understand what that means. The issues of production, distribution and consumption of goods and services — the bigger picture issues — slide off the analytical agenda. They can’t even be expressed in this grammar.

3. The Hayekian turn: the integrity of market processes

For some, this slide is most welcome, for they see the world in terms of interacting individuals and markets as both an efficient and a moral mode for individuals to engage. If we attach an economics and philosophy to it, the most obvious is Friedrich von Hayek. Hayek was a relatively marginal figure in economic theory and policy until his ideas were embraced by UK prime minister Margaret Thatcher. Hayek was an admirer of markets and prices as modes of transmitting information, arguing they generate spontaneous self-organization. He was also an advocate of limited roles of government in money creation and management, and in social policy too, citing what Milton Friedman later depicted as the ‘the tyranny of the majority’ as the danger of government interventions. In 1976 he published a book called The Denationalization of Money, arguing that governments messed up money systems when they intervene, and we would be better off with private, competitively driven monies.

There is certainly a strong tradition in the blockchain community that would confirm this Hayekian view. But it is important that we do not fall into this discourse by accident. It is not the role of this text to debate this or any specific philosophy of economics; the point is that there is a form of Hayekian economics, with its appeal to individuals and incentives, that seems to resonate with people in cryptography. But there are more complex, detailed versions of this theory that are not reducible to these populist framings. Recall in this context that while Hayek was an opponent of state money, he did not at all advocate that money should be freely issued. He believed that money should reflect, and its quantity and value should be tied to the ‘real economy’. In 1930s and 40s debates about the post WWII global monetary system, Hayek, following von Mises and others, argued against the Keynesian proposal for a state-backed global money. The alternative he supported was that the system should be backed by reserves of basic commodities (lumbar, coal, wheat, etc). This requirement seems to be ignored by many cryptoeconomic commentators who invoke the relevance of Hayek to advocate non-state ‘currencies’ without material backing. Yet, the issue of token backing is very important, and we consider it a little bit more below.

For the non-Hayekians, there remains the option of a tradition of neo-classical economics that embraces optimisation, transaction costs, and incentives, but also pays more attention to the limitations of market solutions. A significant number of Nobel Prizes for Economic Science in the past 30 years have been awarded for engagement with these sorts of problems. It all points to the proposition that markets do not work in a simple, idealised way.

Neoclassical economists identify two broad limitations of market solutions. One is ‘imperfect markets’, where the capacity to secure forms of control over a market generate returns above the norm. Historically, this issue has focussed on the inefficiencies of monopolies and oligopolies. More recently, attention has been paid to asymmetrical information, and especially the fact that sellers generally know more about a commodity than buyers. (Joel Monegro’s ‘Fat Protocols’ is in this tradition, engaging what sorts of control at what point of the stack/value chain generate best long-term returns.)

The other factor in the neo-classical approach is the condition of ‘market failure’: where markets cannot effectively allocate prices because collateral costs and benefits are not borne by individual producers and traders. Hence there is in neo-classical economics greater engagement with the roles of government in overcoming market failure than is found in Hayek, albeit that there is also debate whether the cure is worse than the disease. Whether the computational systems built on smart contracts can significantly diminish market failure stands as a moot point.

There is one more recent points of challenge to neo-classical economics that is relevant to cryptoeconomics. It is work brought to prominence by Michel Callon and, in English and in relation to finance by Donald MacKenzie who describe economic models as ‘performative’: essentially that they make the world, they don’t describe it. This approach casts economics as a prescriptive discipline, operating in the domain of ‘ought’ statements, rather than ‘is’ statements. It warrants mentioning here because it already hints at the potentiality of cryptoeconomics: when used more radically (not only to repeat the most orthodox economic beliefs), as we try to show below, cryptoeconomics opens to us economy itself as design space. We need to recognize the complexity of social and economic dynamics in token design, and make sure that the ‘social’ receives as much analytical attention as the formal, technical issues. If we design ‘ought’ systems that understate the complexity of the social, or do not understand their effects, it is likely that governance processes will be inadequate.

Much of the rest of economics covers a wider range of views, but a smaller number of economists. But it is here that the broader, more cultural and socio-historical questions come to the fore.

We want to focus on two broader issues, still very ‘economic’ in framing, that maybe are sufficient to capture the flavour of these broader agendas. They both appeal to broader social perspectives in cryptoeconomic analysis, but embody rather different political agendas.

One comes from treating cryptotokens as not just a new means of exchange (the transaction view) but also a new unit of account (a production and distribution view); the other is played out through debates about the valuation of cryptotokens.

4. Cryptotokens: means of exchange or units of account?

Going back to our definitions of economics, the first one — about optimization, incentives and transaction costs — conceives of tokens as either means of exchange or, in the case of utility tokens, types of commodity futures contracts (rights to future conversion into commodities).

They are that, but they also are more than that, when framed in the context of the second definition of economics. From the perspective of the second definition we can see cryptotokens as providing the possibility for new units of account, and hence new ways to measure the economy.

In the first definition, the answer to the question ‘what counts’ in the economy is answered by reference to the discipline of market calculus. In the second definition, what gets counted as ‘production’ and ‘consumption’ is more open ended. What is counted — and what is valued — opens as a design question.

It has been well established that market criteria are blind to some critical economic processes. Roughly (for it is complex to specify) anything not produced for sale is systematically excluded.

In the mainstream capitalist world of fiat currencies, incorporating these excluded forms of production and consumption has been a virtually insurmountable challenge. There we see the dominance of a culture of production for profit and a history of data collection based on that principle. Beneficial things that do not make revenue are difficult to measure and hence to incorporate.

Of course we are not the first to recognise this limitation. The neglect of household production, both nurturing activities in the home and the economic activities of peasant economies, are widely-recognised limitations. And within neo-classical economics there is debate about how far into wider social analysis the notion of externalities extends (and how they might be priced). In a similar vein, the appeal of ideas like ‘triple-bottom-line accounting’ and ‘ethical investing’ also embrace alternative visions of counting. But, and this is critical, they all presume the ontological primacy of profit-centred measurement: they are critiques of and qualifiers to that system and rarely present alternative modes of calculation.

Cryptotokens enable us to re-open this measurement question. Cryptotokens as means of exchange enable us to trade in new ways. Cryptotokens as new units of account enable us to measure output (what is value and how is it produced) in new ways.

This points us already to one of our key insights, to which we will return a little bit later: we already know that the next value production layer — of the era of decentralized open source data — has to do with governance (more welcoming and better governed crypto networks will be valued at a premium due to their reliability of social inclusion in the decision making process), but also with ways of belonging, ways of sharing stakes, risks, upside. The organization of ‘risking together’ — or what we call an economic space — becomes now the actual value creation layer: it is a new value form which is very different to the commodity form as a basic economic cell of society which makes social relations between people (for capital is a social relation) appear as just relations between things. Basically, you will compete now with different community-economy-governances. This — explicitly relational, social logic of this new value form — is precisely what we try to capture by talking about it as a network derivative below. And it is to express such social-economic organizations that we are working on the Space organizational grammar and development environment (See the ECSA Tech Stack below).

The challenge in the cryptoeconomy is to open discussion about how we understand and measure this broader conception of ‘production’ and ‘consumption’, consistent with our aspiration of incubating not just in new ways of organizing, but also the production of new things and new (social, political, aesthetic, organizational, environmental…) relations.

But it is critical here that this imagining of new ways of doing economy and economics is not just fuzzy and feelgood: we need ways to measure and to socially validate these new horizons. It means that we cannot, in the first instance, reduce all forms of production to a monetary price. We can treat monetary price as one index of measurement (for a price is merely an index since the base unit of measure is arbitrary with respect to the thing being measured), but we will need other indices of production too, targeting measurement of the different ways in which goods, services and intangibles get acknowledged socially — or, become socially quantifiable, as Gabriel Tarde, one of the maybe most relevant economic thinkers for crypto, originally put it. Think of measurements of replication, imitation, iteration, social inclusion and recommendation.

In cryptoeconomics, especially where the focus is on wider social agendas, questions of what to measure and how to measure opens up a critical research agenda which will require ongoing attention and resource allocation. It is readily apparent, even in the mainstream of economics and accounting, that the valuation of ‘intangible assets’ is a critical problem. It always has been a problem, for such assets can’t be measured like plant and equipment and real estate, but as intangible capital (brands, intellectual property, etc) are now the overwhelming proportion of the assets of the world’s largest companies (Facebook, Apple, etc.), the lack of appropriate tools for valuation has emerged as a conspicuous accounting problem.

Most of the assets inside cryptoeconomics are also likely to be predominantly ‘intangibles’, so the problem is shared. The difference is that new tokens open up possibilities for new codes and agendas —new grammars — of measurement. It is quite conceivable that research on measurement in relation to crypto units of account may turn out to be invaluable to mainstream accounting too. (See Valuation Crisis and Crypto Economy)

Developing alternative measures are not a simple processes, and there are certainly challenges, most notably of measurement across indices and dealing with gaming of the measurement system. But we believe these challenges are significant and definitely worth taking up. It is important that resources are put into exploring new measurement agendas.

5. The valuation of cryptotokens

This issue is of importance because it gets to the heart of the question: can markets effectively price tokens as more than speculative objects? This was certainly an issue for popular debate in late 2017 when the price of bitcoin spiked. In this context, prominent crypto investor Fred Wilson said:

“In times like this, I like to turn to the fundamentals to figure out where things stand and how I should behave. . . You need to have some fundamental theory of value and then apply it rigorously.”

For those who believe that markets create spontaneous order, the search for something ’fundamental’ is a non-question: price captures all information, it is an expression of supply and demand and finds its own level. So the very act of posing the question of an ‘underlying’ or ‘fundamental’ value is to move outside the Hayekian view. It is to suggest that there is and can be a value to cryptotokens beyond current price. It takes us beyond that first definition of economics in terms of markets and incentives and into some wider, social and historical issues of economics. (See Valuation crisis and crypto economy; and Whose stability? Reframing stability in the crypto economy)

The issue under consideration here is not whether the measurement of ‘fundamentals’ is a good guide to trading strategy in cryptomarkets. (There is a standard debate in trading strategy about fundamentals VS. technical analysis of patterns of price movements. Warren Buffet stands out as an advocate of fundamentals analysis.) Nor is it about developing the capacity to forecast an income and expenditure model for the future, important though this is. (See for example, Brett Winton, How to Value a Crypto Asset — A Model)

The issue here is how we might measure the crypto economy if not by current token price. It matters because fundamental value points to the longer-term viability of a token and the activities that underlie it and potentially gives tokens an integrity which will be recognised in wider capital markets.

Fundamental value is not simply a long-term average price around which the spot price varies. It is a value that can be measured by criteria which link to the capacity of an asset to produce new value. In neoclassical, equilibrium theory, the ‘efficient markets hypothesis’ postulates that long-term market price will spontaneously gravitate to the valuation of this capacity to generate new (future) value. But it is only a view specific to the discourse of neoclassical economics.

The challenge of fundamental value is to find a mode in which to measure the current value of an asset, especially when that value requires projection of the future. It was once a relatively straightforward calculation: a staple (and stable) measure of accounting, when manufacturing industry was the ‘model’ corporation, and capital was physical (factory sites, machinery, stock). It has become a more challenging issue for accounting since corporate assets became increasingly intangible — intellectual property, brands, goodwill, etc. Some leading accountants claim that the profession is in a crisis because of an incapacity to measure the value of intangible assets.(See Valuation crisis and crypto economy)

So we should recognise that, in a cryptotoken context, the idea of calculating a fundamental value is experimental. We should also be aware that there is a propensity in cryptoeconomics to engage valuation via an over-simplified interpretation of what a token actually is and can do. That is, there may be consensus that tokens are complex, hybrid, novel things. But in the complexity of the valuation process, there is a proclivity to treat them as one thing; in particular as money or as equity, and especially the former.

Some of the debate here occurs via analogy. For example, it can be argued bitcoin could do the credit card provisioning of Mastercard or Visa, so we could estimate a corporate value for bitcoin based on the value of these companies. (See critical evaluation of this by Andy Kessler, The Bitcoin Valuation Bubble, Wall St Journal, August 27, 2017). But that doesn’t really work, because analogies don’t hold. We can’t claim the crypto economy to be different, yet benchmark its value to assets and processes we seek to disrupt.

Another approach, we think laudable in its desire to capture cryptotokens as derivatives (see more below), contends that the Black Scholes options pricing model can be adapted to explain token values. (See J. Antos and R. McCreanor ‘An Efficient-Markets Valuation Framework for Cryptoassets using Black-Scholes Option Theory’)

The essence of this proposition is that cryptotokens hold exposure to a future of potentially such monumental significance, so that cryptoassets themselves are call options on the utility value of what that cryptoasset might someday provision. Volatility of token values may then be seen as an efficient reflection of a rational estimation of the probability of realising some real utility value of a future — perhaps distant future — product that results from current cryptoassets.

Framed within the efficient markets hypothesis (Eugene Fama), this approach does bear the critical proposition that ‘efficient’ outcomes are a reflection of some ‘fundamental value’. But outside that assumption it is not really persuasive as an explanation of fundamental values. However, valuable in its approach is that it focuses on changes in estimated variables, not on the static value of underlying assets. In this way the approach does capture a derivative dimension in valuation (an issue addressed shortly more below).

Some innovative agendas of measurement are coming via the old quantity theory of money proposition, expressed as ‘the equation of exchange’. The formula states:

MV=PQ

where M = the quantity of money in circulation,

V = its velocity of circulation of money,

P = the general price level in the economy and

Q = the quantity of goods and services sold in the economy.

It is worth spending a little time giving context to this formula, both because of its application in the existing literature on cryptoasset valuation and because it is where ECSA too looks to frame fundamental value, albeit in a way different from current debates.

The equation MV = PQ comes from a long economic lineage, mostly identified with 18th century Scottish philosopher David Hume. It presents the ‘real economy’ on the right hand side and its money equivalent on the left hand side. Its lineage is long, but its functionality in economics is challenged (e.g. is it merely an identity; can it be read causally and if so from right to left as well as left to right?). In late 20th century policy application it has been used to focus on the relationship of M and P, and to argue that states should be passive in economic management, creating just enough money to keep prices stable (with V constant, money supply should expand in proportion to Q) . It became popular in the 1970s economics of Milton Friedman (broadly aligned to Hayek). It was called ‘monetarism’ and contended that state fiscal and monetary expansion were not solving recession, but causing inflation.

Monetarism became central bank policy orthodoxy in many Anglo countries for just a brief period in the early 1980s, expressed as ‘money supply targeting’. It was quickly abandoned and one of the reasons, with new significance for the world of cryptotokens, was that the state’s various definitions of money (cash, trading bank deposits, etc.) moved in different directions: there was no single state money to be targeted. More recently, the non-inflationary impact of US quantitative easing (so far) may be some further indication of the practical limits of the equation in state policy formation. QE also raises the challenge that the equation may only work for goods and services outputs and prices, but not for financial assets. Indeed, it is ambiguous as to which side of the equation liquid financial assets should be located: are they commodities (RHS) or money (LHS)?

With that brief background, let’s take a quick look to the use of the quantity theory of money in cryptotoken valuation.

The initial figure of note here is Chris Burniske, who observes that tokens have both asset and money attributes and are currencies in the context of the programs they support. But in that role they don’t generate cash flow, so they can be valued by discounted future value but not a discounting related to cash flows but to a projected future fundamental value. So the analysis turns to utility values (Cryptoasset Valuations).

For this purpose Chris re-defines the variables of the equation:

M = size of the asset base

V = velocity of the asset’s circulation

P = price of the digital resource being provisioned (note: not the price of crypto assets)

Q = quantity of the digital resource being provisioned (note: not the quantity of crypto assets.

He then solves for M, which enables an individual token valuation.

This is indeed a novel approach and for a reason opened up a significant debate. But it does have some problems:

• It finishes up displacing the valuation problem from the token to the valuation of digital resources being provisioned, and the ambiguity of how that is being measured.
• Moving V to the RHS so as to solve for M turns the equation from being a logical identity (that money values equal commodity values) into a historical proposition of individual variable valuation. (If, for example, velocity doubles, it doesn’t thereby halve the size of the asset base.)
• In wider discussion there is recognition of the problematic valuation of V (actually, it is the volatility of V). There is a literature addressing the question of velocity. There are debates here, but, as summarised by Alex Evans, its common proposition is that:

“tokens that are not store-of-value assets will generally suffer from high velocity at scale as users avoid holding the asset for meaningful periods of time, suppressing ultimate value.”

A problem with the valuation literature seems to be that it conflates the equity dimension and the monetary dimension of tokens. The focus on the fact that (a) tokens will be turned over rapidly because they are not a good store of investor value is different from the issue of (b) tokens turning over in their use as a means of exchange inside projects/businesses. The latter matters, the former does not. To give attention to the former would be like saying the turnover of corporate equities impacts the long-term price of corporate equities. The point: We need to re-think the meaning of velocity in a token world. The underlying issue here is that tokens blur the categories of equity and money, and the velocities of these attributes have different drivers.

We are interested in this approach and its criticisms not for the purpose of disproving the approach — for probably any proposal in this domain is somewhat easy to critique. The point is that cryptoaccounting, like mainstream accounting, simply doesn’t have good tools to measure in this domain. But it is an area where we should explore, and it requires creativity, such as shown by Burniske and the debate to which his work has given rise. Indeed, we are thinking that the novelty of cryptoassets gives us opportunities to invent valuation procedures that could well be actually of benefit to the mainstream accounting profession.

We have been working intensively on the ECSA token valuation system, as it could be posed as an engagement with this debate, returning to the original meaning of

MV=PQ

as the depiction of an economy which balances the ‘monetary side’ of an economy (MV) with the so-called ‘real economy side’ (PQ). From an ECSA perspective, the measurement process means that P is too limited a category. We want to treat price as just one index of ‘value’ measurement amongst a range. So we respecify:

MV= I(1-x)Q

where

M = the quantity of tokens issued in the new economic space (ECSA bootstrapped ecosystem of new value forms)

V = the velocity of circulation of tokens within new economic space (ECSA bootstrapped ecosystem of new value forms)

I(1-x) is the range of indices of valuation, of which price is just one

Q is the quantity of output (tangible and intangible) produced in the new economic space (ECSA bootstrapped ecosystem of new value forms).

If we measure the new economic space (ECSA bootstrapped economy) in the way described, we can make a simple use of this formula, or at least the underlying sentiment, both economic and social. For ECSA itself, this mode of measurement gives a means to define both fundamental value and set some governance agendas.

As an identity, the LHS and RHS are always equal.The monetary policy position of ECSA is that the RHS (the total value of output within new economic space/ECSA bootstrapped ecosystem) will drive the LHS (token issuance qualified by velocity). In the distributed system of offers and matches ECSA is building, we will be able to develop significant data sets of M (distributed token issuance) V (where we can distinguish clearly between offers that are about acquisition of inputs for production and those used for mere token exchange), and we will develop empirical measurement to calculate I(1-x) and P. We think that in the offer based new economic space token issuance can be governed in a distributed way to ensure MV=IQ, and the economy can be run on non-inflationary tokens. The key here is to concurrently have internal ‘working tokens’ and ‘market token’ traded on the capital market. The equation of exchange should only apply to the internal ‘working token’, not the ‘capital market token’, for it is the internal token which articulates with production and distribution. (We will return to the issue how the capital market token and the value graph and its working tokens are bridged in the next texts of this series.)

A question is, of course, how do we reduce I to a single index number? The answer has two layers. One is that once we reach critical mass of offers and matchings market processes will themselves drive valuation. The second layer is that these same offers and acceptance will generate significant data which can then be transformed into indices for valuing goods and services (outputs and performances). How these indices will be compiled is one of our most interesting research areas at the moment — it will come out of an empirical processing of large data; it cannot be known a priori; nor should it be presume to be fixed in value.

There are some elements in this proposition that warrant further explanation. They will be taken up in a later section, but in the current context the critical point is that we believe that big data generated by agent offers and acceptances provide a critical information source for framing fundamental within a (broadly) MV=PQ framework.

‘Big data’ are in contemporary society often readily depicted, and rightly so, as socially intrusive and manipulative. But we think that in a token economy context of transparency and decentralized open source data, they are critical for organization and inclusiveness. And even further, without a reliable runtime and a grammar that can help us navigate and operate this space, and build knowledge derivatives (indexes) of it, we are today without politics, economics, incapable of speaking, of grasping, and intervening in processes and future of our life. This is the technology development task we are taking on in ECSA (See the ECSA Tech Stack).

We’ve always been impressed by Galileo Galilei, Leonardo da Vinci and other renaissance scientists who invented the experiments and instruments to navigate, understand and measure the newly opening space-time reality — the microscopes and telescopes to reveal micro- and macrocosms, inclinometers to determine latitudes, thermoscopes to show change of temperature, barometers to reveal atmospheric pressure, nautical instruments, experimental methods to understand invisible phenomena, velocity, acceleration, gravity— we will need to do the same now for the new economic space-time. Just like the birth of perspective in art, we will introduce perspective in economy. It will be a renaissaince.

We will return to the fundamental value issue shortly, for the issue of whichfundamental value is to be indexed in terms of the measuring role, and governance role, is called on to play within a token system. The focus is therefore on the requirements of the new economic space, but we get there in a way with ramifications for wider token systems.

6. Developing the ECSA unit of account

Part A: A historical digression, but of some significance

The problem of our radical measurement proposal is that all the language of money, markets, prices and profit is dominated by a grammar that equates money with the state, markets with a profit-centred mode of calculation and profit as a surplus defined by reference to extraction of individual benefit. Cryptoeconomics has been strong in challenging the first of these, but less effective in the latter ones. But they need to be challenged too.

John Maynard Keynes, the economist most associated with the principles of state issuance and management of fiat money in advanced capitalist economies, said in his 1930 Treatise on Money:

“The age of chartalist or State money was reached when the State claimed the right to declare what thing should answer as money to the current money of account — when it claimed the right not only to enforce the dictionary but also to write the dictionary. Today all civilised money is, beyond possibility of dispute, chartalist.”

Ninety years on, cryptotokens are the counterfactual to this proposition, but Keynes’ proposition about the State writing the dictionary is right. Part of cryptoeconomics is to challenge the dictionary: to open up new ways of thinking money and price.

That challenge is broad, but in this context, let us go to Keynes and Hayek, and read them via the innovation of cryptotokens. The object is quite specific: to note how certain of their categories that are now assumed ‘theoretical’, indeed axiomatic (the ‘dictionary’), are actually historically specific and contingent and should be challenged in the light of cryptotoken development. Moreover, within each of these significant economists, we can find the derivative dimension that is repressed in the interests of conveying a culture of theoretical certainty.

We start with Keynes.

His central proposition, conceived in the years either side of the Great Depression, want that nation states must manage national economies for markets will not gravitate to full employment stability. Central here is the idea that the state defines money and closely manages the financial system. In Chapter 17 of the General Theory he challenged his own premise and introduced the hypothetical idea that money may not be unique in its economic characteristics:

“The money-rate of interest — we may remind the reader — is nothing more than the percentage excess of a sum of money contracted for forward delivery, e.g. a year hence, over what we may call the “spot” or cash price of the sum thus contracted for forward delivery. …Thus for every durable commodity we have a rate of interest in terms of itself, — a wheat-rate of interest, a copper-rate of interest, a house-rate of interest, even a steel-plant-rate of interest.… Money is the greatest of the own-rates of interest (as we may call them) which rules the roost.”

Keynes, in essence, depicts money as the greatest own interest rate because (a) it does not itself produce a use value (like say wheat or copper) so it does not get diverted to those uses (it is exclusively ‘money’); (b) there is no issue of wastage (c) it is the most liquid asset, and (d) its quantum is managed.

Two things are interesting here. First, these criteria identified by Keynes as integral to the ‘greatness’ of (state) money do not persuasively apply today: indeed all financial derivatives have the liquidity and fungibility of state money, and cryptytokens are not constrained by nation- (or group-of-nation-) specific acceptability.

Second, Keynes uses the language now associated with derivatives to depict the rate of interest. Money is the underlying of which interest is the derivative. And for Keynes, money is axiomatically state money. Cryprotokens are in this context a put option on the state: the right to sell out of the state’s unit of account.

For Hayek, the origins of his thinking on the social and economic virtues of market processes comes from an early to mid 20th century debate with advocates of Soviet-inspired and other variants of central planning. It is known as the Socialist Calculation Debate. Hayek, following von Mises, argued that central planning, even at its best, has a range of insensitivities to detail: it can only work with highly aggregated, and outdated, data and impose these generalized decisions on individuals. The market, on the other hand, runs by processing decentralized information. It can synthesise complex forms of social and economic information into a single index, enabling economic relations to be conducted in simple and orderly processes.

It is worth quoting Hayek at some length, because what he says resonates with the capacities of a cryptoeconomy:

“It is in this connection that what I have called the “economic calculus” proper helps us, at least by analogy, to see how this problem can be solved, and in fact is being solved, by the price system. Even the single controlling mind [the central planner], in possession of all the data for some small, self-contained economic system, would not — every time some small adjustment in the allocation of resources had to be made — go explicitly through all the relations between ends and means which might possibly be affected. It is indeed the great contribution of the pure logic of choice that it has demonstrated conclusively that even such a single mind could solve this kind of problem only by constructing and constantly using rates of equivalence (or “values,” or “marginal rates of substitution”), i.e., by attaching to each kind of scarce resource a numerical index which cannot be derived from any property possessed by that particular thing, but which reflects, or in which is condensed, its significance in view of the whole means-end structure. In any small change he will have to consider only these quantitative indices (or “values”) in which all the relevant information is concentrated; and, by adjusting the quantities one by one, he can appropriately rearrange his dispositions without having to solve the whole puzzle ab initio or without needing at any stage to survey it at once in all its ramifications.

Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan.”

So price is the condensation of a multiplicity of determinations (to borrow from Althusser). The market can incorporate and process all different forms of information (create knowledge) to create spontaneous order.

“The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they never know more than is reflected in the price movement.”

F.A. Hayek, ‘The Use of Knowledge in Society’, American Economic Review. XXXV, №4. 1945, pp. 519–30.

This 1940s advocacy of ‘the market’ may stand strong as an alternative to 1940s central planning, but 70 years on the argument is and should be different. There are now ‘big data’, access to vast amounts of information to inform individual decisions, and computational capacities to process this information instantly. The ‘imperative’ to have complex variables reduced to ‘price’ no longer holds. Decentralized decision making does not have to articulate simply via price formation in markets. Indeed, one potential of cryptomarkets is to challenge the use of Hayekian price as the decentralized object of calculation.

Hayek says price embodies complex information — it creates knowledge of society — and its great functionality is that it is a simple representation of that complexity. Blockchain and cryptotokens present us with other ways of processing complex information. To get to this 21st century engagement, we can frame Hayek’s analysis in the context of risk and derivatives. There are two dimensions here.

• In the era of blockchain and big data, and in the language of Gilles Deleuze, we can dividuate knowledge: break it down into its underlying, determining elements (that Hayek thought were too complex to code), but without necessarily aspiring to see those elements combined so as to ontologically privilege the totalised category of ‘knowledge’. Knowledge is a synthetic asset; an assembly of information. Its purpose does not have to be the formation of market price.
• It follows that, in the era of derivatives, we can think of price as itself a derivative on those underlying forms of information of which price is said to be the condensate. In Hayek’s analysis of ‘The Price System as a Mechanism for Using Knowledge’, ‘price’ is really the strike price on the option on a synthetic asset called ‘knowledge’. (Individuals in this framing hold out-of-the-money options where they are priced out of the market and the return on in-the-money options is what neoclassical economists call the ‘consumer or producer surplus’.)

It follows that if Hayek’s approach can now be framed as an excessive reduction of information to a single, totalising unit of measure (‘price’), we can ask what are the key dividuated forms of information for which price represents a derivative exposure? And once we identify what they are, we can ask how are they important beyond being the ‘underlyers’ of price? How are they important in their own right as knowledge and as social indicators for decision-making?

The significance of these forays into Keynes and Hayek is profound: more so than might at first appear.

For Hayek, if it is possible to deconstruct the information behind price, why is it assumed that the objective of this information is the formation of prices rather than some other unit of measure? We can open up radically different social modes of calculation.

For Keynes, if money is a derivative exposure to the state, we might ask what cryptotokens might be a derivative of? What social and economic modes of organization may be available here?

To take on this significance, we need to back up a bit: to challenge the dictionary. Price is no more than an index: it measures relative values (between products; over time). But it gets treated socially as an absolute social measure. This is central to the idea of trust in a (fiat) money system. But the absolute measure is a social construct, and it can be changed: Francs to Euros; ‘old’ British pounds to ‘new’ (decimal) pounds. The appearance of cryptocurrencies, offering potential for so many different benchmarks for valuation, makes that social construction stark.

So why is ‘price’ currently the privileged index of valuation? Why do we not use (for example) sociality (social impact) as the privileged index of valuation? Or environmental impact?

The answer is that price is a measure that expresses the social and cultural values of a capitalist society. In using price as the privileged measure we assume that (a) production for the market is valued over production for direct use (for the latter generates no price) and (b) we assume that profit is embedded within price (people take things to market so as to make a profit). In a capitalist society, those priorities seem appropriate: they capture the values of that society.

The above is no doubt something of an overstatement. There has long been critique of GDP data, for example because they are not adequately measuring the environment, or commodity output is not a measure of ‘happiness’. Exactly what sorts of indices we might adopt is not the specific issue here. It is that for a measure to be not just an idealised alternative to GDP but a living indicator to be used in economic management, it has to have a material grounding in social organization: GDP as we now know it rules as an aggregate measure in a society that privileges production for profit.

Part B: Contemporary lessons from the historical digression

In an economy not driven by profit, but by a different framing of social contribution, we need different modes of measurement. If we stay with GDP-like measures, but add qualifiers (like pricing the environment or pricing care) we have to convert these qualifiers to profit-centred criteria, and then seek to justify their lack of profitability in terms of some unspecified social good. In this framing, non-profitable social goods are inevitably depicted as ‘concessions’ (virtuous loss-makers). We want to frame them not as concessions but as a purpose of doing economic activity. That framing requires the de-throning of profit as ruling the discourse of economic analysis. It is just a perspective — a very restricted perspective — on value.

We think we can borrow from a Hayekian method to re-think different measures made possible by the creation of tokens as units of account.Price, in its abstracted meaning, is valuation of something (output) by means of an index. So instead of allocating the generic word ‘price’ to our current (and Hayek’s preferred) index of measurement, let’s call that measure ‘profit price’, signalling the epistemological foundation of the index: it is just a profit-centred perspective on value.

But cryptoeconomics provides a means to measure also in terms of post-capitalist values — in terms of future value forms. And ‘profit price’ is not the index that best captures these value forms and their production. On the contrary, it has rather become a drag to their production. This is perhaps one of the most difficult things to understand about the transformation we are in: when capital becomes ‘intangible’ information and knowledge there is an irreversible change in the nature of itself. It does no longer follow the same laws, it does not behave in the same way, it does not produce and capture value anymore in the same way.

Think of knowledge. How and where does knowledge get its value? How does knowledge become valuable? How does the value of knowledge appreciate? The value of knowledge appreciates (a) if it is used in multiple ways, that multiple ways of using it are invented: if it is shared, adopted, repeated, imitated, copied; which means that it is always a collective and social process; (b) if it gets subjectively interpreted, accepted, “owned” and invested into; there is nothing more valuable than a knowledge producer who “owns” the production, is capable in sharing in its risks and puts herself at stake in the production; (c) if its producers ‘risk together’, if they self-regulate continuously the relations of its production, share its risks, stakes, upside. These key features of knowledge production — ability to multiply ways of use, ability to interpret and give subjective meanings, ability to self-regulate and continuously modify relationships between actors in its production — are precisely something that the old value production did not have. It is a different grammar where value gets created by (a) sharing, copying and inventing multiple uses (VS. restricting use by proprietary ownership); (b) many interpretations, iterations, variations, “owners” (VS. hiding the source code); (c ) collective self-organization, self-governance and right to fork (VS. external organization and control).

Would it not make sense that perhaps another kind an on index, say a ‘sociality’ index (‘sociality price’) would better capture such value production, and markets could value in terms of sociality price rather than profit price. (The objective here is not to give precision to a sociality index — or indices — it is just to frame the credibility of their existence as a social alternative, a different perspective on value.)

Fanciful, many will say! Hayek would have us believe, and many passively accept, that profit price is ‘natural’ and society spontaneously gravitates to an order around the calculation of profit price. Sociality price does not exist, and it would be a complete overturning of social norms to engage it.

So how do you compile a sociality index that is socially recognised and used?

First, we should recognise that Hayek’s notion that price formation in markets is a spontaneous order which happens to society is simply wrong. As Karl Polanyi puts it in the context of the socialist calculation debate: markets were planned; planning wasn’t!

Hayek himself highlights just how much complex and decentralized information goes into compiling price as an index. It’s about costs and market power, regulations, etc. on the cost side and tastes, income, etc. on the demand side. They are different for every individual, for every commodity, and at every point in time. But, and here Hayek is right in relation to current social relations, our society does, in general, bring it all together to create prices and orderly markets.

We respond that this is not a natural order, but a socially organized order. Building alternative sociality indices, and having people value by reference to sociality price, involves a massive cultural as well as economic shift. It would be about production for value rather than production for profit. The key metrics would have to shift from conditions for profitability to conditions for valuable. It is no more or less logically feasible than valuing in terms of profit price.

Cryptotokens provides us with an opportunity to experiment for example with a sociality index of price: indeed to develop multiple indices of valuation that reflect different social priorities the way that profit price reflects capitalism’s priorities. And if total income is determined by payments for contribution for sociality, we have the conditions for a different measure of value, for a different value calculus.

We are thinking to begin to trial this system. To quote ECSA developers:

“Think of the token as a propositional force, a sparkle of potentiality. It is a multi-dimensional docking port that can germinate new forms of relations and value sharing. The token is an occurrence, a virtual (time) crystal expecting its transductive associated milieu. It is an instance of value capture, but only insofar as it acts, simultaneously, as a fugitive relay of anarchic shares collectively modulating and amplifying values. Conceiving of tokens as speculative pragmatic relays is a way of entertaining them as generator of collective effervescence.”

(Erik Bordeleau et al. at the Economic Space Agency “We don’t know yet what a token can do”; see also “On intensive self-issuance”, Economic Space Agency in MoneyLab Reader, pp. 232–233)

7. Once more on fundamental value: the ECSA approach

‘Fundamental value’ is critical in cryptoeconomics for the simple reason that, in economic terms, it is the first benchmark of good governance. That is, it provides the framework so that the integrity of a token on issue is to be found in the system of production that it enables. So there must be a clearly-stated relationship between token issuance and the level of production.

But that relationship is historically specific, and we need to recognise that old notions of ‘fundamental value’ may have to adapt, and not just in the context of cryptotokens, but emphatically in their context.

So what are the hallmarks of the traditional notion of fundamental value? It is that there can be an ‘underlying’ measure outside of (beneath) the vicissitudes of market exchange. Adam Smith called it ‘natural price’; Marx sought a unit of value in socially necessary labour time. Accountancy sought fundamental value in the long-term productive value of the various assets of the corporation, as distinct from stock price. In each of these cases ‘intangible capital’ breaks the modes of fundamental value measurement. That is important as intangible capital becomes increasingly prevalent on corporate balance sheets, and it is clearly central to cryproeconomies.

But more broadly, as the nature of capital changes, so the mode of its measurement changes. If we look at the way financial markets have developed over the last 60 years to explain value — using tools like CAPM, VaR, EMH and Black Scholes — we can see that practical valuation has gone ‘inside’ the market: the idea that ‘real value’ exists outside market transactions is no longer a reflection of how valuation actually occurs.

What it signals is that ‘fundamental value’ has been shifting from stock measures (hours of embedded labour time; machinery and factory sites) to flow measures: from measures ‘outside’ the market to ways of re-interpreting data generated within markets.

A flows approach to fundamental value focusses on sources and uses rather than the valuation of stocks (assets, portfolios, warehouses).

Professor Perry Mehrling, one of the key critics of modern finance in the light of the global financial crisis, quotes Hyman Minsky that “the cash flow approach looks at all units — be they households, corporations, state and municipal governments, or even national governments — as if they were banks.” Cash flows have their uses and sources, and “for each agent, every use has a corresponding source and vice versa” and “each agent’s use is some other agent’s source, and vice versa.” If one thinks of agents as banks then all their assets and liabilities are intertwined. Whatever assets a bank has (i.e. cash) comes from elsewhere, as of course its liabilities are also “social”. In a stock version of fundamental, what is valued is assumed social because what is valued is the product of past social processes. Here, in measuring flows, we are focussing on the social-in-process.

This approach resonates directly with the interoperability grammar of offers and acceptances undertaken by agents on a blockchain. It suggests a new mode of framing fundamental value; one that is appropriate to the new form of economic interaction generated in a cryptoeconomy.

The MV=PQ approach to fundamental value must sit under this framing. This identity is one critical perspective on fundamental value.

ECSA thinks that this framing sets the conditions on which ECSA must build its diagnostic tools and indeed its units of account (for there need not be just one, albeit that there will be commensuration between units, but they may be non-tokenised). We can draw from Hayek the idea that transactional data embody complex, detailed information, from which indices can be compiled: indices that will give access to ‘underlying’ trends and can be compiled in ways to perform the function of units of account.

But, and this is critical, these indices cannot be pre-defined nor locked in: they are themselves to be produced as a recursive exercise of data analysis, and as the data evolve, and as techniques of data analysis evolve, so the (synthetic) indices of fundamental value must evolve. The indices must be in harmony with underlying market processes; not stand in contradistinction.

In an MV=PQ framing, we have to build data from agents’ offers and matches to compile a way to measure Q and V, and ultimately thereby stabilise the relationship between M and P. They must emerge from the interrogation of data, and suit the specific purposes of the new economic spaces bootstrapped by ECSA. And those indices must be allowed to evolve over time, both by processes of refinement as data get richer and processes of transformation as notions of social value evolve within the new economic space.

This on-going process of developing indices will be one of the critical performances of ECSA. It is critical to the integrity of new economic spaces, but we aspire also that it will be part of a wider social project to re-think value. We are familiar with the extensive ‘alternative’ measurement work around the world — in development studies, in human capacity measures, in health, in care, in the environment. We believe that ECSA’s indexing project can be part of this wider agenda; indeed framed within a token economy there will be new ways for this project to develop.

8. The derivative form: buying exposures to an exponential future and a big put

The above suggests to us that tokens in cryptoeconomics, and certainly in the new economic space, take the form of derivatives. We mean this not just in the sense that the purchase of an ECSA token in the capital market is a derivative, in the same way that company stocks are derivatives (exposure to company performance, without ownership of the underlying).

The proposition is deeper — in part material, but in part also symbolic .

First the material expression. There is a widespread embrace from the cryptoeconomic community of the issue of a transformative potential: tokens give exposure to an unverified but exponential future. The various indices that ECSA will compile are themselves derivative formulations, in the sense that movements in indices will determine individual token values as they exchange with other tokens and with ECSA’s mutual stakeholding fund. The purchase of tokens is thereby the acquisition of an exposure to these indices. The indices themselves are measures of the performance of economic spaces. So a token is an exposure to an index which is itself a representation of economic performances by token-issuing economic spaces.

Second, symbolically, the crypto economy involves taking risk positions on the established capitalist economy, its calculation of value, and the economic (and political) power structure around it.

• Those of us engaged in building (and analysing) cryptoeconomics and holding a long position on its potential.
• Those state regulators/commentators who decry the potential of crypto economies are using their regulatory and media power to short us.
• Those who diversify from the conventional capital market and capitalist economy and invest in ECSA are taking a short position of capitalist systems of value calculation. Borrowing the great insight of ECSA Advisor prof. Robert Meister of UCSC, we offer them a ‘big put’, a capacity to short capitalism.

In the words of ECSA Advisor, NYU professor Robert Wosnitzer:

“If the current system/structure of capital “shorts” the qualitative dimensions of life and society, and/or the externalized costs of production (i.e., businesses “put” the costs of, say, pollution onto society), through going “long” the current system of production and circulation, then ECSA is going long the qualitative/intangible dimensions and shorting the current system.

Said differently, a put option “puts” back the cost of the spread between the current value of something and its strike price to a counterparty in equity options, or in the case of bonds that carry a put, the right to “put” back the par value at a specific moment. This “put” option also carries the logic of securitization — that is to say, the rationale and need to securitize mortgages is due to the fact that homeowners have a “put” option that they can exercise at any time, thereby rendering the cash flows unpredictable and therefore not suitable for investment and reducing liquidity. By securitizing mortgages, the “put” option is mitigated as the risk is spread across multiple mortgages in the pool, and then tranching allows for even more precise predictability. So the “put” option has always carried some threat to the current system of capital relations, and the need for securitization arose largely to address this “threat.” Of course, the put option in mortgages has been largely reduced to interest rate sensitivities (and hence the need for strong central banking operations), whilst ignoring the real, material social contexts that often drive interest rates — unemployment, price increases by producers, health care costs, etc. etc.”

And the politics is clear:

Creating “alternative” economic spaces allows the owners of tokens to own an option that could, under certain conditions, “put” back the cost of an externality to the owners of the means of production which created the externality (or injustice, if you will). It’s a long, directional play (buying a put) that is the dialectical opposition to the long, directional play of existing capital relations.

Yet there is currently no derivative product that recognises the significance of this insight, and enables it to be ‘played out’ financially, in a way that don’t express simply via the volatility of token values themselves.

ECSA is currently exploring ways we might engage this logic, for example by securitizing a certain part of revenue (perhaps a world-first collateralized equity note?), with the possibility of both hedging that revenue (both in quantity and currency) and also providing a liquid market tool to attract short positions on ECSA, but in a way that diverts this shorting activity from the ECSA token itself.

It must be emphasised that this is a strategy currently at the stage of exploration only, as part of engaging in a process of discovery of what cryptotokens might become. It is raised here simply to indicate the kind of exploration we feel need to emerge.

The ECSA team will be again at NYU during the last week of September to carry on the work in the next series of Cryptoeconomic working sessions.

If you made it this far, and are interested in joining the work, let us know!

Credits:

Big thanks for comments and discussions on earlier drafts by Johnny Antos, Chris Burniske, Eden Dhaliwal, Anesu Machoko, Jessa Walden and some anonymous contributors. Thanks also to all participants at the Cryptoeconomics Working Sessions at NYU/Stern, Stockholm School of Economics and GCAS. ECSA team working on our cryptoeconomics project — Jonathan Beller, Erik Bordeleau, Fabian Bruder, Pekko Koskinen, Jorge Lopez, Joel Mason, Tere Vaden — rocks.

Dick Bryan, is a prof. (emer.) of Political Economy (University of Sydney) and Chief Economist at Economic Space Agency. He is one of the key theorists of the derivative value form, and the author of Risking Together and Capitalism with Derivatives (together with Mike Rafferty).

Benjamin Lee is a prof. of Anthropology and Philosophy (The New School, NYC) and Advisor to Economic Space Agency. The author of Derivatives and the Wealth of Societies. Co-organizer of the Volatility Working Group.

Robert Wosnitzer is a prof. at New York University/Stern Business School and Advisor to Economic Space Agency. Credit instruments, derivatives, and cultures of finance specialist. Former debt instruments and options trader at Lehman Brothers and Wells Fargo Capital Markets.

Akseli Virtanen, PhD, is a political economist, the author of Arbitrary Power. A Critique of Biopolitical Economy and Economy and Social Theory (Vol 1–3, with Risto Heiskala), Co-founder at Economic Space Agency, and at the decentralized hedge fund Robin Hood Minor Asset Management. Currently visiting researcher at Standford University.

Photo by rutty

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By requiring planners to consider impacts on society and the environment as well as economics, New Zealand is setting a much-needed example for other nations.

“Life is about more than just money.” It’s almost a cliché. But that quote isn’t from a left-wing think tank or a green non-governmental organization. In fact, it comes straight from official documents of the Treasury of New Zealand.

When even famously conservative government economists are saying there’s more to life than dollars and cents, something interesting is going on. And in fact, New Zealand is at the forefront of a radical shift in economic policy. The aim is simple: to make nature and society just as important as gross domestic product (GDP) growth in government thinking.

A Bold New Policy

The administration of Jacinda Ardern, who became prime minister in October 2017, has lost no time establishing rock-solid environmental credentials, with the recent ban on offshore oil and gas drilling just the latest in a long line of climate-smart policy commitments. But the shift to a “well-being budget” for 2019 could be the boldest play yet.

The New Zealand Treasury has been instructed that, when planning policies or modeling future economic scenarios for the country, it can no longer only consider the impact on GDP growth. Instead, it must include social, human and natural considerations in its thinking. For example: Would a trade deal endanger existing jobs? Would a pipeline destroy valuable forest or freshwater? And could deregulation damage cultural cohesion?

All of these are questions that government finance ministries rarely, if ever, concern themselves with. But New Zealand wants to be different.

“We want New Zealand to be the first place in the world where our budget is not presented simply under the umbrella of pure economic measures, and often inadequate ones at that, but one that demonstrates the overall well-being of our country and its people,” Arden said in a January speech.

Getting Back to Nature

This approach has alarmed some traditional economists as radical, unscientific or conceptually confused. But I think it’s eminently sensible.

As recent research by Oxford University economists has shown, all economic prosperity rests on natural foundations. Simply put, without clean air, safe water and a well-functioning environment, there can be no material wealth. And even the business big cheeses at the Davos World Economic Forum now argue that policy-makers’ obsession with GDP has damaged our planet and our societies.

If all government decisions are made on purely financial terms, then ultimately those decisions will benefit finance and capital at the expense of people and nature. Traditional economics has forgotten that our economies should have a purpose: they should deliver greater well-being, increasing prosperity, improved security and comfort, without imperiling the things that make life worth living. If all government decisions are made on purely financial terms, then ultimately those decisions will benefit finance and capital at the expense of people and nature. As New Zealand treasury secretary Gabriel Makhlouf puts it, “The traditional view of economics is more of a caricature than reality.”

Measuring What Matters

Over the past decade, dozens of new sustainability indexes and “beyond GDP” frameworks have emerged.

Some have largely been forgotten; others have attracted some scholarly attention or the support of a well-meaning think tank or policy institute. Only tiny Bhutan, a landlocked Asian nation of less than a million people, has attempted to get beyond GDP at the policy level, with its Gross National Happiness Index. No other country has made a strong, public commitment to incorporating social and natural value in governance — until now.

In New Zealand, GDP will no longer be the sole measure of success for economic policies. In New Zealand, a new generation of leadership has arisen, symbolized by Ardern: wise to the danger our planet is in; alive to the opportunities of a greener, fairer society; and not beholden to the outdated economic doctrines that have led us into this predicament. In New Zealand, GDP will no longer be the sole measure of success for economic policies, because GDP is not, and has never been, the best or only way to measure social development.

In many ways, New Zealand’s new approach is a return to a more honest, more grounded way of practicing economics, more rooted in the real world, as Makhlouf explains. “Economics is about trade-offs,” he says. “Economics is about the fact that there are finite resources to meet unlimited wants and what’s the best way of dealing with that problem. What the Treasury is suggesting now is that we can become a bit more sophisticated than in the past at making those trade-offs.”

It’s a refreshing change of focus from a senior treasury official. I’m looking forward to the day — hopefully soon — when finance ministries around the world are equally candid about something the rest of us have known for a long time: There’s more to life than money.

Ben Martin  @GECoalition  – Green Economy Coalition marketing & communications lead

Header Illustration by Sean Quinn

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Impacts of resource hungry exploitative economies

“What is 120 times the size of London? The answer: the land or ecological footprint required to supply London’s needs.” — Herbert Giradet

Our ecological footprint exceeds the Earth’s capacity to regenerate. A number of useful indicators and frameworks have been developed to measure the ecological impact that humanity and its dominant economic system with its patterns of production, consumption and waste-disposal are having on the planet and its ecosystems. The measure and methodology for ecological footprinting translates the resource use and the generation of waste of a given population (eg: community, city, or nation) into the common denominator of bio-productive land per person, measured in Global Hectares (Gha), that are needed to provide these resources and absorb those wastes.

Much of the educational power of this tool is its capacity to compare between how much bio-productive land exists on the planet with how much bio-productive land would be needed to sustain current levels of consumption. In addition it also helps us to highlight the stark inequalities in ecological impact that exists between different countries.

Source: Global Footprint Network

Ecological Footprinting is basically an accounting tool that compares how much nature we have and how much nature we use. He are currently using about 50% more ecological resources than nature is regenerating naturally every year.

Source: Global Footprint Network

This point of spending more than is coming in every year — or living of the capital rather than the interest — was reached by humanity in the late-1960s. It is called Ecological Overshoot and every year since Earth Overshoot Day — the day when humanity as a whole has already used up the bio-productivity of Earth in that year — is a little earlier. Here is a little video (3:30 min.) to explain the concepts of ecological overshoot and footprint.

Source: Global Footprint Network

The first Earth Overshoot Day (also referred to as Ecological Debt Day) fell on December 31st of 1968 and by the mid-1970s it was already reached at the end of November. Rapidly rising population numbers and rates of material and energy consumption, along with the accelerating erosion of ecosystems everywhere have resulted in the decline of the planet’s annual ‘bioproductivity’ and a reduction in ecosystems services each year since. Thus, the day on which we overstep the limits of Earth’s annual productivity is occurring earlier and earlier. By 1995 it was on October 10th, in 2005 we reached overshoot by September 3rd, in 2013 on August 20th, and in 2015 on August 13th, and by 2017 on August 2nd!

While agricultural inputs (fossil fuel based fertilizers), irrigation and technological advances have artificially raised the bioproductivity of agricultural land, the continued degradation of ecosystems everywhere leads to a drop in planetary bioproductivity every year. At the same time — the number of humans keeps rising, the average — or fair share — of bioproductive global hectares (gha) available per person has dropped from 3.2 to 1.7 gha from the early 1960s to today.

Source: Living Planet Report 2014

The global average ecological footprint per person is 2.7gha and therefore almost 50% more than would be sustainable (WWF, 2014). Averages are deceiving, as you can see in the graphic above, the five countries with the highest demand on the world’s bioproductivity and resources are consuming nearly half, leaving the other half to be shared among the remaining 190+ nations. We live in a world with extreme economic and ecological inequality!

Source: WWF 2016 Living Planet Report

Metaphorically speaking, if we think of global ecosystems as an apple tree, we can say that globally, until the late 1960s, we limited ourselves to harvesting the apple crop. Since 1968, we have started to eat into the wood of the tree, diminishing the crop that the tree is able to yield. In this way, we are eroding the habitats of other species as well as the bequest that we leave to future generations.

Finding an answer to this challenge through a shift away from fossil fuel and materials sources — a strategy that is moving towards the top of the agenda for today’s political and economic elites — will hardly address the core problem. Our numbers and the levels at which we are consuming are eating into the planet’s natural capital.

WWF’s Living Planet Index, that tracks populations of 3,038 vertebrate species — fish, amphibians, reptiles, birds, mammals — from all around the world, has found that the Index has dropped by 52% between 1970 and 2010 (WWF, 2014, p.16). During only 40 years of unbridled consumption and exploitative economics the planet has lost natural capital, bio-diversity and resilience at a catastrophic rate.

Meanwhile, regular reports on fish stocks, the health of soils, rivers and lakes, depletion of aquifers, and rates of deforestation leave us in no doubt that the ecosystems on which we are dependent are under serious stress (see Brown 2008). Lester Brown’s Earth Policy Institute has a data centre that publishes up-to-date research on these developments.

Staying within ‘Planetary Boundaries’

Another way of looking at the ecological impact of our current industrial growth society is the planetary boundaries framework that as first developed by Johann Rockström (video, 4 min.), director of the Stockholm Resilience Centre, and an international group of researchers in 2009 (download paper). It has been revised in 2015 and the graphic above the heading illustrates the levels to which we are already outside ‘humanity’s safe operating space’ on planet Earth.

There are nine planetary boundaries:

1. Climate change

2. Change in biosphere integrity (biodiversity loss and species extinction)

3. Stratospheric ozone depletion

4. Ocean acidification

5. Biogeochemical flows (phosphorus and nitrogen cycles)

6. Land-system change (for example deforestation)

7. Freshwater use

8. Atmospheric aerosol loading (microscopic particles in the atmosphere that affect climate and living organisms)

9. Introduction of novel entities (e.g. organic pollutants, radioactive materials, nanomaterials, and micro-plastics).

Source: Stockholm Resilience Centre (Steffen et al. 2015)

We — as humanity — have already crossed four of these nine boundaries (climate change, loss of biosphere integrity, land systems change, and altered biogeochemical cycles). This transgression is directly linked to the cumulative effects of human activity on the planetary system and many of the processes that lead us to crossing these boundaries are linked to our systems of resource exploitation, production and consumption. To address this issue we need a fundamental redesign of how we think about and do economics on a finite and increasingly fragile planet.

NOTE: this is an (edited) excerpt from the Economic Design Dimension of Gaia Education’s online course in Design for Sustainability. The first version of this dimension was written in 2008 by my friend Jonathan Dawson, now Head of Economics of Transition at Schumacher College. In 2015–2016, I revised the Design for Sustainability course substantially and rewrote this dimension with more up-to-date information and the research that I had done for my book Designing Regenerative Cultures.

The next installment of the Economic Design Dimension starts on March 19th, 2018 and runs for 8 weeks online. You can join the Design for Sustainability course at any point during the year.

Photo by brianscantlebury.com

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Economic Man vs Humanity: a Puppet Rap Battle

An economist, a songwriter and a puppet designer walked into a recording studio.

What came out? An economics puppet rap battle, of course.

In a one-of-a-kind collaboration, puppet designer Emma Powell, musician Simon Panrucker, and renegade economist Kate Raworth have created a surreal musical puppet adventure to challenge the heart of outdated economic thinking.

Their 7-minute video stars puppets pitched in a rap battle with their economics professor. The project’s aim is to equip economics students and teachers with a playful but insightful critique of Rational Economic Man, the outdated depiction of humanity at the heart of mainstream economic thought.

A synopsis of the storyline:

Dissatisfied with the model of man presented in their economics lesson, three students visit their professor and embark on a rap battle to debate the very nature of humankind. While the professor argues that Economic Man – a rational, self-interested, money-driven being – serves the theory well, the students counter that a more nuanced portrait reflecting community, generosity and uncertainty is now essential. A musical puppet adventure challenging the heart of outdated economic thinking ensues.

Kate Raworth is the author of the internationally acclaimed book Doughnut Economics: seven ways to think like a 21^st century economist (Penguin Random House, 2017). ‘One of the most dangerous stories at the heart of 20th century economics is the depiction of humanity as rational economic man’ she says, ‘He stands alone, with money in his hand, ego in his heart, a calculator in his head and nature at his feet. In making this video, we wanted to make clear – as playfully as possible – that this absurd portrait is deeply out of date.’

The project was funded by the Network for Social Change and the video is being disseminated widely online. A full set of the lyrics is available for teachers and students who want to bring the details of the debate to life in the classroom.

Twitter: @KateRaworth    Facebook: facebook.com/doughnuteconomics    Website: www.kateraworth.com

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