Sacred Economics: Money, Gift, and Society in the Age of Transition (27 page)

The foregoing account of currency issue may have left the impression that it is the federal government that will create most of the money. This is not what I envision. Many of the commons on which money will be based are best administered bioregionally. Many pollutants, for instance, wreak their most devastating effects on local ecosystems, and only indirectly on the planet as a whole. It does little good to restrict global emissions of ozone when the damage to people and trees comes from regional concentrations of it. Thus it might be the state of California, or perhaps smaller political divisions of it, that issue currency backed by ozone emissions allowances. In some cases, where there is an overlap of local and global effects, polluters might have to pay for two different allowances for the same pollutant.

The most important commons, the land, is also inherently a local commons—in fact, land provides the very definition of “local.” Overall, basing money on the commons entails a general devolution of financial and ultimately political authority to the local level. Of course, there are some kinds of commonwealth, and some human endeavors, that involve the entire planet; inescapably, then, there must be political power on a global level with the ability to coordinate human activity, probably using money. But global or national governments should not administer any form of the commons that is inherently regional or local. Since so much of the commons—land, watersheds, minerals, some fisheries, and the capacity of the ecosystem to handle many types of pollution—is local, the money system I describe corresponds to a shift in political power away from centralized governments. Local governments will have the power to issue money backed by real wealth.

So far I have described how national and local governments could issue money based on the natural wealth they administer
in trust for communities, humanity, and the earth. Yet not every source of wealth is something from the collective commons. Critics of property going back to the early Christian fathers recognized that a person at least owns his or her own time, labor, and life. After all, we are born with nothing else, and shall return to the grave with not even that. If anything, our lives are our own. Shouldn’t individuals, then, be able to issue money or obtain credit “backed” by the their own productive resources?

Well, we already do this today, when private enterprises and individuals create money through bank credit. Whether or not we can say we “own” our lives, surely we are the stewards of our time, our energy, and the creative power that dwells within us. If a government can issue currency based on the productive wealth it holds in trust, why can’t a private entity do the same?

I ask this question because some monetary reformers think this is a bad idea and have built entire economic philosophies around gold or fiat money systems in which fractional-reserve banking and private creation of credit-money would be prohibited. I will address this issue in some depth because it represents an important line of thinking in the New Economics. Recent proposals by monetary historian Stephen Zarlenga have even found sympathy in the fringes of American politics, notably with Congressman Ron Paul. The abolition of fractional-reserve banking also is part of the philosophies of certain followers of the social credit movement, the Austrian School of economics, and many others. Their logic seemed compelling to me at first, and they provide a very thorough account of the disastrous effects of debt growth in the mid- and late-twentieth century, when money became decoupled from gold. A 100-percent reserve system, it is claimed, would prevent debt from outstripping money—but how, then, to prevent concentration of wealth in the presence of interest?

Except for the Austrian School, most proponents of 100-percent reserves also support some kind of economic redistribution or monetary expansion, such as direct spending of government fiat money into the economy so that debtors can obtain enough money to repay principle and interest on loans. Frederick Soddy, among the first modern economists to recognize the impossibility of unlimited exponential growth and to distinguish between money and wealth, proposed a 100-percent reserve requirement for banks, excluding them from the business of money creation, but also provided that the government would spend money into existence at levels sufficient to prevent deflation. Irving Fisher, a founder of mathematical economics and arguably America’s greatest economist, put forth a very similar proposal that he called “100-percent money.” Major Douglas went even farther by advocating a social dividend to be paid to all citizens.

I spent quite a while trying to resolve the question of whether fractional-reserve banking or full-reserve banking is consistent with sacred economics. After wrestling with the formidable complexities of the issue and reading papers going back to the 1930s, one day I gave up and lay down on the couch where, predictably and somewhat to my chagrin, it dawned on me that the two systems are not as fundamentally different as most people think. The confusion, which is rife on the internet, comes on one level from a simplistic and incorrect view of how fractional-reserve banking actually works, and on a deeper level from an artificial and irrelevant distinction between what is conventional and what is real. I present an alternative view in the appendix.

Here, suffice it to say that the proposals of this book can fit into either system. Overall I am more sympathetic to a system that includes private credit, first because it allows organic, endogenous
money creation independent of a central authority; second because it more easily incorporates exciting new modes of economic cooperation such as commercial barter rings and mutual-credit systems; third because it allows for much more flexibility in financial intermediation and capital formation; and fourth because it simplifies interbank credit clearing. Moreover, as some of Irving Fisher’s associates began realizing in the mid-1930s, it is nearly impossible to prevent fractional-reserve deposits from appearing in covert forms.
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I draw this point out in the appendix, but consider: even if you issue an IOU to a friend, and your friend gives it to another friend in lieu of cash, you are increasing the money supply.

Whatever the advantages and shortcomings of private money creation via credit, and whether the government issues fiat money or creates credit money in partnership with a central bank, a vastly greater proportion of money will originate outside the private banking system than it does today. The reason is quite simple: much of the natural commonwealth that is used as the basis for private credit creation today would become public. No longer, for example, would a company be able to take out a business loan based on projected future revenues from depleting an aquifer. The future costs of that depletion will have been internalized and returned to the
public via use-rights payments. There might still be opportunity to profit, however—for example, if someone finds a more efficient or productive use of the same amount of water. Such things are a legitimate basis for private credit creation; what is illegitimate is to create money by taking something that should belong to all.

Because of today’s concentrated private ownership of the commonwealth, the profits that come through mere ownership are also highly concentrated. When producers (and ultimately consumers) pay the full cost of embedded energy and raw materials and the fair rental price for the land and other commons, then much of the wealth that concentrates in few hands today will accrue instead to the stewards of the commons. The situation will be analogous to what happens when a nation such as Venezuela or Bolivia nationalizes its oil fields. Foreign producers can still operate the fields, but they profit only from the service of extracting the oil and not from ownership of the oil itself. That part of the profit goes to the nation. What happens to that money depends on politics—it could go to a coterie of corrupt officials, or it could go to public works projects, or it could be paid directly to the people as a kind of royalty (as in Alaska, where each resident gets an annual payment of several thousand dollars). Extended beyond oil to the entire commons, this makes enormous amounts of money available to various levels of government, especially at the local and bioregional level, replacing current forms of taxation.

Another consequence of commons-based currency is that we would pay a lot more for many things that are cheap today because their prices would embody costs that we now pass on to other people or future generations. Goods would become more expensive in comparison to services, providing an economic incentive for repairing, reusing, and recycling. Gone would be the skewed economics
that makes it cheaper to buy a new television set than repair an old one. Gone would be the present financial incentive for planned obsolescence. A new business model (emerging already in some industries) would blossom: extremely durable, easily repairable machines that are leased rather than sold to consumers.

It was only two generations ago that appliances as humble as a toaster would be taken to repair shops. Even shoes and clothes were mended. Not only are such services inherently local, thus helping to invigorate local economies, but they also contribute to an attitude of caring toward our material things, and by extension toward materiality in general. A life full of throwaway stuff is not a rich life. How can we have a sacred economy if we don’t treat its subjects—the things that people create and exchange—with reverence? I find it very satisfying that a money system based on a protective reverence for nature induces, on the individual level, the same reverent attitude toward the things we make from natural raw materials.

On the collective level, this reverence will take the form of a much different emphasis on government spending. The huge resources made available through reclaiming the commons for the public good can go toward healing the damage of past centuries of despoliation of that commons. Ecological disasters will relentlessly direct our attention to the urgent need to heal the forests, wetlands, oceans, atmosphere, and every other ecosystem from the devastation wrought in the industrial era. The urgency of this need will shift our energy away from consumption and war.

War is an unavoidable accompaniment to an economic system that demands growth. Whether through the colonization of lands or the subjugation of peoples, we have a constant need to access new sources of social and natural capital to feed the money
machine. Wars also increase consumption, alleviating the crisis of overcapacity described earlier. Competition for resources and markets was thus a primary driver of the wars of the twentieth century, both among the great powers, and against anyone who resisted colonization and imperialism. Limiting resource consumption is one of the pillars of a steady-state or degrowth economy, which short-circuits this primary driving force for war and frees up vast resources to turn toward the goal of healing the planet.

The money system I have described goes a long way in reversing the age-old injustice of property, as well as the predation of the few against the many and against the future inherent in the exploitation of the commons. There is a big piece missing, though: as established in
Chapter 5
, the same injustice that inheres in property inheres in money as well. I have described a new story of value and how to embody it in money but so far left untouched its compulsion, which is independent of the story of value, to drive either growth or concentration of wealth (or both). Is it possible to treat money as a commons in the same way as the land or the atmosphere? Is it possible to reverse the mechanism of interest, which, like the expropriation of the commons, allows those who own it to profit by its mere ownership? It is to this crucial matter we turn next.