Wolfgang Hoeschele on How To Achieve More Equitable Exchange Relationships

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Book: Wolfgang Hoeschele. The Economics of Abundance: A Political Economy of Freedom, Equity, and Sustainability. pp. 195-208


Text

Equitable Exchange Relationships, excerpted from Wolfgang Hoeschele:


"Greater self-reliance and cooperation in productive activities must be supported by equitable systems of exchange that, in principle, should support all people who are engaged in productive activities (producing both goods and services).

As discussed in Chapters 3 and 6, national currencies fall far short of such a goal.

Although a wide variety of exchange systems exist side-by-side in the world today (including reciprocal obligations, various forms of mutual aid, barter, national currencies, and transnational currencies), discussion of exchange systems is so often restricted to national currencies that we can be justified in calling such money a “radical monopoly.” The activities of exchanging goods and services are often thought to be possible on a significant scale only through the mechanism of state-issued currencies. This radical monopoly blinds us to the possibilities of promoting equitable exchange of goods and services among ordinary people without having to rely on centralized power structures. It also ensures that we accept the rules according to which money circulates, even if they place us at a systematic disadvantage. According to an image by Gesell (1924), interest acts like a toll for using the bridge of borrowed money; only the construction of additional bridges or ferries that do not charge a toll (or charge a lower one) will force the toll-collectors to reduce their charges.


Local, alternative, or parallel currencies, as well as the promotion of informal exchanges, constitute prime mechanisms for breaking the radical monopoly of national currencies. The problem is to overcome the limitations of one-to-one barter exchange, or, in economic parlance, its high transaction costs. The aim of local exchange systems that have been developed in numerous localities is to facilitate the search for exchange partners. The term “local” indicates that these exchange systems are typically based in, and often limited to, a particular locality, such as a city. This can be useful for various purposes, but I would prefer to use a more flexible term—namely, parallel currencies—to emphasize that such new currencies need not necessarily be limited to a locality, but rather that they exist alongside and complement national currencies. The major potential advantage is that people who are willing and able to provide goods or services to others, but are placed at a disadvantage in the present economic context, may find a more rewarding way to engage in exchange with others.


One example of a local currency is the “Ithaca Hour” pioneered by Paul Glover in the city of Ithaca, New York. This is a paper currency with which people can exchange goods and services according to the labor time expended.

One Ithaca Hour is the equivalent of ten US dollars, and can be used as a substitute currency to pay anybody who accepts it; payments can also be made partially in dollars and partially in Ithaca Hours. This exchange system has been gradually growing over the years, promoting more exchange within the local economy. Groups in other localities have initiated similar local currencies, though the specific rules of exchange differ from place to place. For example, around the Chiemsee in Bavaria, a school class launched quite a successful local currency called the Chiemgauer. Similar models were used in Argentina during the economic crisis of 2000–2003. Local exchange systems involving coupons spread around the country, greatly contributing to the survival of millions of people who had lost their jobs or whose earnings had been drastically reduced, but who continued to have skills and other resources (North 2005, 2007).


Although this exchange system has declined drastically following charges of corruption and the stabilization of the Argentine economy, it does continue in many Argentine localities. Another model for local exchange is called a local exchange trading system (LETS). In LETS, people in a locality offer goods and services in exchange for credits recorded in a database. The person who has bought the good or service is debited. There are rules limiting how much you can be debited, but there is no interest. LET systems have sprung up in numerous cities in Europe, Australia, New Zealand, and elsewhere. These examples of parallel currencies are just a selection from the wide range of ongoing efforts.


The history of such parallel currencies extends back into the nineteenth century (see North 2007), but some of the most noteworthy early attempts to promote such currencies occurred during the Great Depression of the 1930s. At that time, the Austrian town of Woergl adopted a local currency implementing the theories of the economist Silvio Gesell (1924). Instead of earning interest on this money, people who kept it had to pay a monthly fee, which ensured that they spent their money as soon as possible. This currency therefore circulated very rapidly, pulled the town out of depression, and reduced unemployment by 25 percent within a year. However, as soon as numerous other Austrian and German towns began expressing interest in adopting similar local currencies, such projects were outlawed by both the Austrian and the German governments (Lietaer 1999: 268–272). A democratic method to overcome economic depression had been stymied, an event of particular significance during a period that saw the rise of fascism.


Even in more democratic environments, parallel currencies may face serious obstacles. For example, the participants of the LETS in Manchester were relatively few in number and were predominantly from similar social backgrounds, and thus did not offer a wide enough range of goods and services. Yet, even though many local exchanges are in their infancy, they can provide substantial benefits to their members. Innovative local exchanges promoted by the E.F. Schumacher Society have helped people open or expand local businesses (Witt 2004), and a LETS system in Heidelberg, Germany (established in 1996), is of particular benefit to people who have considerable skills but no job, or are underemployed.


For example, one unemployed person was able to go on a vacation by using credits earned in Heidelberg to rent a holiday apartment in another German town, because the LETS systems are networked across Germany (Seelig 2005).

A study using questionnaires sent to members in the United Kingdom found that LETS helped build social networks, with members being enabled to obtain some goods and services they would not be able to afford otherwise (Williams, Aldridge, and Tooke 2003). Quite significantly, some of the services offered through LETS include teaching languages and computer skills, thus building up learning webs, as called for by Illich. North (2007) reports that some LETS networks in New Zealand, though small, have persisted for up to 18 years and provide modest but significant rewards for their members.


Formalized parallel exchange systems can vitalize informal exchanges as well. It appears to be a common experience that some people who get to know each other through a LETS subsequently help each other out without recording any debits and credits. In fact, informal exchanges will always play an important role in society, even if they are part of the taken-for-granted background instead of the foreground of our attention (see Gibson-Graham 1996; Pavlovskaya 2004). The growth of formalized parallel exchange systems may be needed to address not only the inadequacies of a national currency, but also the lack of informal exchanges among urbanites who do not know a sufficient number of people with complementary skills.


While local exchange systems of the kinds mentioned here can never replace national currencies, they can help increase local cooperation, support local economies and stabilize them in the face of economic crisis, and reduce the need to import goods and services from long distances. Intense experimentation is occurring with regard to local exchange systems and their networking across larger areas, and it is probably not yet possible to say which systems work best under which circumstances. However, the general approach appears very promising, and can potentially create greater abundance for untold numbers of people who are disadvantaged under prevailing economic regimes.


At the national and global level, the most radical approach to eliminating scarcity of the means of exchange would be to introduce currencies without interest but with a monthly or annual fee, as advocated by Gesell (1924), Kennedy (1990), and Lietaer (1999). Even as eminent an economist as John Maynard Keynes supported such a move in principle (Lietaer 1999: 379).

The fee, effectively a negative interest rate, would encourage individuals to spend their money or invest it in assets or business ventures that would promise steady, sustainable returns, rather than save it. The future would not be discounted; instead, the promise of a future receipt of money would be more valuable than that same money now, because it would not be necessary to pay the negative interest rate in the meantime. Kennedy (1990: ch. 3) argues that such currencies could be introduced by national governments, that everybody within a country would benefit (even the rich, who would benefit from greater social stability even while their share of the country’s wealth declined), and that there would hence be strong incentives for all governments to introduce such currencies once a few countries had taken this initiative. Lietaer (1999: ch. 8) instead advocates the “terra,” an international reference currency to complement national currencies, linked in value to a basket of internationally traded commodities, and to be introduced by a consortium of companies. These companies would benefit from the improved system of barter trade that the terra would facilitate, as well as from the reduced risk of currency fluctuations and economic crises. Although such proposals may seem highly unrealistic to most of us now, and debate is surely needed as to whether they are likely to achieve their aims, I think we should certainly broaden our horizons by giving them serious consideration.

A less radical proposal at the international level, which has nothing to do with interest-free currencies, would consist of the “Tobin tax” on international financial transactions promoted by the international organization ATTAC. The economist James Tobin suggested that a modest tax be imposed on all currency exchanges (in the order of 0.1 percent of a transaction), which would be low enough not to deter those exchanges motivated by travel, foreign investment or international trade, but high enough to curtail much of the speculation which now accounts for over 90 percent of currency transactions and overwhelms currency markets (see Dicken 2003: 438). This would reduce speculative attacks on currencies and avoid some of the great scarcities created by economic crises precipitated by currency fluctuations.10 In addition, it would probably be advisable to maintain or reintroduce various controls on cross-border financial flows in order to bolster the autonomy of national fiscal and monetary policies. The basic principle is to try to ensure that international finance is brought back under the control of human communities and serves the purposes of equitable exchange, rather than acting as an arbitrary, uncontrollable, dictatorial force that eliminates freedom. Finance should act as a servant, not the master, of the economy.


On a more limited scale within present currency systems, abundance could be promoted by a regime that is more favorable to small borrowers involved in productive investments. This might be achieved by means such as better terms on loans and bankruptcy laws that facilitate recovery. At the grassroots level, the Grameen Bank of Bangladesh is credited with helping many poor people, especially women, to build up independent livelihoods. This is done by issuing small loans for very specific projects: for example, women employed in certain kinds of craft production, who have to take out high-interest loans from their buyers to purchase the materials they need, can use low-interest loans to get out of this debt trap. The borrowers are organized in groups, in which all members are responsible for ensuring that everyone repays her loans, guaranteeing an exceptionally high rate of repayment. If such micro-lending works as advertised, it may be highly beneficial (Getubig, Johari, and Kuga Thas. 1993; Marino 2004). However, there is a substantial critical literature that casts severe doubt on the practices of the Grameen Bank and similar micro-credit institutions, showing that many loans are not used by the woman borrowers but by male family members, that if the man’s venture fails, the woman is shamed and pressured by measures as extreme as “housebreaking” into somehow paying back that loan, that the opportunities for micro-enterprise may not exist at any level commensurate with the numbers of loans issued, that effective interest rates are much higher than claimed, and that many of the borrowers use the loans to become money-lenders themselves, charging extremely high rates of interest (see Rahman 2001; Pickering and Mushinski 2001; Bond 2007; Karim 2008). It is thus critical that micro-lending (or any other single measure for that matter) should never be taken as a substitute for broader change, and that it should not be pushed upon people whose interests it does not serve.


Regarding all kinds of exchange systems, including some that serve rather specialized functions—for example, a system providing for care for the elderly in Japan discussed by Lietaer (1999: 324–327)—broader networking and dissemination of knowledge will help to ensure that people learn about these systems and how to create and improve them. If a variety of exchange systems were to exist in a place, individuals would have greater freedom to decide how to exchange goods and services with others, and to choose the most advantageous mechanism for any particular business or personal transaction. This would constitute a greater abundance of choice, which would help set limits on exploitation within any particular exchange relationship, simultaneously promoting social justice and local entrepreneurship.


In combination, the strategies suggested here to reform property rights by the creation of numerous new forms of common property, and to promote individual, local and national self-reliance and cooperation should not only improve living conditions for the vast majority of people while reducing per capita impacts on natural resources, but also help to stabilize the human population. As discussed earlier in Chapter 5 (pp. 106-9), certain scarcities such as lack of access to good healthcare and education fuel population growth in some parts of the world, while other scarcities, such as the difficulties of combining having children with pursuing a career, limit families to substantially less than replacement-level fertility in some of the most industrialized countries. Both of these situations could be alleviated by abundance-oriented policies as outlined here."