- Labelling novel economic framings as ‘complementary’, ‘alternative’, ‘radical’ has been self-defeating.
- While the cultural reality of money is extraordinarily complex, the fundamental mechanisms are rather few and simple.
- A recent paper makes it clear that proposed approaches using ‘continuous clearing’ and ‘mutual credit’ are not in fact novel, weird or complicated. They are well understood as ‘liquidity saving mechanisms’ and already in use in niches across the financial system, bringing significant benefits to participants.
- The novelty lies in bringing these approaches more directly into the service of producers of value, providing them with significant benefits in terms of cash efficiency and risk reduction.
- It is time for champions of such methods to relinquish the ‘alternative’ labelling, and step in to the mainstream. Because this work matters for economic justice, for the future of the biosphere, and for human civilisation.
I’ve been involved in what I and others have typically labelled as ‘complementary’ / ’alternative’ / ‘radical’ approaches to currency and economics since the mid 1990s – intensively for a few years, before a gap where I did less but thought more, and then increasingly intensively again since 2017.
Through all this, I’ve heard of, been introduced to, worked with and explored the work of many, many excellent, creative, clever, thoughtful, wise and humane people – names too numerous to mention. There is no shortage of excellent work to learn from, both historical and contemporary.
When we are asked for real-life examples, too, we have things to point at, solid, viable working systems – the Swiss WIR, Grassroots Economics, Sardex, the IRTA, the global network of community LETS groups – all helping people and businesses better manage the cruel realities of and economy run on systemically scarce money by using some version of ‘producer credit’ – self-created purchasing power, within a bounded context, on the basis of trusted value-creating capacity.
With the best will in the world, though, it must be accepted that all these – the academics, the writers, the inventors, the systems, the impact – remain at the margins, more or less ignored by governments, economists, businesses, bankers – even by most people working for radical change.
There are real and practical reasons for all this, of course – I could write at length about them.
But in the end, if there is anything to the work we do in this domain – if an economy that is powered by producer credit really will benefit real people and real businesses in a straightforward way, then it should speak for itself. Seeing it in action, people and businesses should be saying – ‘I want in!’, and it should be spreading organically – the examples we point to would be spawning new instances, connecting together, and the approach would begin to seem ‘obvious’.
This is not to say that the projects linked to above are not dynamic – each is an amazing success story in and of itself – but nevertheless, the question; ‘if this is as good as you say it is, why hasn’t it gone mainstream?’ – is a valid one, and not one I have been able to give a simple answer to.
Instead, I find myself rolling out a series of detailed explanations of one issue after another. These issues are real (communication, onboarding, usability, governance), but these aren’t fundamentals; they’re design problems – issues which it is our responsibility to solve.
‘Design issues’ can’t be an answer to the question – the details of the approaches referred to already differ markedly, and while these differences certainly result in different outcomes, they don’t appear to be responses to fundamental issues.
A new paper, though, by Tomaž Fleishchman, with Paolo Dini and Giuseppe Lettera; Liquidity-Saving through Obligation-Clearing and Mutual Credit: An Effective Monetary Innovation for SMEs in Times of Crisis, together with further conversations I have had with Tomaž, has given me some new and useful answers to the ‘why not mainstream’ question. Three answers in fact:
ANSWER ONE – it has gone mainstream – the Slovenian government has been operating a key aspect of our proposition (clearing of trade credit) since the late 1970s, carrying at times nearly 10% of the GDP of that country, helping its economy to weather economic crises in a remarkable way. Further, it seems clear that a range of ‘Liquidity Saving Measures’ are in use by banks and large corporates to provide them with the same benefits we aim to deliver.
ANSWER TWO – it hasn’t gone mainstream – because banks and governments have deliberately limited applications (and perhaps also because of an unwillingness to accept that a small, formerly socialist country has developed a sophisticated and effective economic system).
ANSWER THREE – and this is the one we can do something about, so I’m going to expand on it a little – is that by explicitly labelling ourselves as outside the mainstream, we have made it seem risky for anyone whose financial viability relies upon the mainstream to adopt our approaches. This category, of course, includes most people in the global north, and all the people in positions of power around the world.
At the same time, by considering ourselves as providing ‘complementary’ / ’alternative’ / ‘radical’ approaches we have failed to understand that the range of legitimate technical ‘moves’ possible with accounting units, counterparties and time is in fact relatively small, while the incentives for innovation have been high for centuries – making it unlikely that anything truly novel exists to be discovered. This has made it hard for us to see the parallels between our propositions and implementations of the same mechanisms in different contexts.
Tomaž’ paper (which I’ve written a separate post about) comprehensively demonstrates and robustly quantifies the kinds of benefit which have always been claimed by complementary currency advocates, showing that an SME network can reduce its need for hard cash in respect of its internal trade by around 50% through simple mechanisms.
The work shows that our core proposition is valid; that it is both beneficial and practical for any community of value producers to manage its own internal ‘means of exchange’, and that this will improve people’s lives by better matching money supply to production and by increasing returns for collaboration.
That efforts over decades to bring into general use easy-to-implement approaches which can provide such significant value have not succeeded must give cause for reflection and careful analysis.
This is exactly the task Dave, Oli and I set ourselves when we set out to develop the Open Credit Network, which we launched in 2020, just before the Covid crisis hit. In the teeth of the crisis, we realised that if our work meant anything, it must address itself directly to the economic turmoil which the pandemic is creating.
We began increasingly to realise that what matters is not the financial mechanisms themselves, however cool and geekily impressive, but how they are made relevant and applicable in particular contexts.
It turned out that explaining to potential users the workings of mutual credit and circular clearing – the mechanisms which produce these benefits – we succeeded mostly in raising more (and yet more) questions about how money works. These are interesting questions – profound questions, often, that of course we were interested in too; the conversations were excellent – but didn’t drive membership or dynamic engagement with the platform.
- A Membership Agreement under which all internal invoices are entered into a shared ledger to enable Continuous Clearing – so that each member has a single balance in relation to all other members – all ‘circular’ trade having been automatically cleared.
- A Settlement Period – whose length is decided by members. On the Settlement Day which ends each period, each member makes or receives just one payment in respect of all internal trade during the period.
- A Trade Credit Pool (effectively Mutual Credit), providing for rolling over of balances that are within ‘soft’ limits from period to period without interest.
With this achieved, we believed we had developed a package which could be easily understood in mainstream terms by its target audience (SMEs in developed economies) and which unites the powerful tools we’ve been advocating in a way which makes trading very simple – and will deliver significant immediate benefits to users, reducing trading risk and cashflow volatility.
At the same, all of the feedback loops which tilt the playing field a little more in the direction of collaboration, which incentivise relocalisation of trade and the circular economy, which emphasise flow and velocity of value-producing trade rather than hoarding of money units – all of the ‘New Economy’ outcomes which drive us to do this work are firmly embedded in the model, without dilution.
What we still lacked, though, was concrete data with which to demonstrate and quantify the benefits we promised. Tomaž’ paper, which we encountered a month or so later, provided this in abundance, to our great delight.
Working now with Tomaž, our focus is on identifying niches which will find immediate benefits and launching pilots in those contexts. These will be connected together through the Credit Commons protocol for increased variety and network effects. This is our routemap for taking this work into the mainstream economy.