What is Abundance-Based Money?

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See also part one in this series: Introduction_to_the_New_World_of_Alternative_Currencies.

Text by Eli Gothill.


Eli Gothill:

"What is abundance-based money? To describe money as abundance-based, rather than scarcity-based, is much like comparing “free speech” to “free beer.” Like “free speech,” abundance-based money is money which anyone can create. However, to create money, as opposed to empty symbols, it must be possible to convince (or compel) others to accept it as payment. Until recently, this has largely been the preserve of commercial banks, backed by legal tender laws. However, we are now seeing the rise of peer-to-peer architectures for creating money abundantly, without reliance on the banking system. Such systems challenge the notion that money must be scarce and centralised to be valuable.

The present money system of industrialised countries, in which money is created as debt by commercial banks, fails the test of “abundance,” much like a political system where only the powerful have the right to free speech could hardly be called “democratic”. A conception of money as credit between peers is in fact as old as money itself, as monetary historians such as David Graeber and Ellen Brown have argued. In ancient Sumeria, money was created as book-keeping entries in a type of mutual credit arrangement, whenever goods changed hands. Money didn’t exist as a ‘thing,’ but only as a record of a relation of debt, created for the purpose of the transaction.

The notion that money should not be artificially scarce is also found in the thinking of Michael Linton, who created the modern mutual credit system LETS. Linton’s belief was that money consisted in a unit of measure, like an inch or a kilogram. As such, there is no reason why anyone can’t create money as a promissory note, as long as they are “good for the money.” To not produce or trade due to a lack of money, according to this view, is as nonsensical as being unable to build a house due to a lack of inches.

Under the LETS systems, participants are free to buy and sell from each other on “credit.” Such credit is simply created as a book-keeping entry to acknowledge a relation of debt. The creator of credit is expected by the community to make good on the debt by providing an equivalent amount of value back to the community, at a later stage. The notion of mutual credit employed by LETS is meant to allow individuals to produce and trade, by “creating money.”

Abundance-based money in this sense encourages economic inclusion, productivity and trade in local areas. It also frees communities from economic dependence on the lending habits of institutional banks, by creating an instant, democratic source of credit to any producer.

Ripple is an alternative abundance-based money system to LETS which is attracting increasing interest. Ripple proposes to create money out of individual IOUs, issued between trusted parties. Whereas under LETS promissory notes are issued by an individual to a community, Ripple only admits IOUs between people who know and trust each other. The advantage of such credit systems is that IOU issuance and acceptance is regulated by trust dynamics between individuals. Where bonds of trust can weaken and lead LETS to stagnate due to non-payment of negative balances, Ripple can rely on social dynamics to ensure that promises are kept.

Ripple’s solution to scaling is to use intermediaries to route IOUs to recipients who are not within the issuer’s trust network. For instance, Carol can pay Lucy, who does not know or trust her, by writing an IOU to Paul, a trusted intermediary, who then writes an IOU to Lucy. The chain of trust allows individual IOUs to become like money - a sufficiently dense network of trust would allow payments to be made to anyone. Ripple’s ultimate goal is to create a decentralised, peer-to-peer IOU network, which anyone can join as a node. Hosted services could provide IOU wallets to users, accessible from a mobile phone device. Reputation metrics would allow credit worthy individuals to attract greater trust from strangers.

Ripple is a tantalising prospect for the future of money – a source of credit-based money which comes into existence through trust, and gains value thanks to the size and quality of our social networks. However, abundance-based money is only one part of the picture. The possibility of abundance-based social currencies, like eBay reputation points, CouchSurfer guest reviews, and other social symbols produced through peer-to-peer exchange platforms, will become increasingly important in the future.

This broad class of “social currencies” are the unsung heroes helping to regulate network-based peer exchanges, for instance on peer-to-peer rental sites and gift economies. Like abundance-based money, social symbols do not need to exist for someone to be motivated to swap a book, lend a power drill, or host a guest in their house for free. The symbols which quantify and reward these activities can be created from nothing, as long as they follow the rules of the communities which issue and recognise them.

The abundance-based characteristic of such social currencies provides powerful incentives to contribute to peer-to-peer communities of exchange. The social currencies earned in such environments can be leveraged to gain access to goods, services and other opportunities without money, or with less of it. A strong reputation as a host on CouchSurfer can help you find free lodgings abroad, and a StackOverflow reputation score could help you get a job.

Abundance-based money and currency are essentially democratic symbols. What matters in both cases is that the symbols created by participants in a community are legitimate, according to the community’s rules. As long as they are, the creation of money can become a popular function, used by people rather than exploitative institutions, to create a more equitable and sustainable economy. In the future, we can expect a proliferation of peer-to-peer abundance-based money and currency systems which allow people to literally “create money,” thereby reducing their dependence on the banking system."

More Information

See also part one: Introduction_to_the_New_World_of_Alternative_Currencies.