View source for Wolfgang Hoeschele on How To Achieve More Equitable Exchange Relationships



=Source=

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."



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