Community Capitalism: increasing your wealth with community currencies

YouTube screenshotThe idea that our money system is wrong is becoming more visible every day, but creating money systems designed for grassroots adoption (without government involvement) is quite a challenge.

At the unMoney convergence event last spring, Michael Linton, a pioneer of alternative community currencies, gave a presentation of a money system that I found very convincing (Part 1, Part 2, Part 3, Part 4).

The basic premise is that an alternative money system designed for grassroots adoption should not require long, philosophical explanations, but should simply make economic sense for all participants.

Michael identifies three kinds of participants:

  • businesses
  • non-profits
  • people like you and me

The system works as follows:

  1. businesses issues promises in their “own currency”, i.e. in the goods/services their business provides. Could be movie tickets for a movie theater or bread coupons for a baker. They issue them to the non-profits of their choice, for instance a church or school or hospital. Note that this does not cost them anything as long as they don’t issue more than their business can deliver. For practical purposes these promises are issued in the same unit as the legal tender currency, say the US dollar.
  2. non-profits take theses local currency notes and sell them to people like you and me for real cash, which they can use to pay for their operating expenses. Again, here, people like you can me buy them from the non-profits of their choice.
  3. people like you and me work for hard cash at businesses and volunteer/work at non-profits. We earn both real cash and local currency notes. Local currency notes can be spent at local businesses who accept them according to their policy. For instance a restaurant might accept to be paid 50% in real cash and 50% in local currency, while a grocery store might accept to be paid 90% in real cash and 10% in local currency. This will depends essentially on how much real cash they need to support expenses that can’t be covered with local currency.

As the quantity of local currency increases, both in terms of absolute quantity issued and velocity, the benefits for each participants is that real wealth is created (better education, better service for old people, better roads, better health, etc.) but unlike real cash, it cannot be extracted from one community and spent in another one. In other words, the wealth of neighbors is captive and no one but the neighbors capitalize on it.

So, wealth increases, but it’s also shared:

  • businesses get more revenue in local currency that they can use to hire more people they pay in local currency, buy from other businesses in local currency, etc.
  • people like you and me get more real wealth via the non-profits and get more money in terms of things that are truly valued: local businesses and local free services.

My comment

This model follows some of my own ideas that promises from businesses are probably a better backing mechanism to a local currency then thin air or hours of people like you and me, or a commodity, especially if these promises are in their own currency, i.e. what they produce. I think borrowing in your own currency is a privilege everyone should have (not just the US government) to the extent that they can deliver on their promises.

This model is a sort of Scrip 2.0, which is great since it builds on an existing well established practice of using coupons issued by merchants to non-profit for fundraising (with the major disctinction that in Michael’s model case, there is no impact on the profit margin of the business: $1 of local currency is $1 of real cash vs. $1 of local currency is issued at say $0.9 real cash and sold at face value – $1 – to you and me in the case of scrip).

I think one issue might be that the distinction between businesses and non-profit is pretty vague in the current description I’ve watched (but I’ve probably missed some content). An improvement in that direction would simply be to say that may not discriminate who they provide their services/goods, in particular on the basis of who gave and who didn’t buy local currency from them. I think a local “shaming” or abuse reporting system might be enough for a local currency.

I think it’s important that the notes issued carry the brand of the business who issued it (either in paper or electronically). This would prevent businesses to print too much local currency which may ruin the system via inflation, which is essentially paper wealth or fictitious wealth):

  • Businesses could easily be forbidden to use local currency they’ve issued for paying other businesses or their employees: business would have to recycle money they’ve issued and got back via the non-profits.
  • People/Non-profits would quickly notice if the business has a hard time redeeming the local currency they’ve issued. Again here a local shaming/reputation system would put pressure on the business to limit their issuance.

I think Michael’s model is very exciting and I am planning to talk about it with people in my neighborhood. Feel free to comment here on the pitfalls/improvements you see. What I’d like to do as a next step is a more detailed analysis of the model with hard numbers.

Thoughts on some 24C3 sessions

24C3 is the 24th Chaos Communication Congress, a 4-day conference I got to know reading this post at the always awesome We make money not art. All sessions were videotaped and are available to download.

Things are changing faster than we can die I can count every star in the heavens above but I have no heart I can't fall in loveā€¦

I absolutely recommend the presentation given by Drew Endy on DNA programming. In a nutshell, Drew views DNA as an evolved program in some poorly documented machine language and shares his experience reverse-engineering this program, synthesizing DNA and uploading it to a cell i.e. “hacking biology”.

The session Paparazzi – The free autopilot is about how anyone can build a cheap version of the $1M UAV/drones monitoring everyone of us 24/7. Quite interesting for anyone with an interest in aviation. The cool thing is that the drone is literally remotely controlled via an open source software you can find here. You can assign a flight plan to the drone and it will follow it. The platform is packed with sensors that allow remote control and capture of data (videos, pictures). I hope these guys talk with the OpenStreetMap people: how could would it be to use this platform to capture views from the sky at a much higher resolution than satellites can provide.

I also watched the session Hacking ideologies, part 2: Open Source, a capitalist movement. There were a few shocking comments in there, but I was glad to get a refresher on the nature of capitalism from the very sharp Dmytri Kleiner:

“Capitalism is not so much about creating money or wealth. What creates wealth is work. Capitalism is about making money from other’s people work. It isn’t about money creation but about money extraction. […] The kind of information that capitalism is interested about is information that increased productive capacity. More productivity is more money to extract. The kind of information that capitalism is not interested about is information that is not about increased productivity or information that questions the system or information about the nature of capitalism. […] P2P offers no point of mediation where value can be captured, but at the same time p2p has to be financed by some wealth accumulation.”

This last point particularly resonated with me since I’m a big believer of decentralized social networks. I’m curious to see how a promising project like the DiSo project will resolve this chicken/egg problem: to finance a decentralized system, you need accumulated wealth, but to attract accumulated wealth you need a point of mediation where you can extract value, which you don’t have in a decentralized system.

One way may simply be some form of public funding. After all, if we didn’t have ARPA, we would probably all be surfing AOLNet or MSNNet these days.

Anyway, this conference is clearly politically incorrect in many ways but is awesome and I recommend everyone to watch some of these sessions!