Few people are fully aware of the historical turning point marked by the year 1982 in the world of communication and social intercourse. That decisive year saw the birth of two things: the personal computer and the community currency.[1] We shall pay attention only to the second. Its invention is as important as, if not more important than, Gutenberg’s. Community currencies have all the capacity to act as spearheads of a democratic regeneration (way beyond politics) that enables the people, the “man in the street” to exercise real power without intermediate so-called “representatives.” They will be able to do so by issuing their own means of exchange, thus bringing to naught a monopoly that has been frustrating their aspirations for 3 000 years.

Money and Credit

            Modern mentality calls “money” both cash and credit, permanently confusing the two. It is true that all things being equal, one buys the same with cash for $100 (£, ¥, rouble or whatever) as with a cheque for the same amount. Few people reflect that the cheque is but an instrument of credit: all it does is transfer information from one account to another, once. A Central Bank note, on the other hand, transfers goods/services for 100 units every time it changes hands. In the hypothetical but not impossible case that cash for 100 units were to change hands three times a day for a whole year, the same piece of paper would move goods and services for more than 100 000 units. This is the meaning of liquidity, which cash, but not credit, has.[2]

Central Bank, Government and People

            For almost 3 000 years the people have borne, muted and impotent, the vexations of pharaohs, emperors, kings and princes who,  mesmerised by Croesus’ superstition, minted money when precious metals were found, and let the economy die of starvation when they were not.[3]

            Governments (pharaohs, princes etc.) evidently always coined money as means of exchange, but in the whole of history they have never, ever succeeded in preventing savers and usurers (for the purpose of this paper it is the same) from withdrawing it from circulation for their own purposes. The dearth of cash, still rampant today, is a main, albeit not the sole, cause of the economic disorder that afflicts so many nations, especially in poor countries; this topic, however, is beyond the scope of the paper.

            From Napoleon’s defeat at Waterloo (1815) onwards, governments have little by little lost the power to issue money (except coins) to central or “national” banks. The Central Bank issues cash (paper currency). Commercial banks issue credit.

            Curiously few know, and perhaps will get scandalised on reading, that the Central Bank is a Marxist institution. In the Manifesto of 1848 the “prince of muddleheads” as Henry George[4] used to nickname him, put as his second plank

The centralization of wealth in the hands of the State by means of a National Bank with an exclusive monopoly.

The Great Illusion

            Many go on believing, without further inquiry, that Central Bank and Government act as two placid oxen pulling the cart of the economy under the people’s direction, firmly giving orders from the driver’s seat.

            Another metaphor explains reality: the people are the lone ox, the Central Bank the driver, and Government is the whip, hitting the ox at the driver’s behest.

            All of this is consequence of the fact that no monetary policy has ever been able to match the quantity of money (cash + credit) to the needs of the economy of production and exchange. Money gets in and out of the market following the whim of savers, speculators, usurers, dirty-money launderers, and sundry malefactors, but there is never, repeat never enough for those who need it to work and to trade. In all circumstances, and in the end, those who pay are always the people.

            Is it necessary that it should be that way? It isn’t. There are alternatives. It is no longer necessary that scarcity of money should consolidate the power of those who control its public monopoly.

Human Capital to the Rescue

            In almost all countries education is the main milieu of social intercourse. Often it absorbs most public expenditure. All of us have gone through an educational system. Some of us stay on, either as teachers, or as parents, or both, for years.

            Who controls this primordial social environment? It is insistently repeated that since parents are the first educators of their children, it is they who control education. The reality is that whoever controls money (cash + credit) also controls education.

            But things are changing. Accelerating communication, on the wings of the 1982 inventions, is in a position to empower parents to take education in hand, thus avoiding the undue intromission of the State as of other powers more or less hidden. How? By issuing their own means of exchange, pegged to the value added by the work of their children and of those who teach them at school.

From the Gold Standard to the TP (Teaching Period) Standard

            The Great War (1914-18) marked the end of the gold standard in the whole world except the U.S.A.[5] There followed 40 years of economic ups and downs, including the Second World War and the desperate attempt at Bretton Woods to continue pegging the monetary system to the yellow metal. The Smithsonian Agreement (15th August 1971) marked the second defeat of usury, liberating the world from the Gold Standard once and for all. Another war was avoided, but not economic disorder, inflation, stagflation, poverty and the rest.[6]

            The problem remains. Despite the universal acceptance of paper money, financial interests are in open conflict with the interests of the producers of real wealth. Finance wants unstable money to use as “store of value” for their gains; producers and traders want stable money to use as a means of exchange for their previsions. The last thing that speculators, usurers & Co. want is a fixed standard that stabilises prices and with them economic previsions.

            Such stable standard, despite all, exists. It has always existed, since ancient Egypt and earlier. But no one paid attention to it in a low-tech world. In today’s high-tech world of communications, and now of Internet, it is perfectly possible to adopt the school Teaching Period as monetary standard. Parents can do it, provided that they are alerted to the possibility and find ways and means to put it into practice.

Self-financing Education

            Any school, anywhere in the world, where 30 hours of teaching take place for 40 weeks a year, produces value-added human capital for 1 200 hours per year per class. It is an immense sum, not monetized for the simple reason that it has passed unnoticed. Better said, its (partial) monetization proceeds haphazardly, depending as it does on the whim of bankers, governors, educational associations and traders in school books and stationery. But parents can now take things in hand. How, read on.

Historical Precedents

            Let us begin by noting that there exist tens of thousands of communities worldwide, which have discovered how to revive local economies, moribund owing to the so-called “economies of scale” industrial as well as commercial. They have succeeded by issuing their local circulating currency. Many such communities use the hour of work as a monetary unit, but without specifying what type of work. The moment they agree on one single standard, this network of communities will present a united, powerful front as a base for building an economy utterly free of usury. The take-off of such an economy would be limited solely by shortages of labour.

            Based on the Wörgl experiment of 1932, a community of 4 000 can act as critical mass for the system to function. In school terms, critical mass is reached by a community with eight schools of 500 pupils each.[7]

General Characteristics

            It would be prudent to make use of terms like “coupons,” “certificates,” “vouchers,” etc. instead of “money,” “note,” “bills” and like financial terms. Here they will be called SHE, standing for Self-Help Education. It is not necessary that the various communities use the same name for their units, provided they peg it to the same standard. In any case the coupon must have the following characteristics:

Physical Characteristics

            The SHE coupon, issued for 1, 5 and 10 units, must:

Circulating Characteristics

Printing Characteristics

             Supposing a 15 000 strong community, the quantity of SHE in circulation need not exceed 1.5 -2 SHE per person, i.e. a maximum of 30 000 units. Changing hands 500 times in a year, these coupons can move goods and services for 15 million. The initial print run may well be 30 000 units, to be increased or decreased according to the assessment of the issuing authority. An analysis of the print run could be:

            The total print run would thus be 32 400 SHE, which a year later would shrink to 32 000 SHE. For any individual coupon the year may start at any beginning of quarter. The coupons may be colour-coded if one so wishes.

            The next print runs will depend on the results of the first.

            Printing costs will be the only initial costs of the Parents’ association.

Issuing Characteristics

            The most difficult obstacle in the way is doubtless a psychological one, i.e. convincing people to accept SHE in payment of goods/services.[11] The smaller the community, the easier should be to brief the people before issuing the first batch. As soon as the first community takes off, as happened at Wörgl in 1932, its success will spread the practice like an oil slick to other communities.

            Since the SHE coupons do not replace, but circulate side by side with official money, no one need be forced to accept them. Whoever refuses them will earn as much as before. Whoever accepts them will see his salary increased proportionally to the percentage of SHE accepted.

            The briefing order is first the Parents’ associations; second the school personnel; third, the economic operators in the community. Briefing time will depend on the judgement of the issuing authority.

            Official launching ceremonies will not be necessary. After the briefing is over the date of issue is established and the SHE launched.

            The principle governing the SHE is simple: whoever works gets paid cash on the nail. There is no need to wait for “the end of the month (week etc.).” How much, will depend on supply and demand, as usual. It is improbable that any economic operator should ask excessive payment for goods or services rendered, since “to save” SHE is to incur a certain loss, like saving vegetables.

            On expiry, at the end of every quarter after issue, whoever is in possession of a coupon will stick to it the corresponding stamp, which he either already has or purchases at the issuing office. 50 stamps serve 12.5 coupons.

            With such coupons one may pay –why not?- for two things: maternity and school homework. There is no reason to continue asking mothers to carry out society’s most important and difficult task free of charge. That the schools should pay for the production and preparation of the human capital that they will be called upon to look after in a few years makes eminent economic sense, from whichever point of view one looks at it. No one wants to force women to have children and bring them up. But they are given a choice, which at the moment they lack. There is also no real reason to continue instilling a slave mentality in school pupils. I do not suggest paying them a fixed salary, but to reward such desirable qualities as richness of content, presentation, punctuality, etc. It would help raising the level of education in all schools, clearly showing the students that it pays to work well.

The Role of the Church

            All the Church can do to help is to accept SHE for the Sunday collection, not instead of, but as well as conventional money. When the amounts received exceed former quantities, the Church has everything to gain and nothing to lose. It can spend SHE coupons for everything produced within the community.

The Role of Civil Government[12]

            As Frédéric Bastiat (1801-50) used to say, the only request to be made to the State is what Diogenes asked of Alexander: stay out of the way. The State, on seeing the economy take off everywhere and unemployment disappear without costing a cent (or a political rally) to the public coffers, it could accept SHE in payment of taxes, or perhaps itself issue perishable cash. It would gain everything and lose nothing. The country would pass from a situation of unemployment to one of shortage of labour in a relatively short time (depending on population size). “Poor” countries now sending migrants to seek a better life elsewhere could become so prosperous as to entice them to return to a rich and proud country, no longer forced to beg for work“abroad”.

            Another useful service for the State is to prevent the World Bank/IMF from interfering. Those who have everything to lose and nothing to gain are the same who have always managed to live off the work of others by controlling money.

A SHE Future

            Monetizing human capital, as this paper proposes, goes way beyond seating parents on the driver’s seat. It entails a Copernican paradigm shift in seeing not only education, but also the economy as a whole.

            Visualising the shift is difficult. A SHE economy would render most current economic terms obsolete or redundant.

            Saving, for instance, would still be possible, but not under the proverbial mattress or in the equally proverbial strongbox. It would be better to save in durables and non-perishing consumables, or by lending SHE at 0% interest.

            Moneylending, which in the present system favours the practice of usury by few at the expense of many, would become universal. Lending, SHE keeps its purchasing power; saving it loses it. No one would delay giving back borrowed SHE when due. Hence an economy based on giving, therefore fostering solidarity, would replace an economy that fosters selfishness, based on receiving and exploiting. In the present system saving in other people’s pocket sounds horrifying; in a SHE system it would be current practice.

            The term “capital” would no longer apply to money. The main capital would be human capital, encouraging large families and discouraging, if not eliminating altogether, uneconomic practices like abortion and contraception. The cost of any work, private or public, would no longer be measured in monetary units, but in man-hours. Minute sums, circulating fast, would pay for any of work of any size.

            Ten years ago all this was pure utopia. Today it is within reach of the producers and educators of what matters most: human capital.

Silvano Borruso

October 2004

[1] The first attempt took place in Canada. Ever since, more than 20 000 communities worldwide have issued their own currency. One of them saved Argentina during the 2001 economic depression. This paper aims at giving community currencies the same standard of value, thus enhancing the power of local communities. For more information, key Community Currencies in an Internet research engine.

[2] This paragraph does not condemn credit. Without cheques (or credit cards) money scarcity would bite far harder than it actually does. Credit exists precisely to offset scarce liquidity.

[3] Croesus (d. 546 B.C.) was king of Lydia, Asia Minor. He was the first to invent currency, guaranteeing the weight of a lump of electrum (natural alloy of gold and silver) with his royal seal. Ever since, society has been split into two: the hoarders of money for the sake of its raw material, and its users for the sake of production and exchange. About the class struggle, read not Marx, but Livy’s Early History of Rome.

[4] 1839-97. His Progress and Poverty (1879) has sold more copies than all of Marx’s works put together. But the Establishment goes on ignoring him.

[5] Up to 1914 there was a general superstition according to which money had to be “backed” by gold or other precious metal. The Great War put an end to it. The entire stock of gold in the world would have paid at most for two weeks of fighting, certainly not four years. The war was financed by paper money, as had the American Civil War 60 years earlier. At the end of the war the high finance men demanded the return to the Gold Standard, and the UK obeyed in 1925. Unemployment and hunger followed, together with a disastrous drop in salaries, which had to go back to 1913 levels. The workers replied with the Great Strike of 1926. King George V convinced Prime Minister MacDonald to abandon the gold standard once and for all. The 25th September 1931 marked the first defeat of usury since Croesus.

[6] Since 1944 the dollar standard has replaced the gold standard. The decision at Bretton Woods was that only the dollar was to be “backed” by gold. It was another illusion, put paid by De Gaulle when he demanded to redeem Eurodollars held by France with Fort Knox gold. There wasn’t enough, and Nixon abandoned the gold standard. War was avoided because governments accepted Keynes’ proposal: a permanent deficit would replace hoarded cash with new issues. It worked, but at the cost of debauching all the known currencies, including the “super-strong” Swiss Franc.

[7] Wörgl is a small town in the Vorarlberg, Austria. In 1932-33 its Burgmeister issued “work-certificates” during 14 months, thus providing full employment to the 4 000 inhabitants smack in the middle of the Great Depression. Needless to say, the Austrian National Bank quashed the experiment.

[8] Neither of the two conditions is mandatory. The boxes could be 12 instead of 4, to be filled monthly. Instead of stamps, the coupons could be obliterated mechanically or electronically.

[9] 1 200 SHE yearly is no more than an average. Schools that think they offer a higher level of teaching may demand more SHE than one for their teaching period. The quantity is determined by bargaining with the parents.

[10] The figures are not mandatory either. With a monthly expiry, the rate may be 0.5% per month or 6% annually. The important condition is that it should be neither so high as to hinder acceptation, nor so low as to favour hoarding.

[11] Obviously produced within the community. For those produced outside, the SHE coupons will be exchanged with official money at the prevailing rate of exchange.

[12] Let me give credit to Silvio Gesell (1862-1930) for his idea of perishable cash. He proposed that the State should be the issuing authority; the only original proposal of this paper is that parents can be the issuing authority, towards establishing a democracy corresponding to reality.