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Catalyzing worker co-ops & the solidarity economy

On Doing Well, Part 2

July 10, 2016
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by Josh Davis

In editing an article recently, that touched on the design of the US monetary system,  I was forcefully reminded of 1) how complex (some would say purposefully so) our monetary system is, and 2) how rarely anyone trys to talk about it in an easily digetable way.  There was a time in this country's history when knowledge of the fundamentals of the monetary system was wide spread among the common citizens, not just Wall Street financiers and academic economists.  Nowadays, however, even a lot of financiers and economists fail to understand either the design or the problems of our money system [1].

I won't go into the details of how money is created by our current system -- which is where a lot of ink tends to get shed in monetary-reformist circles -- rather, I want to focus on two of the practical uses to which we put money in our day-to-day lives, point out a fundamental problem that is caused by these two ways of using money, and offer a suggestion for a solution that is at once realistic and capable of immediate implementation.

Medium, Measure, Standard, Store

Every Macroeconomics 101 student can tell you that money has three functions in the economy: it serves as a medium of exchange, a unit of account, and as a store of value. The modern conception of the three-fold nature of money is a reduced form of an earlier formulation that recognized four functions, adding "standard of value" to the currently accepted three.  These four functions were immortalized in verse as: Money's a matter of functions four,/A Medium, a Measure, a Standard, a Store.  It is the "medium of exchange" and "store of value" functions that I want to focus on here.  

First off, we use money as a means of facilitating market transactions.  It's incredibly handy to have an easily divisible, portable, transferable, universally accepted something to lubricate the transfer and flow of good and services in a society.  Imagine a world without money, where if you needed to hire a plumber to unclog your drain, you first had to negotiate which item from your house you were going to give her in exchange for the service.  What if you didn't have anything she needed or wanted? You might have to try to trade something of yours with a neighbor to get something of theirs that she would take!  What a pain!  It's much more convienent to have little slips of paper or electronic account-balances that you can simply give to the plumber when she fixes your sink, and that she can then exchange with someone else who has exactly what she wants or needs.

Simple enough, right?  This is the main way that most of us use money in the economy (and when we talk about people not having enough money, this is generally what we mean -- they don't have access to enough of the medium of exchange to procure what they need from other people).  The other major use to which we put money in our daily lives -- or at least try to -- is as a store of value.  

Financial responsibility is generally considered to be synonymous with spending less money than you make, saving some of it for future use -- that's the store of value function.  This function is also easy to understand and is a respectable goal for anyone to have.  We want to work hard when we're young and able, lead a thrifty lifestyle and responsibly put some of our medium of exchange away for safekeeping, against the inevitable days when we will no longer be able to work but will still require access to money to provide for our daily bread.

One of the fundamental problems of our monetary system is that these two functions sit very uncomfortably together.  To function well as a medium of exchange, money needs to be constantly changing hands, "flowing" from one person to the next.  As soon as it stops flowing, it ceases to function as a medium of exchange -- and this is exactly what we do when we use money as a store of value: we take it out of circulation and reduce the amount of money available for facilitating exchanges.  Economists call this the Paradox of Thrift.  It is a paradox because while it is beneficial for any individual to save some portion of his or her income, if everyone does this it has the effect of reducing total spending, which reduces total income (since everyone's income is someone else's spending), thus harming everybody.  Ideally, we would have a way of storing our wealth that didn't entail reducing the overall availability of the medium of exchange.  

It is instructive, in this regard, to consider a relatively common form of alternative currency that is currently in use in many places throughout the world: the time bank.  Time banking refers to systems that allow members to exchange services with one another on an hour-for-hour basis.  In time banking systems, the "hour" is the medium of exchange [2].  Members recieve services from other members of the timebank (say, 2 hours of babysitting) and "pay" for the service by providing an equal number of service hours to the group (say, a 2 hour cooking class).  

There are obviously many differences between time banking systems and our national monetary system.  One of the major ones is that in a time bank, the medium of exchange (hours of service provision) cannot be used as a store of value.  If timebankers start trying to "save up hours," the system will quickly cease to function at all.  It is simply not mathematically possible for every member of a time bank to provide more service hours than they recieve, since the total number of hours of labor provided is, by definition, exactly equal to the number of labor hours recieved.  The only way for a timebank member to provide more hours than they use is for other members to use more hours than they provide.

Does this mean that timebanks can't be used to create a store of value, a stock of wealth for future use?  No, it doesn't.  What it does mean is that the wealth created must necessarily be real wealth, i.e. actual things that we can get value out of, not bundles of the medium of exchange, whether hours or dollars.  Timebanks can be -- and are -- used to create stores of value, but these stores of value take the form of houses and gardens and the like, not savings accounts and 401(k) plans.

Money, Wealth, and Living Well

I said at the beginning of this essay that there was a time when an uderstanding of the money system was more widespread than it is today.  The particular time-period I have in mind is the late 1800s, around the time William Jennings Bryan made his justly-famous "Cross of Gold" speech [3].  In fact, it was on this very day in 1896, 120 years ago, that Bryan delivered his rousing manifesto on the floor of the Democratic National Convention.  While "bimetalism" was the particular cause he was arguing for (using silver as well as gold to back the US dollar), it was the lack of available currency in large parts of the country that was, so to speak, the cause of that cause.  As the George Mason University History Matters website summarizes it:

"The issue was whether to endorse the free coinage of silver at a ratio of silver to gold of 16 to 1. (This inflationary measure would have increased the amount of money in circulation and aided cash-poor and debt-burdened farmers.)"

At that time, the amount of US currency the government could mint was limited by the amount of gold the US gov't had in its possession -- what's known as "the gold standard."  The gold standard had the effect of greatly improving US dollars as a store of value -- which was good for those people who had a lot of dollars stored away -- but it also severely limited the usefulness of dollars as a medium of exchange, since their number was arbitrarily limited by the amount of shiny yellow rocks that could be dug out of the ground [4].  

Which is to say, the nineteenth century debate over the structure of the currency (a debate which continues still to this day) was the result of the inherent conflict of using money both as a medium of exchange and as a store of value.  Then, as now, those with a lot of money tend to focus on "maintaining the value of the currency," which is desirable if one uses money cheifly as a store of value, while those without much money tend to focus on the need to have greater amounts of currency circulating, which is especially important if you depend for your livlihood on the wages of your labor.  Once again, the ideal would be a system which allowed people to create "stores of value" without short-circuiting the medium of exchange function.

As we saw with time banks, the solution to this paradox requires the disintermediation of these two functions.  The way to use money to create a store of wealth is not to hoard as much of it as you can, but rather to use it (spend it) to create real wealth -- actual material things that will provide long-term value.  A simple example will make clear the type of things I have in mind.

Many people in this country end up spending their last years on this earth living in nursing homes and assisted-living facilities.  Having worked at one of these facilities, there are two major characteristics about them that stand out: they are incredibly expensive and they are often unpleasant places to be, both for the residents and for the employees.  Despite this latter characteristic, and because of the former, people approaching their elderhood are often very concerned with saving up enough money to be able to afford an extended stay at one of these unfortunate places.  However, rather than socking money away against the eventualitly of being forced into an institutional care facility, wouldn't people be better off investing that money now in the creation of places that they would actually like to inhabit in their old age?  Rather than saving money today in order to be able to afford the $5,000+/month that most of these places charge, why not use that money now to help create (for example) an ecovillage that provides eldercare?  Even if you wouldn't be interested in living in such a place right now, you'll be happy to have it available to you later.

Another example: instead of attempting to save enough money to be able to buy groceries from the day you stop working until the day your heart and lungs do, why not use that money now to fund community gardens and greenhouses in your area that will provide food to you and your neighbors indefinitely, without the necessity of turning over any medium of exchange in order for you to access it?  

Our normal ways of thinking about saving for the future tend to revolve around stashing away as much money as we can, while we can; but this removes the medium of exchange from circulation and has the unintended effect of reducing the incomes of our fellow community members (since a dollar that isn't spent by one person is a dollar that can't be earned by someone else). However, if we start thinking about saving for the future as creating real resources that will provide long-term benefits for ourselves and others, we can avoid the Paradox of Thrift and provide for the future at one an the same time.  

Many progressive, activist types (which is a category I imagine many GEO readers would self-identify as) try to do both: fund real wealth-creating projects and also stash away as much money as possible, not only to provide for themselves later in life, but also so as "not to be a burden" on their children, friends and families.  While this is an immenently understandable position, especially in the current economic system, it is also one that works at cross-purposes with itslef.  Just as a country cannot simultaneously prevent and prepare for war, so we -- as a society -- as a movement, cannot simultaneously prevent and prepare for a future where personal circumstances are determined by the size of one's bank account.

The bad news is that it is incredibly difficult for most people to break out of the mainstream mindset when it comes to definitions of "financial responsibility" and "saving for the future."  The good news is that "difficult" is not the same as "impossible," and also that there are plenty of people who are ready and willing, nay eager, to do the physical and mental labor that will be required to create the "stores of value" that we all need so desperately.  What we lack, all too often, is the financial resources with which to carry it out. Providing those financial resources, for the people who are able to do so, should not be seen as a form of charity or benevolence, but rather as a direct and rational form of self-interest.  Do you want to live in a nursing home when you're old and decrepit?  Then help us create the place you will want to live now, while you've still got the chance.

Karl Marx and Jesus Walk Into a Bar

I started this essay with a discussion of economics; I'll end it with a few comments on religion, my other favorite subject.

I recieved one of the greatest shocks of my religious education when I stumbled across the classical definition of communism in, of all places, the Christian Bible.  The book of Acts (Acts of the Apostles, to be exact) recounts the sayings and doings of the first Christian communities that formed around the apostles in Rome, after the crucifiction of Jesus.  Being a persecuted minority religion, these were, of necessity, very tight-knit groups.  In chapter 2 of Acts, we find this:  "All who believed were together and had all things in common; they would sell their possessions and goods and distribute the proceeds to all, as any had need."  And again, in chapter 4: " Now the whole group of those who believed were of one heart and soul, and no one claimed private ownership of any possessions, but everything they owned was held in common...There was not a needy person among them, for as many as owned lands or houses sold them and brought the proceeds of what was sold. They laid it at the apostles’ feet, and it was distributed to each as any had need."

From each according to their ability, to each according to their needs.  Radical economic solidarity, it turns out, was an essential ingredient of what would become one of the most widespread religions on the planet.  When the direct disciples of Jesus attempted to put his teachings into practice, to operationalize, as it were, the word of God, this is what it looked like: radical sharing, radical solidarity.  

And this is not simply a Christian phenomenon.  In nearly all of the religious traditions that I've studied both "Eastern" and "Western," this turn from self-centeredness to other-centerdness -- or rather, from self-centeredness to community-centeredness -- is one of the the main goals, if not the main goal, of the religious project.  Secular critics of religion often claim that this transformation is not really possible, that it is hopelessly idealistic and utopian to think that people will willingly sacrifice their own wealth for the benefit of others.  To expect people to do so, proclaim the nay-sayers, is to expect people to act against their own best interests.  But his is not, fortuantely, the case.

In fact, the example set by the first Christians, and advocated by nearly every other religious and spiritual tradition, does not require that anyone sacrifice their own best interests.   Rather, it is a way of living that, at least when practiced in groups, ensures that one's own personal interests recieve as much attention as possible.  Let me explain.

Imagine that you are a spirit, a soul, looking at the world from outside.  You are going to be born into that world and you have been given the task of deciding which of two societies to be born into. Society A is one much like our own, in which the operative rule is "look out for number one."  Everyone in this society thinks only of their own needs and does whatever they can to fill them, without regard for the needs, desires, or lives of others.  Society B is exactly the opposite.  There, the rule is "look out for numbers 2 through infinity."  Everyone in this society is concerned only with the needs of their neighbors, their friends, their family members, even total strangers, with no regard whatsoever for their own needs or desires.

Considering these two societies, which one would you choose to be born into?  On a strictly self-interested level, any rational soul would choose to be born into Society B, where everone looks out for everyone else.  Why?  Because in Society A, each individual only has one person who is concerned with taking care of their needs and making sure they have an enjoyable life, namely the person themselves.  In Society B, on the other hand, each person has countless numbers of people looking out for their interests and working to make their lives better...literally everyone but they themselves. It is the case, therefore, that even a perfectly selfish person would want to live in a perfectly selfless society!  

To bring this all back around to where we started, let us make the observation that the use of money as a store of value is indicative of a "Type A" society, where each person is expected to look out for themselves first-and-foremost, and therefore must do what they can to protect themselves against unforseen calamity and inevitable old age and failing stocking up as much of the medium of exchange as possible.  Enabling more people to do this is what many of our cooperative and solidarity economy projects seek to do, since that what most of us still consider to be the sign of a successful life.

However, if we desire to create a more "Type B" society, one in which our individual needs are taken care of because we are first-and-foremost concerned with taking care of each other, we all need to put some serious effort into changing both our ways of thinking and our ways of acting.  We all have resources to share, whether they be in the form of money or of labor, of emotional support or hard-earned knowledge.  Our goal shouldn't be to allow a few more people to sock away larger amounts of money, but rather to create the systems and infrastructure that will provide for all of us into the future. The sooner we learn to combine our resources to create real stores of real wealth for our communities (as compared to abstract stores of monetary wealth for ourselves), the brighter our futures will be and the better everyone's lives will become.

1. There are, thankfully, some noteable exceptions. The economics department at the University of Missouri, Kansas City being among the best.

2.  As well as the unit of account

3. Here is one choice section that is as relevant today as it was 120 years ago:

When you come before us and tell us that we shall disturb your business interests, we reply that you have disturbed our business interests by your action. We say to you that you have made too limited in its application the definition of a businessman. The man who is employed for wages is as much a businessman as his employer. The attorney in a country town is as much a businessman as the corporation counsel in a great metropolis. The merchant at the crossroads store is as much a businessman as the merchant of New York. The farmer who goes forth in the morning and toils all day, begins in the spring and toils all summer, and by the application of brain and muscle to the natural resources of this country creates wealth, is as much a businessman as the man who goes upon the Board of Trade and bets upon the price of grain. The miners who go 1,000 feet into the earth or climb 2,000 feet upon the cliffs and bring forth from their hiding places the precious metals to be poured in the channels of trade are as much businessmen as the few financial magnates who in a backroom corner the money of the world.

We come to speak for this broader class of businessmen. Ah. my friends, we say not one word against those who live upon the Atlantic Coast; but those hardy pioneers who braved all the dangers of the wilderness, who have made the desert to blossom as the rose—those pioneers away out there, rearing their children near to nature’s heart, where they can mingle their voices with the voices of the birds—out there where they have erected schoolhouses for the education of their children and churches where they praise their Creator, and the cemeteries where sleep the ashes of their dead—are as deserving of the consideration of this party as any people in this country.

It is for these that we speak. We do not come as aggressors. Our war is not a war of conquest. We are fighting in the defense of our homes, our families, and posterity. We have petitioned, and our petitions have been scorned. We have entreated, and our entreaties have been disregarded. We have begged, and they have mocked when our calamity came.

We beg no longer; we entreat no more; we petition no more. We defy them!

4. On the whole, a rather bizarre way to organize a monetary system, at least in my opinion.


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