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I n New Money for Healthy Communities Tom Greco tells us why we need local, alternative economies and how they work.
Local economies, which are organized in a town, city, or bioregion, do not replace the larger economy, but function parallel to it. One type uses a local, alternative currency or scrip, such as in the Berkshire, Massachusetts experiments and in various HOURS systems in the U.S. Another type, the mutual credit system (also known as a "reciprocal trade" system, and often miscalled a "barter" system) uses entries on a ledger rather than the exchange of a scrip. The latter includes many LETS systems in Canada, England, and western Australia.
A healthy local economy helps create and concentrate wealth in a community: individuals have more spending power; more goods and services circulate locally; spending power stays within the community; people support local businesses and services (and so meet more of their neighbors); business transactions become more personal, flexible, and negotiable; and the economic vigor--and interpersonal goodwill--can improve markedly. Mother Earth News recently did a cover story on the economic revitalization of Ithaca, New York, due largely to Ithacans enthusiastic use of home-grown "Ithaca HOURS" notes.
Greco gives us the nuts and bolts of how to organize a local economy, including creating a governing board, persuading people to use and support the alternative system, regulating the amount of exchange media, preventing stagnation or inflation, and the issues of backing and redeemability. He describes many past and present system, and tells us pitfalls to avoid and strategies which have worked elsewhere. He also proposes a model composite local exchange system--the best of what he's found so far.
He also takes on popular misconceptions.
* Money is issued by governments. If not, it isn't "real" or legal. (In a healthy system, he argues, currency is not issued by a central authority but generated by the people of the region. In any case, local currencies are entirely legal in the U.S. and Canada.)
* "U.S. currency" is issued by the U.S. government. (No longer. Americans now use Federal Reserve Notes, a privately owned currency, issued and controlled by the Federal Reserve Bank, a private banking cartel.)
* Commercial banks give loans based on money which actually exists-- stored in their vaults or stored elsewhere. (Not true. Commercial banks create money "out of nothing," Greco explains, whenever they make a loan.)
He also illuminates what money actually is--the medium of exchange by which a group of people in local area keep track of who owes who what, in terms of value exchanged for goods or services rendered. The medium of exchange can be thought of as a series of IOUs. If a group of tradespeople all decided to make each others' IOUs mutually redeemable, they'd have "money." Possessing such local money would give the holder claim against the community of traders to buy things or to discharge debts. It would be evidence either that he or she had delivered value to someone in the community, and therefore had the right to receive like value in return, or that he or she received the local money from someone else who had delivered value.
Wealth is created, says Greco, when someone performs a service or provides a commodity. Wealth circulates through the community and comes full circle when the original creator receives like value. Money is not wealth, but only the physical trail of its passing. Wealth is the skills, expertise, willingness to trade, and good faith of people in the community. Thus, he says, creating a local economy brings back the small-scale, decentralized, natural economy. It's the humane, sustainable way to interact with each other economically.
He also explains how our home-grown wealth has, through time, ended up as centrally issued, governmentally politicized, paper currency. Our centralized economic systems are diseased, he says; the symptoms include inflation, unemployment, bankruptcies, and increasing poverty.
Greco also argues that our politicized, centralized system is set up to create these very problems. He describes how it misallocates money, rewards the powerful, and inevitably pumps wealth from the working poor to the rich. And worse, how the Federal Reserve Bank system has deliberately created a scarcity of money. Although commercial banks "create" new money when they issue loans, the money to pay the interest has not yet been created. Thus, he says, all the people who get loans, taken together, are in an impossible situation--they owe more money than actually exists. They must compete with one another for the available money in order to not default on their loans and lose their houses, farms, or businesses, however a certain number of foreclosures are inevitable. Our current economic system is based on scarcity, and on the need for some of us to lose our shirts.
With accessible language and clear examples (and good graphics and charts), New Money for Healthy Communities argues convincingly that although we now live in an unhealthy system, we can begin to reclaim our economic power, and sovereignty, through alternative economies--and, we can do it right where we live.
Diana Leafe Christian is managing editor of Communities magazine.
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