Money should work for us, not the other way around

2005 Sept. | Ode

by Jurriaan Kamp

What is money? Do we need more of it to solve some of the world’s problems? Or is money the cause of them? Ex-banker Bernard Lietaer thinks the latter is the case. And he has the solution: a new kind of money.

You have no idea what money is. Bernard Lietaer is too friendly and modest a man to say it that way, but this is the easiest possible way to sum up his message. If you did know what money was, then you — we — would see to it that we had a different monetary system.

Everything revolves around money. It’s more than a cliche; it’s the daily experience of just about every world citizen not part of an indigenous tribe in the Amazon rain forest. And this daily experience involves, above all else, a continuous shortage of money. There is not enough money to send the children to school. Not enough money for hospitals, or to care for the ever-greater numbers of old people who are getting ever older. Not enough money to clean up the environment and keep it that way. There is a lot of work to do, but no money to pay for it. Who among us is not familiar with the feeling of wanting to contribute something but having “no money” to pay for that valuable contribution? The sad conclusion: If we just had more money, the world and our lives would be better.

But Bernard Lietaer recommends another way around the problem: We could immerse ourselves in the meaning of money.

He sits on the edge of his chair and poses this question: “Have you ever thought about how much time you spend earning money, and managing or spending the money you’ve earned? And how often have you thought about what money actually is? We expend an enormous amount of energy – and frustration – on something we understand surprisingly little about.”

What difference does it make, you might ask? Does it matter whether a fish knows it is swimming in water? Isn’t money like the weather: a given? You can’t change it.

Lietaer, a business professor and former banker in Belgium, shakes his head. We are meeting on Cortes Island, off the coast of Vancouver, British Columbia, where he is attending a conference. “That is precisely the difference,” he says. “The weather, indeed, you cannot change. But money wasn’t created by God: We have forgotten that it’s a system designed by people. And I believe that this design, which dates from centuries ago, is at the root of most problems in our society. And the good news is that with a small change to the money system we can make an important contribution to the solution of a number of those problems.”

Lietaer’s proposal is to introduce – alongside the existing national currencies – complementary money systems on a large scale. Based on barter, these systems would fulfill needs and make transactions possible when “normal” money is unavailable.

His idea is less revolutionary than it appears. In history, as well as in the world today, there are many successful examples of such systems — from the construction of European cathedrals in the Middle Ages and temples in Bali today to the present-day care systems for the elderly in Japan and airlines — frequent-flyer programs. What these systems have in common is that they do not promote competition, but cooperation; they support community instead of undermining it; and they make possible important and valuable work.

Lietaer says, “Complementary money systems put us in a position to be ourselves — to literally cash in on our talents. Even when there’s no official financial market for them.”

According to him, the possibilities of such systems are virtually unlimited. “I’m not saying reformation of the monetary system will solve all our problems. But I know that money is one of the key functions. There is actually nothing that doesn’t have to do with money. It is an extremely vital element. I am convinced that within a generation we can realize great positive changes.”

Bernard Lietaer discovered the destructive effects of the prevailing monetary system while working in Latin America during the 1970s. “Enormous loans were being granted for senseless projects. The banks were throwing money around. I wondered if I was seeing things other people weren’t seeing.” As a professor of international finance at the University of Leuven in Belgium, he wrote a book about his experiences in which he predicted a major debt crisis. The book came out in 1979. In 1981 the crisis in South America broke loose.

Lietaer’s belief that the global monetary system needed reform led him to the Belgian Central Bank, where for several years he was involved in the establishment of the “ECU,” or European Currency Unit, the precursor of the euro. He subsequently became general manager of a foreign-currency fund. His remarkable successes in that capacity attracted international attention. The influential U.S. magazine Business Week proclaimed him the world’s best currency dealer in 1991.

Even more than that, Lietaer had become a genuine expert on money, privy to the deepest secrets of the financial world. He decided it was time to write new books. While teaching at the University of California in Berkeley and California’s Sonoma State University, in the 1990s, he worked on The Mystery of Money (Riemann Verlag, 2000) and The Future of Money (Random House UK, 2001). These books unravel the present concept of money and show how different approaches have different social consequences — including environmental and social sustainability.

According to economics textbooks, money is value-free. It is nothing more than a means of exchange and is regarded as having no effect on transactions. Lietaer contests that view. “Money isn’t at all value-free,” he argues. “The monetary system is programmed — albeit not deliberately — to cause certain behaviour. It promotes competition and short-term thinking; it forces economic growth; and it undervalues care, education and tasks crucial to maintaining a society. Economics theory teaches us that people compete for markets and raw materials; I think, in reality, people compete for money.”

This competition is a direct consequence of the manner in which money is created. Banks put money into circulation by means of loans. For example, as soon as someone negotiates a 100,000-dollar mortgage, money is created and begins circulating in the economy. But then the bank expects the recipient of the loan to pay back a total of 200,000 dollars in repayment and interest over the next 20 years. But the bank does not create the second 100,000 dollars. The receiver of the loan must get hold of that money – the interest – one way or another, and this forces him or her to compete with others. It’s simple: Some people must lose money or go bankrupt in order to put others in the position to pay off their loans.

At the same time, this collection of interest results in a concentration of wealth: Those who have money “automatically” get richer. In addition, the system forces society into an endless loop of economic growth: New money must constantly be put into circulation to pay off old loans. Lietaer says, “My conclusion is that greed and the competitive drive are not inherent human qualities. They are continuously stimulated by the kind of money we use. There is more than enough food and work for everyone. There is merely a scarcity of money.”

A monetary system driven by interest payments also blocks progress toward a sustainable economy. “The environment is a time problem,” Lietaer says. “A company like Shell undoubtedly has a better idea of the next century’s energy needs than any government. But within the current monetary system we cannot entrust Shell with the future. Shell has to make a profit today. A government bears the responsibility for the future of the society.”

Business investments today are weighed against interest rates. This continually leads to short-term choices. “It is financially attractive to cut down trees, sell them and put the money in the bank,” Lietaer says. “Through interest, the money in the bank grows faster than the trees. Solar panels, by contrast, require investments that are only earned back over longer periods. The long repayment period makes these investments no match for the growth of money you can put in the bank today to earn interest.”

“You wouldn’t be able to build a cathedral (see box) within the existing monetary system. Those were investments over decades. And they ultimately had an extremely long-term yield: Eight hundred years later people still go to Chartres every day to see the labyrinth in the cathedral – and those people still make up the majority of the clientele of the city’s merchants.”

Businesses are trying more and more often to avoid expensive, competition-promoting money. Barter now accounts for almost 15 percent of world trade. And it’s increasing every year by 15 percent, while trade conducted with money is growing at just 5 percent annually. Barter is also the basis of the complementary money systems Lietaer advocates as a solution to the social and ecological disruption our current money system causes.

The emergence of complementary money systems began 20 years ago in Canada with LETS, Local Exchange Trading Systems. Certain communities issued local currencies that people could use to exchange services. You might, say, repair your neighbour’s car and use the proceeds in local currency to pay some one to paint your house. More than 5,000 such systems are now operating in communities of between 500 and 5,000 people worldwide.

That’s just a drop in the bucket of the international monetary system. Bernard Lietaer, however, sees it differently. “Complementary monetary systems are no longer marginal solutions. It is true that they have no macroeconomic impact, but they have proven that they work and can change people’s behaviour. It’s like with the Wright Brothers when they proved airplanes could fly. They literally fell down and picked themselves back up again, and their constructions were rickety. But it worked, and so they paved the way for serious high-quality planes. This is the pioneering value of the LETS systems, too.”

The next major step for the complementary money systems will involve participation by businesses. “What else are frequent flyer miles besides a currency issued by an airline?” Lietaer asks. “Initially they were mainly meant to commit customers to a certain airline, but over time you could use them to buy groceries in the supermarket, book hotel rooms and pay your phone bill. And you can earn miles without even flying.”

Greater involvement by business, Lietaer says, is crucial for a breakthrough of complementary money systems. In the United States, a system is in development in which health insurers will pay customers for healthy behaviour — for example, spending an hour in the gym. People can then use this payment to buy certain things: bicycles, organic food, preventive acupuncture treatments.

“This isn’t just marginal messing around,” Lietaer says. “Everyone knows health care in the United States and other Western countries is a big problem that affects millions. Health care devours money. It is a remarkable system: It’s in the system’s interest that people get sick. After all, it can’t earn money otherwise. Healthy people are of no use to the health-care system, or more accurately, medical-care system. A complementary system can work the other way around: For instance, only a century ago in China, doctors were paid by their patients when they were not sick. And he paid them, and took care of them, when they were.”

In Japan, complementary systems have been developed for care of the elderly. People can earn credits by running errands for elderly people or helping them with housework. They can use the credits to buy extra help if they get sick, or send credits to their old mothers.

“This is an example of how a complementary system can be used to solve a social problem,” Lietaer notes. “Almost 20 percent of the Japanese population is older than 65, and that percentage is rising. It is unthinkable that the care for this growing population of old people can be paid for under the current social-security system. Japan is solving this with a new complementary currency, which in addition supports the social structures in the country.”

In Germany, authorities are collaborating with banks to develop a complementary money system for a million participants. In Brazil, a plan is afoot to finance education for poor families using a complementary currency. Bernard Lietaer enthusiastically offers example after example. “Money is nothing more than an agreement to use something as a means of exchange,” he says. “Money is not a thing. It is an agreement, like a marriage or a business contract. And that means you can always make a new and different agreement.”

Lietaer knows money can change the world: “I choose to remain optimistic. I can see how a crisis in the dollar could cause the global economy to collapse. Don’t forget that in the last 25 years almost 90 countries have suffered severe currency crises. But I also know that together we have all the knowledge and means we need for a peaceful evolution. I want to help liberate that creativity. To design money that works for us, instead of us working for it.”

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