This is the fifth in a series of articles about how mutual credit can help us get through the economic problems caused by the corona virus. The main points to get across are:

1. There’s going to be a shortage of money.
2. Mutual credit is a moneyless trading system.

That’s it! Mutual credit can help local economies survive when there’s no money around.

Here Tom Greco describes the system that the financial elite will be pushing us to revert to after the coronavirus crisis is over. We must resist; and by far the most effective thing we can do is to refuse to use their money where we can. Tom describes a network of ‘credit clearing exchanges’ that we call mutual credit.

When I was born, the world’s population numbered something like two billion people. Today it is estimated to be well over 7 billion, more than three and a half times the level of one lifetime ago. This is but one example of exponential or geometric growth, meaning growth that proceeds at an accelerating rate.

It takes little imagination to realize that such patterns of growth cannot persist over the long run. Indeed, nature provides plenty of examples to show that exponential growth can only be a temporary phase in a larger pattern that either levels off or ends in a precipitous decline. When insect or animal populations outrun the carrying capacity of their environments, the result is a rapid die-off. Historically, there have been at least four collapses of human population that we know of, and the evidence suggests that a fifth one may be imminent.

But population growth is not the biggest problem that faces civilization. There is one thing that has been growing exponentially at an even faster rate than population or economic output, and that is debt.

Avoiding that fifth human and ecological collapse means coming to grips with debt and the role that money plays in driving unsustainable rates of resource consumption and economic growth. Meeting that challenge is both a personal and a political imperative.

I concluded long ago that this explosion of debt is the prime cause of recurrent financial and economic crises. It is also the inevitable result of the way in which money is created by banks across the world today. The recent widespread financial crises provide strong evidence that global systems and structures of money, banking and finance are deeply flawed.

It’s a simple but often unrecognized fact that money is created by banks when they make loans, including loans to governments when banks purchase their bonds. This is acknowledged by the US Federal Reserve in one of its publications, Modern Money Mechanics:

“The actual process of money creation takes place primarily in banks…checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks, and when the proceeds of loans made by the banks are credited to borrowers’ accounts.”

And the Bank of England also admits that “if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.”

The present global monetary regime is a collusive arrangement between politics and high finance. By monetizing their budget deficits, this system enables national governments to spend far more than their income from taxes and other sources, while granting banks the privilege of creating money in the form of debt, and then charging interest for its use.

The main reason for the centralized control of credit and money has nothing to do with helping the economy to operate more efficiently. The motive is political: centralization enables the undemocratic control of everything else. It thereby concentrates wealth and power in the hands of the few. Whoever controls the ‘wellspring’ controls the ‘river.’ The same is true with money.

The current global monetary regime is ‘political’ in this sense. Based as it is on interest-bearing debt, the imperative for debt to grow continuously is inherent in the system. Since interest on bank loans accrues with the passage of time, total debt must be continually expanded in order to keep the system from collapsing.

This debt imperative leads to a growth imperative as individuals and corporations vie with each other in the market to acquire enough money to avoid defaulting on their debts. They are driven to expand their sales and profits by cutting more trees, mining more minerals, and pumping more oil. They are also driven to cut their costs by laying-off workers, reducing benefits, and fleeing to jurisdictions where environmental protection and labor laws are minimal or unenforced.

Unfortunately, there is never enough money in circulation to enable all these debts to be paid. No amount of production or expansion of business activity can bring about an automatic increase in the amount of money in the economy. Only the deliberate actions of banks to grant more loans can maintain or increase the supply of money in circulation.

It’s the compounding of interest and increasing indebtedness in both the private and the public sectors that is the primary driver of economic growth. But this growth misallocates resources and prevents the emergence of a sustainable and equitable economy. Like a cancer, the political, interest-based, debt-money system destroys the environment, corrupts democratic processes, increases disparities of power and wealth, and shreds the fabric of society.

To the vast majority of economists, bankers and politicians, this assertion is heresy. But as the crisis intensifies, the evidence mounts up. We have been warned by philosophers and prophets from time immemorial about the destructive nature of usury and interest. Now we are seeing the practical consequences that emerge when those warnings are ignored. It becomes ever more urgent that we take appropriate action to reverse this crisis. What would that entail?

When you realize that the car you are driving is headed for a cliff, what’s the first thing you need to do? You might scream, but that will be of little help. Even before you hit the brakes, you need to take your foot off the accelerator. In relation to the crisis of our economies, that means ending the growth imperative by creating money that is interest-free, and by facilitating the exchange of value without using money at all. How is that possible?

The fundamental role of money is to facilitate the exchange of value. In recent years, a variety of exchange alternatives have been developed, including private and local currencies, and trade associations that enable trading without the use of conventional money. The most effective of these alternatives provide ‘home-grown’ liquidity as a means of payment, independently of the banking system and without the imposition of interest.

This can be achieved by using private currencies or vouchers that are spent into circulation by trusted producers of goods and services, and by allocating internal credits to members of trade exchanges that enable them to trade with one another using a process called “credit clearing.” Credit clearing is not new. It’s a proven process that’s already being used by thousands of businesses who are members of “commercial trade exchanges” (sometimes called “barter exchanges”).

These exchanges provide the necessary accounting and other services for moneyless trading. In this process, the things you sell pay for the things you buy, without using money as a medium of exchange. Instead of chasing Dollars, Euros, or Pounds, you use what you have to get what you need.

In addition to commercial trade exchanges, there is a cooperative credit clearing exchange that has operated successfully over a long period of time. Originally called the WIR Economic Circle Cooperative (WIR), it was founded in Switzerland as a self-help organization in the midst of the Great Depression of the 1930s. WIR provided a means for its member businesses to buy and sell to one another despite the shortage of Swiss francs in circulation at the time.

Over the past 75 years, in good times and in bad, WIR (now known as the “WIR Bank”) has continued to thrive. It has more than 65,000 members in Switzerland, who exchange around $2 billion of goods and services each year. They pay each other, not in official money, but in their own accounting units called “WIR credits.”

Private currencies and credit clearing exchanges provide a viable means through which the ongoing financial crisis can be addressed. These alternatives enable us to transcend the global debt-money system, and to gradually eliminate the growth imperative. Now, they must be improved and scaled up in ways that are inclusive and transparent, and operated, not for private profit, but to promote the common good.

The good news is that business people, community activists, academics, and social entrepreneurs around the world are working together to achieve these goals and to make exchange alternatives more widely available. For example, the Sardex commercial credit circle is one of the most successful contemporary commercial trade exchanges that has been operating in Italy for more than 10 years serving the needs of almost 4,000 regional businesses. It has been described as “a regenerative tool that gives further life to the economy of the area.” The Open Credit Network now forming in the UK, assisted by Lowimpact.org, is powered by open source technology and will be cooperatively organized to provide moneyless trading to cooperative enterprises and small and medium sized businesses throughout the UK.

Ultimately, it is our own willingness to join such efforts and do things differently that will change the course of civilization.

See the Open Credit Network.

About the author

Thomas H. Greco, Jr., is an independent scholar, community economist, educator, and author. His book, The End of Money and the Future of Civilization, provides detailed explanations and prescriptions for communities, businesses, and governments. His website offers a wealth of information on the interplay of money, finance, politics, and economics.