Imagine that there’s an enormous economic crash coming. Say, the biggest economic crash in history. Outlandish, I know, but just give it a try.
I want you to imagine that you’re a shopkeeper. What are you going to do? How are you going to sell anything when there’s no money around? Nobody can buy anything if they have no money, and nobody can sell anything if nobody else has any money, can they? That’s obvious, isn’t it? We all have to find some way of getting money, don’t we? Or do we? Could there be other ways to cope, and even to thrive?
Here are some scenarios. See if you can work out ways to keep trade flowing (and ultimately, to prevent poverty and hardship) in each scenario, starting with a really easy one, and getting more complicated.
You sell mugs, for £1. I want a mug.
I sell pens, for £1. You want a pen.
(These are the first two things I spotted as I started writing this article.)
But neither of us has any money. Oh dear. That means that I can’t buy a mug from you, because I don’t have £1, and you can’t buy a pen from me, because you don’t have £1.
OK, I’m guessing you can see a solution to this problem. We just swap.
A trade takes place, and we both get what we want, without needing money.
But what if you don’t want what I’ve got?
You sell mugs, for £1. I want a mug.
I sell pens, for £1. You don’t want a pen.
But you do want eggs. I don’t sell eggs.
Someone down the road sells eggs, for £1 a box. They want a pen.
None of us has any money.
What to do now?
Still easy. You give me a mug. The third person gives you eggs, and I give a pen to the third person.
Three trades take place. We all get what we want, without any money.
But what if we want to trade things of different value?
You have mugs, for £2. I want a mug.
I have pens, for £1. You don’t want a pen.
Someone else has eggs, for £1 a box. You want eggs, and they want a pen.
But now your mug is worth twice as much as a pen or a box of eggs (it’s a souvenir Princess Diana mug). And you only want one box of eggs, and the third person only wants one pen.
We can do the three-way exchange again. I get a mug, you get eggs, person 3 gets a pen. But then you’re £1 down, because your mugs are worth £2. And we still don’t have any money, so I can’t just give you £1. So what can we do?
Well, I could give you an IOU for £1, to be used next time you want eggs. The egg-seller could use that IOU the next time they want a pen from me. Then my IOU has come back to me, and I can tear it up (I’m not going to use it to ask for something from myself, after all). That might work.
But what if it becomes too complicated for IOUs?
You have mugs for sale, worth £2 each, and an IOU for £1. You need a taxi ride.
I have pens worth £1. I want a haircut.
Someone else has eggs that now are worth £1.50. They want a mug.
A barber is offering haircuts worth £10. They wants eggs.
A taxi firm is offering rides for £1 per mile. They want 12 pens for their office.
We can all exchange again, but it’s going to get very messy with IOUs. What do we do now?
Well, someone could have the bright idea of getting a notebook, putting a few columns in it for names, buying, selling and totals, and someone can look after the book. Whenever someone trades, they call the person with the book, who records it, and tells them what their balances are.
So for example, I give 12 pens to the taxi firm. We call the book-holder, who puts our names down, records the trade and puts +12 in my total column, and -12 in the taxi firm’s total column.
Then, for example, you (the mug seller) book a 16-mile round trip with the taxi firm. They call the book-keeper, who records it, after which you have a total of -16, I have a total of +12, and the taxi firm has a total of +4.
Two important things to notice here.
First – you can label the balances in pounds if you like, but you don’t have to. We’re not actually using any pounds, because nobody has any. It’s just a handy way to compare the value of things on offer to the value of things on sale in the shops. But really, those totals are just numbers in the book, to keep tally of who has provided what, and who needs to provide what. We can call them credits or debits, depending on whether they’re positive or negative. Your balance is now -16, and because you’re offering mugs at £2 each, that translates to 8 mugs. So you need to provide 8 mugs, in total, to any combination of people in the book, to get back to zero.
Second – if you add up all the positive totals in the book, they are always exactly equal to the negative totals. They have to be, because for someone to get credits (positive numbers) in their account, someone else needs to get debits (negative numbers) in their account (if I sell you a pen, I get 1 credit and you get 1 debit, for example).
But what if it gets too complicated for a notebook?
Nobody wants mugs just now, so it’s impossible for you to earn any credits to spend on other things. There aren’t enough businesses in the group for people to sell their stuff.
So we invite in some other local people that we know and trust – a baker, a restaurant, a key cutter, a plumber, an accountant, a printer, a shoe shop, a car mechanic, painter and decorator, market gardener and about 20-30 other people in various trades, all selling things at different prices.
The book-keeper throws up their hands and says that they’re not doing this any more – it’s way too complicated.
Well, this is the 21st century. We don’t need to do things in notebooks any more. What if everyone had an account, on a mobile-friendly website, with a little trading engine that allowed everyone to trade with everyone else, and recorded it, and people could see everyone’s balances? And what if there was a directory that everyone went into, so that everyone could find what they want. And what if everyone had a username and password, to login and change details on their profile, to message people and to trade?
But what if this particular network of businesses were owned by its members, co-operatively? It could be centred around a hub – maybe the local authority or Chamber of Commerce, or maybe around a local accountant? Or perhaps they could appoint a convener, who would look after it and help people to join, set up their profile, help people trade, solve any disputes or other problems. And what if they decided to add a small membership fee and even smaller transaction fees that would build up in a central account, to pay the convener a salary (in credits, that they would then use in the network)?
Then you’d have a ‘mutual credit club’, with its own website and logo, owned by its members, with democratic decision-making about fees, rules, credit and debit limits etc.
But what if you want things that aren’t provided by any business in your club?
You decide to take up the guitar (I’m just making this up as I go along now), but no-one in your club provides guitars. But someone is selling guitars in the next town’s club.
But they’re not in your club, so what now?
I guess you could get them to look at your club’s website to see if there’s anything they fancy that costs as much as one of their guitars. You could then get it for them with your credits, and take it along to them and swap it for a guitar. That would work, but it’s messy.
What if all the clubs could be federated, and businesses in any club could trade with each other? The local trust would be lost – but you’d know that any business you trade with is also in a local club, and so is trusted by that club’s members, in the same way that you’re trusted by your club’s members.
The problem is that we’d need to get the balance of trade between clubs right – in other words, each club would have to trade with the rest of the federation in exactly the same way that each business trades with the rest of its club. It can’t go too far into debit or credit. It would be in debit sometimes, and in credit sometimes, but overall, it would hover around zero.
That’s tricky, but Lowimpact.org is part of a network of organisations and individuals that are building the software and the relationships for mutual credit clubs, that will enable their member businesses to trade seamlessly with other businesses in their own club and in other clubs in the UK. At the moment, we’re building these clubs around accountants, social enterprise networks and local authorities. We’ll be launching later this year. Contact us if you work for a local authority, social enterprise or accountancy firm, and you’d like to know more.
But what if you need something that’s not produced in your country?
There’s a wholesaler in your club who wants to provide bananas to the shops in the club. But of course, bananas can’t be produced in the UK. That will mean overseas trade, with the added difficulty of different currencies, that shift in value.
We’re stuck now, surely?
Well, also on our team is Matthew Slater, who has been working on the ‘Credit Commons’ idea for several years. He now has a team of coders working with him, and will have the software early next year for clubs to trade seamlessly across national borders, in a truly new and truly global trading system.
This article is just to explain that things don’t have to be the way they are. Economic crashes don’t have to prevent trade, and we don’t have to rely on bank-issued, debt-based money to make the economy work.
Many people, post-covid, now have a sense that a new, sustainable, just world is struggling to be born. If that’s going to happen, the current money system can’t be at the heart of it.
This article is also intended to announce that a new exchange system, to challenge the current money system, is on the way.
About the author: Dave Darby lived at Redfield community from 1996 to 2009. Working on development projects in Romania, he realised they saw Western countries as role models, so decided to try to bring about change in the UK instead. He founded Lowimpact.org in 2001, spent 3 years on the board of the Ecological Land Co-op and was a founder of NonCorporate.org. and the Open Credit Network.
The views expressed in our blog are those of the author and not necessarily lowimpact.org's
1annbeirneanimalwhisperert June 21st, 2020
Agree wholeheartedly about people wanting change and the explanations area bit like LETS and Time banks have you read the book by Mark Boyle the Moneyless Manifesto you might find that very interesting. Perhaps another way of coping without physical money after all it is only bits of metal and paper in the long run, it is society that decided to use these and give them value. which doesn’t actually exist anywhere , rather like economics and the economy all smoking mirrors.
2Malcolm purvis June 21st, 2020
Excellent news! Well done and power to all your elbows. A heart warming article.
3Ultra V. June 21st, 2020
OMG!!! isnt this how it got so complicated in the first place. That’s why money was invented.. Money isnt the problem its a good idea. Its the distribution and scamming that are the problem. Besides what has stopped people from this trade style of economy up to now? They can still do it even with money being present, but they dont. Why is that? Simple, the ‘money as a measurement of value’ system works well.
4Dave Darby June 21st, 2020
The main point of the article is that we are entering the biggest economic slump in history, and money will be scarce. Mutual credit is a way of keeping communities and small businesses afloat without money.
‘That’s why money was invented’
No, it’s not. A major reason for the introduction of coins was for the payment of taxes to monarchs. Stamp your head on a coin, demand that people in your realm pay their taxes in it, and people will have to earn it, via the building of castles, ships, serving in armies etc. Previously, an army of 50,000 would march 20 miles per day, and then troops would be sent out across a 10-mile radius of the camp to demand food from farmers. Pay soldiers in ‘coin of the realm’ and farmers will come to the camp to sell food for coins to pay their taxes with. A very effective tool for rulers throughout history.
David Graeber explains how money was not ‘invented’ to solve the problems of a barter economy: https://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/
‘Money isnt the problem its a good idea.’
An alternative position from Tom Greco: https://www.lowimpact.org/global-money-system-not-normality-after-coronavirus-crisis/
From Positive Money: https://positivemoney.org/issues/
And from me: https://www.lowimpact.org/why-the-banks-have-so-much-power-and-how-we-can-take-it-away-from-them/
‘Besides what has stopped people from this trade style of economy up to now?’
Nothing. It’s been the dominant type of economy throughout history. See David Graeber, above, and https://www.lowimpact.org/capitalism-free-market/.
‘They can still do it even with money being present, but they dont.’
There is a global (and mis-named) barter industry. The IRTA covers 450,000 businesses with a non-monetary trade volume of $14 billion. This is a capitalist industry. We’re building a mutually-owned federation. A federated Credit Commons has never existed before.
‘the ‘money as a measurement of value’ system works well.’
Only if you think that humanity is headed in the right direction, and you don’t think that spiralling debt, zero reserve banking, corporate capture of the political system and massive biodiversity loss are problematic.
5Anthony Hay June 21st, 2020
I am a self-employed baker. (Let’s say.) My chocolate biscuits are delicious. Everyone in my town and the next loves them. I sell £200,000 worth of biscuits every year. But I don’t use money, instead I sell biscuits for credits. I buy all my ingredients with credits.
My building society does not allow me to pay my mortgage with credits. (or electricity supplier, …)
My accountant helps me complete my company tax return. I owe VAT (or whatever). But HMRC wants GBP, not credits.
What to do?
6Dave Darby June 21st, 2020
You start by doing a small percentage of your trade in mutual credit. It will help in terms of cashflow when money is short, and it will allow you to keep your cash for taxes, mortgage etc.
We’ll have to cross bridges when we come to them. We’re already talking with local authorities.
This isn’t about working to blueprints, it’s about moving in the right direction. One thing I’m absolutely sure about, we’re not moving in the right direction at the moment.
7Doctor Hilary Jones June 23rd, 2020
At farmers’ markets, we stallholders are terrible ones for a barter. Jane likes my sausages, I like her cheeses; and we often do a swapsie. Could this idea be developed? I suppose there would have to be a small “charge” to “pay” the” rent” etc. I think you’re right; it’s quite possible that money will become meaningless; we’ve already had quantitative easing which is a way of preventing us from noticing.
8itwisnaemoicc June 23rd, 2020
When the big change comes, it could be much more than the economy which changes – everything maybe. There could be a thriving black market in credits. Would anyone worry about taxes? Would anyone feel guilty about not paying them after the atrocities our governments have inflicted upon us.
9Dave Darby June 23rd, 2020
“When the big change comes, it could be much more than the economy which changes – everything maybe.”
Yes indeed. And the coming crash won’t be the last one, or the biggest.
“There could be a thriving black market in credits”
Credits aren’t something you can receive without someone else going into debit. It’s like saying that there could be a black market in swapping things.
“Would anyone worry about taxes?”
The enormous wealth locked up in tax havens is testament to the fact that the super-wealthy already don’t worry about them. But I know what you mean. I’d like to see local social care coops developed for mutual credit club members, paid for via transaction fees / membership fees, rather than rely on a centralised system controlled by the state. More like the old ‘friendly societies’. A real safety net shouldn’t just be about money imho, but also about face-to-face contact, looking out for each other, taking food around for the elderly, sick etc.
10CC June 23rd, 2020
So … right now, things are looking a bit grim, but alternatively … humanity could wake up to where the powers that be are trying to take us. We could focus on changing to a local economy. Yes, like real communities for instance. Connections. It is possible, it just seems unlikely. Anyway … I’m still rooting for humanity.
11Gael Bage June 23rd, 2020
I like your thinking, but what would retired people barter with or the disabled
12Dave Darby June 24th, 2020
Gael – thanks.
It’s not barter (although the for-profit IRTA is an umbrella organisation for what they confusingly call the barter industry). It’s mutual credit. You don’t have to find a reciprocal trade.
I’m not advocating the dismantling of the welfare state.
However, state provision is inadequate. It would be good to move back towards something like the old friendly societies – https://en.wikipedia.org/wiki/Friendly_society – which provided a personal touch. It’s all about community building, imho.
13itwisnaemoicc June 24th, 2020
If we had local communities again Gael, we would look after each other – https://www.localfutures.org/ There are some jobs would be suitable – have a look at a LETS website – there’s always folks need small jobs done – retired folks might be happy walking dogs or making soup for those who do work. Yes, it would be harder for disabled, but not impossible. There would always be some teething troubles changing to a new system, but could anything be worse than the global capitalist system we have now? I’m sure we could work it out. I’d love to be given the chance to try.
I believe that a mutual credit system would work, especially in a local community (a real community) and even network beyond the local – we have software. Do we have the Heart? I think we do. After all, in a local community, most everyone is your family, friend, neighbour, supporter. Local community also benefits more than the economy. The current system does not – are the 1% free from loneliness, abuse, addiction, suffering? Surely local would at least be supportive to these issues. So Gael, I do understand your concern, but we really do need to change – our economy, our lifestyle, our worldview.
14Dave Darby June 24th, 2020
What you’re saying is the absolute core of it.
15homeminderuk June 26th, 2020
Do you really think that there are enough of the people that ‘get it’ in this culture/society at this point in time? Of course, there are those like you and me who can see past the smoke and mirrors of the rush ‘back to normal’ but the vast majority seem hell bent on maintaining the status quo.
We, the enlightened, will be silenced in the flood of apathy of ‘don’t worry be happy see everything has turned out ok there told you so’ –
I wonder if that’s the last words Pompei heard?
16Dave Darby June 27th, 2020
I think some will get it, but really, people don’t have to get anything. If they don’t have any money to trade, and we offer them a system that doesn’t require money, if they want to keep trading, they may well give it a go!
17Dean August 2nd, 2020
the biggest problem I can see is that barters swaps etc are taxable, how would the tax be paid to the governing bodies, inland revenue, customs and excise duties, import tax,council tax,business rates, fuel duty, insurance policy tax, incometax?, I have wished to have a true alternative system to the present one, but as long as we have a central government that collects taxes on almost every transaction it would be virtually impossible to have no connection to the government monetary system
18Dave Darby August 2nd, 2020
Dean – one step at a time. But we have to take a step. Mutual credit will comprise a small but growing percentage of participating businesses’ trade. We’ll cross bridges when we come to them. Here’s more on taxes – https://opencredit.network/2019/06/15/mutual-credit-accounting-and-tax/
(nb they’re trades, with anyone in the network, not barter / swaps / reciprocal).