Storing value in a mutual credit world: Chris Cook

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Posted Dec 20 2020 by Chris Cook of Mutual Credit Services
Storing value in a mutual credit world

This is the third in a series of interviews that will accompany a book I’m writing, that will be published by Chelsea Green – an employee-owned company, and part of the new economy that the book is describing, built around a mutual credit core. Today I’m talking with Chris Cook. He was the designer of the Iran Oil Bourse, and I interviewed him before about the history of the oil markets. He’s now part of a group called Mutual Credit Services (MCS), formed to build mutual credit clubs.

Hi Chris. We’ve been talking about mutual credit on Lowimpact for a while now – and how we change the money system. I’d like to ask you some questions about saving and investment in a credit commons – in a world where the ‘money’ is mutual credit. I get asked a lot of questions about this – about saving and buying houses especially. But first, why are you doing this? why are you part of MCS?

Part of it is part of my work for the Institute for Strategy Resilience and Security at UCL. I’m working on action research to come up with a more resilient financial system. I was asked to do this in the aftermath of the 2008 financial crash, when we came 2 hours away from the cash machines being turned off – which isn’t a particularly resilient system.

Probably the most common question I’m asked (including by my brother) is – in a mutual credit world, how do I buy a house? I talked with Dil, who talked about rent credits. Can you go into more detail on this? People who ask me how do they buy a house in this new world want to buy a house, not rent it.

The way I see it is that we’ll be looking at what’s called co-ownership, and in a sense it’s co-ownership between people who invest in the property and the people who live in the property. We’re dividing the property rights – the fruits of use and the rights of management – we’re dividing them up in a different way, a simpler (and more radical) way. But in fact, the idea has deep roots, that go back thousands of years.

Are you talking about something like housing associations or housing co-ops?

It is essentially a co-operative model. I’ll give you an example. I was a member of a housing co-op in London for ten years. I didn’t have a freehold, or a leasehold, or a tenancy agreement. I was a member of a beast called a friendly society and through membership participation in the friendly society, I had the right to be there, and I had complete security of tenure, for as long as I paid my rent, and was in line with the rules of the co-op. That’s called a fully mutual housing co-op, and the model still exists. There’s a big one in the south of Glasgow called West Whitlawburn Housing Co-op, with 350 members, and people queueing up to join it.

To answer my brother’s question – would he be able to buy a house outright, so that he owns it?

He could say he co-owns it. I mean, if he has a mortgage now, does he own it, or does the bank own it? If he’s acquired all of the rights of investment in the property, then yes, he’d own it 100%. He’d have the right to occupy it and he would be the owner of all the future rental value. The economic interest in it, he would own.

And the right to pass it on to his children?

Yes. He could give the occupancy rights to one of them, and the investment rights to four of them (if he had four). The methods we’ve developed offer the potential for new forms of equity release and for new forms of passing wealth down the generations.

Is it possible to talk about the methods you’ve developed?

Yes. What I’ve done is designed a new agreement for occupation, investment, management and what we call custody of land. There’s nothing new about creating new agreements. There’s a smart lawyer in the US who designed a new agreement for co-ownership, called condominium. I’m sure people will have heard of a ‘condo’. This was an agreement, dreamt up by a smart lawyer that people started to use, and it went viral, because it was a good agreement. It’s now an established form of tenure over there – of ownership. Developers will come along, borrow money, build a condo – you and I will come along, buy a condo.

Rather than have a bank – outside the condo – we can bring an investor inside the condo, simply by (and this is the main idea) pre-payment, of rent, at a discount. That’s the financial innovation here. Nobody pre-pays rent, if there isn’t a discount.

So there would be new institutions set up? Where would my brother go? Who would he speak to? How would it work?

There isn’t one of these yet. So it’s a bit like a dating agency with no-one to date. It’s potentially a new asset class, and I genuinely believe it will become a very important form of tenure in the future. But it’s purely optional. This is a mutual agreement, and anybody who consents to join it, can join it, and if it works, like with the condominium in the States, that’s why I coined the name for it: ‘Nondominium’ – because nobody has dominant rights over anybody else. The investors have certain rights, the people who live there have rights, you might employ a manager or not, depending on the size of the building. And there’s always a custodian – somebody who has the right – you could call it the final veto, like a golden share. These are the different stakeholders in a nondominium – a word I invented because it didn’t exist – that describes the agreement quite well. But the key element is pre-payment of rents at discount. Or it could be production – a production-sharing agreement for farmland, for instance. This used to be called a tithe. There’s nothing new here. Tithing arrangements have been around for thousands of years. Pre-payment of rent was how kings of England raised money for 500 years. That’s where the expression ‘rate of return’ comes from, and where ‘tax return’ comes from and where ‘stock’ comes from – from the wooden tally sticks.

Currently, because of interest, if someone buys a house worth 200k, over 25 years, they end up paying 400k, because of interest. More people understand this now – but when banks loan money for mortgages, they don’t actually have that money – they create it from nothing, and charge interest on it. If that’s the case, why do they have to charge 200k interest on a 200k house? What’s the risk for them – especially as they have the house for collateral? Is it a scam?

It’s not a scam, but it’s greed on the part of the investors. The depositors expect something for nothing – money for the use of money. Nobody objects to paying money for the use of land, but money for the use of money is something that’s been proscribed. All the great religions forbid it. They have rules against usury. But now we’ve come to believe that we deserve a return, in money, for the use of money. In fact, what I’m saying is that what you are entitled to a return for is the use of an asset – like land, or energy, or intellectual property, or your time. So I believe that the basis of money is utility – something useful over time. There’s a major misconception at the root of the system that confuses utility – use value – use over time, with exchange value, and we’ve all got bound up in confusing the two types of value. If I give you a token that you can use to pay your rent or mortgage with, you’d accept it. If I give you a token that you can use to pay your energy bill with, you’ll accept it. And if I give you a token to use for communications, online services etc., you’d probably accept it. The question then is what is that worth, in exchange. This is where the store of value comes in. Pre-payment for something valuable IS a store of value.

And would you get a discount on those?

For rent, definitely. It becomes interesting when you talk about energy, It’s negotiable, but if the energy is base on finite resources like oil or gas, then you might think that it will go up in value, and therefore a discount isn’t warranted.

Just staying with the house for one more question. What do you think the fees might be for buying a house in this system – I guess they won’t double the price of the house as they do now?

With this new system, land is never bought or sold again. Land is essentially held by a custodian – a bit like a community land trust holds land in trust. And a co-op essentially holds land outside the market similarly. It’s not dissimilar to that. The land isn’t sold. The investor may change, the occupier may change, and the manager may change. But the land is not sold. So estate agents have a function – introducing people who want to live somewhere to somewhere they might want to live. That’s adding value, and estate agents bring tenants in, as well as buyers in. The estate agency profession is going to continue. You’re also going to need what’s now known as banking services – people who bring investors in productive assets together with productive assets they want to invest in. And don’t forget that 17 trillion dollars is current getting negative returns – sometimes going out to 30 years. What I’m proposing is that land value, use value is always positive.

Because it’s something real.

Yes, and it has a use. And people will always be prepared to pay something for the use of it. And like a tithe, that something might be something from the production. In my view, this is potentially a massive, massive asset class. We’ll see the transition of debt to this form of – whatever you call it – quasi-equity, pre-payment, rental credits? I think it will be a huge asset class I’ve been saying this for 15 years.

I’ll think about it some more and maybe ask questions in the comments. I’ll tell my brother too. And saving for a rainy day, or for a holiday – anything? How would that happen?

What you’re doing is investing in pre-paid rental value. So for example here in Linlithgow, it’s not just the custodian of one property. People start putting lots of properties together, within a common framework, so you soon start finding that you’ve got a rental pool – and what that means is that if you actually pre-pay rentals because you have some spare cash, and you’ve got a nice big fat balance, you can find someone to buy that from you for sterling, or swaps it for something that you need at any time, because the beauty of rental credits is that by definition, they’re accepted locally.

And there will be new institutions that deal with this? People don’t want to go round searching for partners to do deals with.

Just as now, you’ll have people who make markets, in a sense. People who take a risk – but probably quite a minimal risk – and that’s a value-adding profession actually. There have always been people who have been prepared to come in and buy and sell – like merchants, or brokers.

So there would be a relationship with people or organisations, in the same way that people have a relationship with a bank or a building society today?

I think what you’d see is something rather like a local stock market – literally – where people put their needs and wants – for example, I want to sell 5000 rental credits, what am I bid? The beauty of a rental credit is that people will always buy it at any price below face value, because that means they can cash it in at the full value. If I’m the occupier of a property, and there’s somebody out there selling £1 rental credits for 95p, I’m going to buy them, because I can then cash them in for £1 worth of rent. This is the beauty of having a returnable credit as an asset.

I guess that people are going to say ‘that sounds really complicated. I just want something simple to save for my old age’. Is it going to be as complicated as it sounds. Is it going to be useful for ordinary people?

You asked a complicated question – ‘how’s it going to work?’, which is like asking ‘how does the market work?’ There is a simple solution – that yes, you will have people who will enable you to cash out – very easily. And that can be explained in as much detail as you’d like.

So we’ll have to see what emerges, and what kind of institutions develop as time goes on?

When you say institutions, it makes me think of organisations. What I’m saying is PEOPLE – will be there who will do that.

Are you also saying that you see the opportunities for profitable investments in capitalism shrinking?

Very simply put, I think we’ve reached a point – I call it ‘peak rent’. When you consider that only 18% of retail rents are being paid on time, you realise that there’s a crisis. I don’t think most people realise how big a crisis it is. All of these shops – Arcadia, Debenhams, shopping malls everywhere – they’re not paying the rent. Why? Because they can’t. As Michael Hudson says, ‘if debt cannot be paid, it won’t be paid’ – that was in 2008. Now, if rent cannot be paid, it will not be paid. And the thing with rent is that it’s demanded, whether you can pay it or not. Now we’ve reached a point where systemically, there’s too much rent in the system. So the question for landlords is ‘would you rather have 100% of nothing or a smaller percentage of something?’ The new thinking that’s emerging is about production sharing leases, about shops that are sharing the rent with the landlord. That’s been happening with British Airways at the airports for a considerable time. The richest landowner in Norway got to that position because he charges an affordable rent and shares the revenues above that. It’s both ethical, because of the risk sharing; and it works. It’s not a new concept – in fact it’s a form of Islamic finance.

So you see these use-credits as a way to bring investors over to this new economy, this new mutual credit / use credit system, as a way of being able to invest at all in future?

Well if you’re getting negative returns, and there’s something safe that will give you a positive return, yes. But there’s another important point here – and that’s the question of affordability. Now, with debt, the poorer the person is, the less creditworthy they are, and therefore the less likely that they can pay. It’s a vicious circle. Whereas with affordability – if the rental stream is genuinely affordable – maybe it’s limited to a certain percentage of someone’s income – then by definition, it’s more likely to be paid. And if that’s the case, it lowers the risk, so an affordable rental stream, being more likely to be repaid, is an extremely attractive asset class, for pension investors – all these people who are currently getting negative returns will be queueing up to invest in genuinely affordable rent, because that gives them a security of investment that they’re looking for – it’s a positive return. I’m sure you’ll be saying that a zero rent is infinitely affordable. So there’s a limit to this. But even a zero rent, if you get your capital back, is still better than a lot of people are getting now.

So it sounds as though there’s going to be much less scope for wealth accumulation and concentration?

Yes, because there’s less ‘something for nothing’. That leads to the accumulation of wealth. But this model goes from a zero sum, or a negative sum game, to a positive sum game. That’s why I’m so optimistic about the future, because I think that capitalism, in its current form, will eat iself, disappear up its own posterior. You hear a lot of neoliberal rhetoric about cost-cutting – but what’s the biggest cost of all? It’s the cost of something for nothing being paid to rent-seekers. So if we can start to say that high rents are not going to be paid, so let’s come up with a new settlement, on a more sustainable basis – I think we’ll see, not a redistribution, because that will be resisted.

A pre-distribution?

Pre-distribution is the word I was looking for.

What’s the order of things? What needs to happen first? Do we need to build mutual credit clubs and start to federate them before thinking about store of value?

Mutual credit is what I call people-based credit. There are no assets involved – it’s just you and me dealing. In accounting terms, it’s what we call double-entry. Plus and minus. I get a positive balance, you get a negative balance. But my point is that when assets are involved, you get a third entry, which is always positive. It may be a positive of pre-paid rentals or pre-paid energy or pre-paid IP use, but it’s always positive. These credits are always based on promises. Mutual credit is based on my promise, which you accept. That’s how the system of banking came along. Someone gave a promise, who passed it on to somebody else, who passed it on to somebody else, etc. Then it could come back to the issuer. That’s what a cheque is. It’s just that the bank that issues the cheque doesn’t provide any value when it does so. What the bank essentially does is guaranteeing the credit of its customer. But we don’t think of banking in those terms any more. Banks used to add value. Now they extract value. I believe we’re going to go back to what I call ‘banking as a service’, where they provide a value-added function.

So you’re saying it all happens at the same time?

Yes. In parallel.

Mutual credit clubs are not for individuals who aren’t sole traders – at least initially. how can we bring them in to this new world?

That’s actually quite simple. I think everybody is capable of providing value. If I look after somebody, I’m providing care. If I do something creative, if I write something, draw something, take photographs etc. – that’s something that has a value – not a commercial value, but it’s still valuable. We’re getting here into the world of Local Exchange Trading Schemes.

They didn’t really change much, did they?

No, they didn’t provide value that’s universally acceptable. But they were a very good way of building trust in a small group. So you’ll find many LETS schemes that cease operation, but not because they’ve failed, but that people have stopped keeping score. They’ve built trust, and now they just swap services, but they don’t bother keeping score any more – they just trust each other. What the monetary system comes down to is trust. I trust the bank and the credit card company, and they trust me. But we pay them to provide that guarantee. What I’m suggesting is that we can deal directly, and have a form of mutual assurance (this is where the mutuality comes into it) – call it a club. It’s existed in the shipping industry for 150 years (Protection and Indemnity Clubs – P&I). Ship owners club together to mutually assure risks that middle men like Lloyds of London won’t take. And that form of risk sharing is completely achievable – we could do it tomorrow – because we don’t need a middle man to do it, we can just club together and do it. These are additional tools. You’ll be familiar with the first credit card?

Diner’s Club?

Yes. Essentially a club of local restaurants started giving time to pay to local diners. That was interest-free credit, but it had to be paid at the end of the month. It was what I call a charge card. Banks got involved when people wanted to roll over from one month to the next. And that led us to Visa and to Mastercard and the rest. But it’s completely possible to create that kind of architecture in a local town. And the mutual credit system we’re building will be able to account for this. It would need a service provider, which is what Diner’s Club had, and the P&I Shipping Club has. I think that’s the way it’s going to pan out – we’ll have clubs with a common interest – risk sharing, cost sharing, surplus sharing, but with a service provider actually managing and operating the system. That’s the role MCS is playing – providing certain services to get the system up and running, and then marketing it and running it in the future.

Dil talks a lot about transferring over the resources of capitalism into the new economy, in the same way that the resources of feudalism were brought over to capitalism. Peasants were turfed off the land to graze sheep, and make money from the wool trade. Land was rented and the landlords were paid in money not labour any more. Before they knew it, everything was for sale in the new capitalist system, including land and labour – things that weren’t for sale before. Do you think we’re at a point where that kind of transition could happen again?

I think it will be reversed. I think we’re already seeing, with empty office blocks. People are working from home – just like that. I think we’ll see a form of re-ruralisation, into smart smallholdings. I saw a very interesting talk by Simon Fairlie. You may have come across him.

I know Simon, yes.

He put forward an interesting insight. Historically, 2000 acres might have contained 500 families with 4 acres each, and it was self-sustaining. A lot of people lived decently on the land, but there was nothing left over for the landlord. As you just said, the landlords threw them off the land, they went to the cities, and the landlords made some money for a time. But now the landlords can’t compete with big farms elsewhere, so landlords are losing money on their 2000 acres. But as Simon says, if you had 500 smart, eco-smallholdings, that self-organise and become infinitely more productive, so that any surplus they have is sold locally – which is what used to happen in local markets. But the reason Simon says this works out for the landlord is that you’ve got 500 residential footprints on the land. But we have to get the planning right. Here in West Lothian they had the idea of ‘lowland crofts’, so you’d have the right to put a croft building and 6 acres – but they didn’t tighten it well enough, so what you got was an executive home and 6 acres for Fiona’s pony. So if we get the planning right, what we can and will see is a re-ruralisation in a smart, permaculture, intelligent use of land, and of production and consumption. The sort of things that the MCS is working on in the SW of England will be very apt for this. It seems to me that many things that we do, the UK could easily become self-sufficient for most of them, with intelligent planning and local mutual credit. So much can be done – we haven’t started to scratch the surface.

Anything else you want to say in the book? Any articles you’ve written that people can read to go a bit deeper?

I’ve got three pieces from Bella Caledonia. One is on the energy front, one is about what I call a ‘care for equity swap’ – it’s called ‘Caring for Scotland’. My generation has made out like bandits. We’ve benefitted from the massive increase in land values in the last 40 years. But my kids are on the other end of it – they’re care rich but land poor. My generation are land rich but care poor. I think what we can do is make a swap between the generations using care credits and land use credits. Switzerland – in St.Gallen, it’s possible for citizens to earn care credits, that are then credited to them for when they get old. The reason people do it is that they trust the St.Gallen local government to be around in 50 years time – whereas you wouldn’t trust G4S with that, or others like them.

Thanks Chris. I think the mutual credits clubs and credit commons ideas are relatively easy to explain compared to store of value ideas. Any questions you have for Chris – please post them on the blog, or on YouTube – but they’ll have a better chance of being answered on the blog.

Just to wrap up – pre-payment for use value is what I’m talking about, and I think that most people do understand pre-payment. Pre-payment meters are routine – and the poor pay more. They lend money to the utility companies, and get charged more to do it. That’s not right. But pre-payment is obviously a store of value when it’s for something useful. That’s all I’m saying.

This is the third of a series of interviews accompanying the book, so if you want to follow them, subscribe to the blog and / or the YouTube channel. And in the mean time I’ll watch this again, read those articles and come back with more questions. Thanks Chris

Cheers – I’ll send you the links.


NB: here are 3 articles by Chris to go deeper into the subject.

Energising Scotland: introducing the Eco

The community is the currency

Caring for Scotland