Currency, Economy 2.0, Money

Community Money

Steve Kelsey

We are used to conventional money being issued and backed by authorities, banks and governments. However, banks are relatively new institutions historically, evolving from earlier methods of money creation. Banks as we understand them today are evolved from Lombards. Invented in Florence in the 13th Century, Lombards were a form of pawn brokerage where assets were deposited as collateral for loans (and where the assets were too large or immovable, e.g. property or land, promissory notes were lodged with the Lombard allowing the Lombard to take ownership in the event of failure to repay the loan). Private banks were prone to failure until the invention of the Central Bank in 1694 as lender of last resort.  But until very recently banks only existed for the wealthy. The common community had many alternative forms of debt and credit, many different forms of money based on community trust which operated successfully well before the invention of modern banking.

In the complex history of alternative money and money creation all alternatives had had to compete with the banks perceived authority and also the legal constraints on money creation. Scrape away the claims of superiority from the authorities and it is clear that were the banks ever to fail communities would rapidly replace them with local alternatives.

A notable example is during the Irish Banking Crisis. In 1970 the banks in Ireland went on strike for six months. The wonderfully Irish solutions was to use the Pub as an alternative. The Pub was chosen because the landlord knew his clientele well, knew who could be trusted and who could not. Pub customers began to deposit IOU’s with the local and the publican kept them safe. When the community ran out of cheques as IOU’s they began to deposit handwritten IOU’s written on receipts or blank paper. Although the money supply contracted sharply, the economy continued to function satisfactorily supported by this add hoc alternative money supply. https://wiki.p2pfoundation.net/Irish_Banking_Strike_of_the_1970%27s

Many other methods that have been used e.g.

An economy can function satisfactorily without money issued by and controlled by a central authority. The development of autonomous digital currency can isolate Community Currency from the intervention of state actors attempting to shut down Community Currencies We are now in a position to explore the potential for economic models based on three principles.

  1. A physics-based definition of wealth with its associated physics-based unit of currency
  2. A Community based model for issuing currency
  3. The protections and functional enhancements of Money as Code.

This allows a number of models for Wi backed Community Currency

 Method 1. A Community Wealth backed Wi based currency.

Is it possible for a community to issue its own Wi based currency?

As an example let’s look at Birmingham, Alabama. From the following records …

https://www.census.gov/quickfacts/fact/table/birminghamcityalabama/IPE120219

https://www.birminghamal.gov/wp-content/uploads/2017/08/CAFR2006.pdf

https://fred.stlouisfed.org/series/RGMP13820

https://fred.stlouisfed.org/series/PCRGMP13820

… we find.

GDP                      $ 55,910,633,000

Average Salary    $ 22,993

Population          210,966

 If we divide the city GDP by the population, we get a GDP per head of $ 264,984, notably higher than the average salary. This difference is explained by the way the salary average is calculated. The majority of Birmingham residents earn substantially less than the per-head figure while a small minority, mostly businesses, corporations and wealthy individuals, own a major proportion of the cities GDP. This is not an exceptional situation and applies to most cities.

e.g Birmingham, England

GDP                    $114,300,000,000 PPP

Average Salary   $29,425

Population          1,086,000

Using the calculated figure, we can issue Wi based currency to a limit of $22,082 per head per month and remain at the cities current level of economic activity. This contrasts markedly with the per annum capita per head figure reported of $22,993.

But this is a GDP based measure of wealth based on money rather than real wealth and does not reflect our physical, real-wealth based model. To get a clearer view of a wealth based distribution we can use the cities assets as a basis for the calculation. It is difficult to get a full account of a cities assets, however banks in Alabama do record their assets, and so we can use their reports to establish a limited baseline on the city’s real wealth.

https://www.al.com/business/2013/03/nations_biggest_banks_claim_60.html

Extrapolating from the banking data given in the study linked above the city has an asset base of circa £85BN. This gives a per capita figure of $402,851 giving a limit of $33,570 per head per month.

There is nothing more to be gained from looking at the published data. The actual distribution of real wealth at a per capita basis is obscured by many layers of ownership and entities that are owned by a complex web of private and corporate shareholdings. However, it is clear from the data that Birmingham Alabama as a community is perfectly capable of providing asset backing for a community issued Wi based currency equivalent to several tens of billions of dollars.

Method 2. A Citizen Issued Wi backed Currency.

Community based currencies have a history stretching back centuries. All that is required is an issuing authority and the acceptance of the currency by the community.  The issuing authority’s role is to issue money and maintain a ledger of transactions.

However, just as banks are not required for a fully functional community backed currency, with the advent of distributed peer to peer ledgers and blockchain methods an issuing authority is no longer essential. Another way to express this is that the issuing authority has been automated, distributed and anonymised, but retains the same functionality.  It is therefore possible to consider a model where individual members of a community have the ability to issue currency directly.

How might this be achieved?

A first step is to ensure there are limits to currency issue that prevent individuals from issuing more currency than a community can convert to real wealth. As Wi based currency is based on a fixed quantity of real wealth, currency inflation is not possible. However, unless limited, it would be possible to issue more currency than a community can convert to real wealth. Should this occur, if the currency is based on Thinking Money principles, the excess currency zeros in value to protect the Wi = Wr relationship.  Alternatively, a Thinking Money Wi based currency would refuse to issue if in excess of the community budget set to preserve the Wi=Wr relationship ( see Thinking Money on how these methods might be achieved.)

Secondly, individual community members would own a share of the community budget, a personal budget, according to need and contribution to wealth creation. The need condition would be met by providing a budget amount for housing, food, education and healthcare to meet every individual’s need for a secure, healthy and dignified life from cradle to grave.

The contributions individuals make to wealth creation would be rewarded by additional budget. An individual will be free to gain a greater budget allocation by contributing more wealth creation than the minimum.

In our third step to prevent exploitation of the system, community members would need to meet certain conditions, just as they have to today.

  • They would need to be members of the community.
  • They would also have to provide minimum community approved level of input to the creation of real wealth undertaking work to an agreed level and standard.

Our fourth step is to provide for tasks that are essential for the community to function, but community members would be reluctant to do these tasks. To fill these functions, we may need to incentivise people by providing a higher budget allocation. This ‘Community bonus’ is made possible by allocating reserves within the community budget for such tasks.

Finally, the total community budget is always limited by the total available community wealth to maintain the Wi=Wr relationship and Thinking Money would impose the relevant issue limits.

Why might we want individuals, rather than an authority, to issue currency?

There are some fundamental reasons that this might be a preferred model

  • Individuals are their own best judges of what they want and need.
  • Central authorities are not responsible directly to, or responsive to, individuals.
  • Central authorities require active management which leaves them open to political manipulation.
  • Historically, central authorities have been responsible for macro-economic changes that are detrimental to the community, e.g. allowing speculative trading, introducing excessive austerity. They are not an automatic force for good whereas we can rely on individuals acting in their own best interest.
  • Today central authorities have the responsibility to regulate the economy by applying legal conditions and regulations. But regulatory frameworks can be built into digital currencies rendering the central authority’s regulatory role redundant.
  • Community agreed regulations that are policed by an autonomous and agent-based currency will provide no opportunity for manipulation e.g. should the community wish to ban financial speculation this can be built into the currency design directly

Community Economy

A community economy depends on the free flow of money in order to function. To flow freely the money needs to be allocated to the members of the community in a manner that the community approves of. How do we provide an equitable allocation of community wealth?

There are some straightforward methods that could be applied.

Per Capita Allocation

Total community wealth/ community population = wealth per head

This is strictly equitable, but unfair. Some members of the community may contribute more than others to building wealth. Some members may not be able to contribute because they are not productive, e.g. children or pensioners.

Time Based Allocation

 To accommodate the need to encourage and reflect degree of wealth creating activity we could organise the budget by a basic wealth allocation for living needs and then a discretionary component according to hours worked.

(Total community wealth – Basic income budget) / (total potential working population hrs available) x hours worked.

What about Community Needs?

A community is more than its individual members. A community needs a wide range of infrastructure, it needs education services, health and social care services. A community budget needs allocations for all these community needs from the community wealth budget. This requires a second functional allocation, and this will change our individual budget allocation to reflect this additional need.

(Total community wealth – Basic income budget – Community needs) / (Total potential working hrs available) x hours worked.

Community Future Planning

There is no need to allocate funds for any future investment needs for the Community. Just as a private community member can issue any amount of Investment class money, based on the limiting attributes discussed earlier, so can a community. The same constraints apply as before. Investment class money will only issue if the proposal passes feasibility conditions and any investment class money not transformed to real wealth in the given timeframe loses all value. Similarly, community issued investment class money can only be converted to consumer commodity money via strictly applied exchange criteria and punitive exchange rates.