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CREATINGWEALTH
GROWING LOCAL ECONOMIESWITH LOCAL CURRENCIES
Gwendolyn HallsinitLi & Bernard Lietaer
AdvancePraisefor
CREATINGWEALTH
Weveseenthelocalfoodmovementgrowandspread,andthelocalenergymovementtoo.Butthelocalmoneyideaisjustasimportant;heressomecommonsenseexplanationofwhyandhow!
BillMcKibben,authorDeepEconomy
CreatingWealthisthemostpracticalandcomprehensiveguideforcreatingcommunitywealth.Ithelpscitiesenvisionandmodelricheralternatives;healthier,moreequitable,sustainablefutures.Thistimelybookdeservesawideaudience.
HazelHenderson,authorEthicalMarkets:GrowingTheGreenEconomyandtheGreenTransitionScoreboard
Twomastershavecometogethertocreateaninstantclassic.FewcanholdacandletoGwendolynHallsmithwhenitcomestoasystemsapproachthatenablescommunitiestovisionadifferentfuture.BernardLietaerasanoriginatoroftheEuroiswithoutpeerwhenitcomestoboththetheoryandpracticeofexpandingthepossiblebycreatingnewcurrencies.Together,theyshareacommitmenttorenewingcitiesandcreatingasustainableworldforallendangeredspeciesincludingourown.Thisisabookthatprovidesframework,theory,examplesgaloreandtools.Getit.Useit.ForusatTimeBankingandforourlawschoolcourseinSystemChange,thisisrequiredreading.
EdgarS.Cahn,PhD,JD,AshokaFellow,DistinguishedProfessorofLaw,
originator,TimeBanking,Washington,DC
IdareconsiderthisisthesinglemostimportantreflectionineconomicssinceAdamSmith.Dr.SamirGhabbour,UniversityofCairo,Chairman,
EgyptianNationalCommitteefortheUNESCOManandBiosphereProgramme(MAB)
Clearlydescribestheever-greaterroleforcommunitycredits,asnationalcurrenciesevaporate.PaulGlover,founderofIthacaHOURS
andauthorofHometownMoney
NotsinceNaturalCapitalismhasabookofferednewwaysforwealthtobecreated;itsamustread
forcitycounselors,localpoliticians,businesspeopleandeveryonewhowantsavibranteconomywithoutdestroyingtheplanetintheprocess.
HarryBlutstein,Founder,TheLighthouseBureau,Northcote,Australia
CREATINGWEALTH
GROWINGLOCALECONOMIESWITHLOCALCURRENCIES
GwendolynHallsmith&BernardLietaer
PrefacebyDennisMeadowsForewordbyHunterLovins
Asthisbookgoestoprint,westandatthedawnofaneweraonEarth.WehopethatthisworkwillhelpinsomesmallwaytobuildthebridgetoabrighterfutureforallofEarthschildren.
Contents
PrefacebyDennisMeadowsForewordbyHunterLovins
AcknowledgmentsIntroduction:CitiesAndEconomies
PARTI:LOCALECONOMICS1.WhatIsWealth?
2.CrashandBurnEconomics3.CommunityCapitalism
4.ThePossibilityofSufficiencyandAbundance
PARTII:EXAMPLESOFCOMPLEMENTARYCURRENCIES5.BuildingEquity
6.GrowingIntelligence7.TheCreativeEconomy8.ExchangingEcologies
9.MindingtheCommunitysBusiness10.PuttingtheCareBackInHealthcare
11.HonoringOurElders,CaringForChildren12.EatingMoney
PARTIII:MAKINGITHAPPEN13.IntentionalCities
14.ATaleofThreeCities
Conclusion:TowardAMonetaryDemocracy
Appendix:TheCommunityCurrencyHow-ToManualEndnotesResources
AbouttheAuthors
Preface
byDennisMeadows
Acenturyfromnowsocialanalystswilllookbackwithangryastonishmentattheextentourgenerationacceptedtheeconomistsfantasyhappinessrequiresperpetualeconomicgrowth.Thismayhavebeentrueonce;definitelynowitisfalse.Indeed,theexponentiallyexpandinguseofenergyandresourcesbroughtbypursuitofgrowthnowerodesthefoundationsforthehappiness,eventhreatensthesurvival,ofourspecies.Thegrowingnumbersofpeoplewhorecognizethistendtoseektechnologicalchangesfactor
fourimprovementsinresourceuse,shiftstorenewableenergysources,sequestrationofcarbondioxide,geneticmodificationsofplantstrains,andothers.Thesearehelpful.However,noneoftheseeffortswillsucceedwithoutafundamentalchangeinourunderstandingofhumanwealth.Andthatwillrequireprofoundchangesinoursystemsofmoney.Thosewhogainprofitfromthecurrentglobalsystemobviouslywillvigorouslyresistanyefforts
tochangeit.Andtheywillprevailuntilindustrialsocietycollapses.Currentpolicieswillbedesperatelypursueduntiltheymustbechangedinresponsetocrisis.Butindividuals,families,communities,perhapsevenregions,canbeginnowproactivelytomakethenecessarychangesthatwillleadtotruehappinessandsustainablewealth.IknowofnootherpairbetterqualifiedthanBernardLietaerandGwendolynHallsmithtoofferthe
theoreticalunderstandingandthepracticalexperiencerequiredforusefulinsightsontheseissues.Thisbookisanextremelyimportantandveryuniqueresource.Itofferstheoreticalinsightsandpracticalactionsforthosewhowanttorespondnowtothemostimportantglobalissueofourtime.
DENNISMEADOWSisco-authorofLimitstoGrowthandBeyondtheLimits.
FOREWORD
NaturalCapitalismPlusbyHunterLovins
CreatingWealthisabookthattheworldhasneededforaverylongtime.Arguably,iftheeconomistsandaccountantswhohaveruntheworldsfinancialsystemoffacliff
hadreadthisbook,wedallhaveagreatdealmorewealthnow,andtheworldwouldnotbeintheparlousstraitsinwhichweallnowfindourselves.Itsauthorsknowwhereoftheyspeakandhavepracticedwealthcreationincommunitiesaroundthe
world.Bernard,GwenandIfirstworkedtogetheronaprojectcalledLASERLocalActionforSustainableEconomicRenewal.GwenandIcameupwiththenamefortheprojectonaverylong(andscary)drivetoBelgrade,YugoslaviafromaworkshopweddeliveredinNoviSad,Serbia.ThewarinKosovohadjustended,andSerbiawasrebuildingtheireconomyfromtheruins.AmericasDevelopmentFoundation(ADF)hadinvitedustoNoviSadbecausethelocalcommunityresourcepeopleneededtrainingonhowtofosterlocaleconomicdevelopmentinhardtimes.GwenbroughttheexpertisesheddevelopedinsuchchallengingeconomiesasKazakhstanandthetownshipsofSouthAfrica.IbroughteconomicdevelopmentlessonsfromAfghanistan,JamaicaandthehollowsofAppalachia.Werealizedduringtheworkshopthatpeoplearoundtheworldneededtheideasweweregivingthe
Serbians.Whenpeopleinacommunityworktogetheroneconomicdevelopment,theyneedtounderstandandproductivelyuseseveralformsofcapital.NaturalcapitaltheenvironmentalservicesprovidedbyMotherEarthiscritical,butsoaretheformsofhumanandsocialcapital,historicandculturalcapital,builtcapital.Andthemeansweusetomakeexchangesarealsoveryimportant.ADFfundedthedevelopmentofaninternationalworkbookandresourceguidesothatpeopletryingtojump-starttheireconomywouldknowhowtobegin,andLASERwasborn.NaturalCapitalismoffersthewayforbusinessestoprofitbyworkingwithnatureinsteadof
againstit.CreatingWealthlikewiseprovidesthebasisforcommunitiestogrowtheirlocaleconomiesbyinvestinginalltheformsofcapitalthatleadtosustainablewealth.Communitycapitalismbuildscommunityassetssothatenterprises,organizationsandindividualscanprosper.NaturalCapitalismisthebusinessmodelofthe21stcenturyeconomy,andCreatingWealthisthecommunityeconomicdevelopmentmodelthatbusinessandcitizensneedtobesuccessful.Thetwogohandinhandbusinessescantsucceedwithoutcommunityinvestmentininfrastructure,education,healthandtheruleoflaw.Communitiescantsucceedwithouttheentrepreneurialinitiativesthatprovideuswiththeproductsandservicesweneed.Usingthestrategiesdescribedhere,businessescanfurtherexpandtheirprofitabilityasthey
implementenvironmentalstewardshipandemployeewell-beingevenintoughtimesbyfindingalternativemeansofexchange.TheexampleoftheWIRsysteminSwitzerlandshowsusthatcomplementarycurrenciesmaketheeconomymoreresilientandsignificantlyreducethebuilt-ingrowthimperativethatdrivesenvironmentaldestructionandeconomicdislocation.Growthandprofitarekeyelementsoftheeconomy.Withthisbook,BernardandGwen
demonstratethatfarfrombeinganeutralmeansofexchange,thefinancialsystemservesasanalmost
invisibledriverofunnecessaryandunhealthygrowththeideologyofthecancercell.Byexpandingthediversityofexchanges,wecanachievethegrowthweneedgrowthinintelligence,health,naturalbeauty,thearts,spiritualdevelopment,recreationandpeaceandeliminatetheunproductivewasteanddestructionthatnowthreatenslifeonearth.Welcometothefuture.Youregoingtolikelivingthere.
L.HUNTERLOVINSisPresidentoftheNaturalCapitalismInc.(www.natcapinc.com).Ms.Lovinshaslecturedextensivelyinover15countries,includingattheWorldEconomicForumatDavos,TheInternationalSymposiumonSustainableDevelopmentinShanghai,theGlobalEconomicForum,andtheWorldSummitonSustainableDevelopment.Shehasconsultedforindustriesandgovernmentsworldwide,andhasco-authoredninebooks,includingthe1999bookNaturalCapitalism.
Acknowledgments
Everybookcomesintobeingwithmanyhandsshapingitsbirth.Beyondthecreativework,therearealsoallthetreesthatprovidethepaper,themineralsthatprovidetheink,andtheenergyneededtogiveitlifeandshape.Wearegratefultoallthebrightmindsthatinfluencedourwork,andallofEarthsabundanceformakingitpossible.GwendolynisparticularlygratefultoBernard,whohastaughthermuchabouttheworldofmoney,
andwhosepatiencewithherlearningprocesshasshapedherthinkingandhelpedherfindnewwaystoinitiatenewcurrencyprojects.ThreenewcurrenciesarecurrentlybeingcreatedandusedinVermont,wheresheliveswithherfamily.GeorgeHallsmith,Gwendolynshusband,isatirelesseditorandprovidessomuchsupportforallherwork,itishardtofindwordstoexpresshowmuchanintegralpartofthisworkheis.Herson,DylanHallsmith,isnowstudyingInternationalPoliticsatGeorgeMasonUniversity,buthissupportandtoleranceofamotherwholeavesforweeksatatimetogetthebookwrittenisdeeplyappreciated.Perhapsmorethananyone,Gwendolynsparentsandfamilyarealsoworthmentioning.Wesley
andJoanHallsetamazingexamplesofprincipled,intelligentpeoplewhoworkedhardforwhattheybelieve.Joandiedin2007,butWesleycontinuestobeveryinterestedinandsupportiveofGwendolynswork(evenifhedoesrefertoallthesecomplementarycurrenciesasfunnymoney).Hersisters,GaylynnandGretchen,arebothartistsandcreatebeautifulnewideasandrealitieseveryday.Theyareaninspiration.ThestaffatNewSocietyPublishershavebeengreattoworkwithChrisandJudithhavebeen
faithfultothisratherunusualbookproject,whichstartedoutwiththepremisethatitwouldtakeoverthreeyearstowrite,simplybecausewewantedtobringsomeoftheprojectsweweredevelopingtofruition.Theykeptthefaiththatitwouldgetwritten,anditdid.Inthemeantime,severalnewcurrencieshavebeendevelopedinboththeUnitedStatesandEuropeasaresultofourcollaboration,sothisisabookthathasshownrealresultsevenbeforeitwenttoprint.BetsyNuse,theeditor,hasworkedhardtogetalltheeditingdonequicklyandpainlessly.Her
assistancewithallthevagariesofstyleandclarityhavebeenenormouslyhelpful.ThemarketingteamatNewSocietyarealsoamazingIwasneversosurprisedtofindthatpeoplecouldpurchaseadvancecopiesonAmazon.combeforewehadevenfinishedtheediting.OthereditingassistancefromGinaOttobonicameatacriticaltimewhenmyschedulewasvery
demandingandIneededhelppullingthelastpiecestogether.Finally,ImgratefultotheBalatonGroupandDennisMeadows,whosawtheimportanceofwhatweweretalkingaboutandscheduledthe2010meetinginIceland.Thatgaveusareasontotravelthereandmeetwithalltheactivistswhoweretryingtoputthatcountrybackonitsfeet.Theyalsowereaninspiration,andwewishthemthebestasthecountrystruggleswithrealeconomicchallenges.
INTRODUCTION
CitiesandEconomies
Creatingwealththeideacatchespeoplebysurprise.Oursystemtendstoinstilltheideathatourcollectivewealthaddsuptoafinitebottomlineoffinancialassets,andthequestionismainlyoneofdistribution,notofcreation.Thecallforlowertaxes,theresistancetohigherminimumwages,theideathatwealthheldatthehighestlevelstricklesdownallcontainthishiddenassumptionthereisonlysomuchwealthoutthere,andweallneedtostruggletogetourpieceofafinite,limitedpie.Yethistoryandeverydayrealitytelladifferentstory:weliveinaworldofexpandingpies,andwhilesomethingsontheplanetarefinite(thelandareaavailable,thefertilesoils,thefreshwaterandfossilfuels,tonameafew)thereisnolimittohumaningenuity,creativityandimagination.Ouringenuityandinnovationhaveexpandedthewealthofthehumanspeciesbyordersof
magnitude,especiallyoverthelastcentury.Wehavecollectivelybuiltaremarkablewealthcreationmachine,andyetitsconstructionovertimehasmademostofuseventhepeoplewhoturnitswheelsandkeepitinworkingorderblindtohowitworks.Thisnewmarvelhasresultedinamiddle-classlifestyleinthedevelopedpartsoftheworldthatmakessomeoftheroyaltyandaristocracyofyesterdaylookhardscrabblebycomparison.Iftimetravelwerepossibleandwemanagedtogobackbeforetheindustrialeratotalkabout
computers,iPods,theInternet,cellphones,automobilesandairplanes,thepeopletherewouldthinkwewerewizardsandwitches,andtheywouldprobablyburnusatthestake.Centralheatandrunningwaterwerenotcommonuntilthemid1900s.ToursoftheancientmanorialhousesandcastlesofEuroperevealthattheirrelativelevelsofcreaturecomfortswereonparwiththemodernmiddleclassinEurope,Asia,NorthandSouthAmerica.Wecreatewealth.Wedoitasasociety,notasindividuals,despitewhatthedominantmythof
ruggedindividualisminNorthAmericawouldhaveyoubelieve.Farmershaveahardtimebringingtheirproducetomarketwithoutdecentroads.Merchantsdependonareliablecurrencytoselltheirgoodsandservices.Evensomeoftheiconiccapitalistsoftheearly20thcenturytheRockefellers,CarnegiesandMellonsdependedontaxpayer-fundedinfrastructuretoamassthevastfortunesthatstillformthefoundationofcompanieslikeExxon/Mobil,USSteelandAlcan.Eventoday,BillGateswouldbejustanotherhackerwithoutthelawsourgovernmentshavepassedprotectingintellectualproperty.
WealthsFoundationOneoftheprimarymechanismsforthecreationofwealthisourbankingandmonetarysystem.Weallputourmoneyintothebankstheblackboxoftheeconomyandweassumethemoneywillbetherewhenwegotowithdrawit.Atleastpartofourmindprobablybelievesthatthemoneyisthere.Wereceivestatementseverymonththatsayitsthere,andweearninterestonthedeposits.Yetlikethemythoftheself-mademillionaire,thepresenceofourmoneyinthebankisanillusion.
Banksusethedepositstheyhavetoloanmoneyouttoindividualsandbusinessesthisishowtheyearntheinteresttheypayonourdeposits,afterall.Thefractionalreservesystem,thelegalstructure
governinghowbanksoperate,requiresthatbanksonlymaintainintheorderof10%ofthemoneywehaveplacedondepositasareserve.Inotherwords,foreverydollarwedeposit,thebankcancreateanadditional$9inloanstobusinesses.Theyhavethepowertocreatefinancialwealthbyissuingnewmoney.So,howisrealwealthcreated?Itisnottheslipsofpaperwecallcash.Historyhasshowntimeand
againthatpaper(andnowelectronic)representationsofwealthareonlyasgoodasourcollectiveconfidenceintheirvalue.Inthisbook,wewillshowhowtherootsofrealwealthlieinoursharedvalues,understandingandinstitutionalstructures,butalsointhedifferentformsofcapitalwegenerateandregenerateasacommunity.Thewordcapitalcarriesanimplicitmeaningthatspeakstoaregenerativecapacityitis,aswewillexplaininChapter3,anassetthatcanproduceotherassets.Ofcourse,thefoundationofallourwealthistheecologicalintegrityoftheplanetwecallhome...itisthesourceofalltheregenerativecapacitiesweneedthemostland,air,water,food,materialsandenergy.Thesingularformofmoneywehavecreatedthroughourlawsandinstitutionalarrangementshas
beenacornerstoneoffinancialwealththroughthe19thand20thcenturies.Butthedemandsofthe21stcenturyandtheimperativesoftheglobalchallengesofclimatechange,resourcescarcityandunprecedentedgrowthinhumanpopulationscallustoamorecomprehensiveunderstandingofwealthandmoredemocraticandresilientwealthcreationprocessesandmechanisms.Mostofthesealternativescanbeinitiatedatthelocallevelbycitiesandotherorganizations.Cityleaderscanplayaroleintheeducation,fundingandstructuresrequiredtogiveusallavoiceinthecreationofsustainablewealth.
OverviewoftheBookTheoriginaltitleofthisbookwasIntentionalCities,IntentionalEconomiestoemphasizethelinkbetweentheactionscitiestakeandthehealthoftheirlocaleconomies.Citiesdontoftenrecognizethislinkorrealizethattheyhavethecapacitytoimprovetheireconomies.Theycandothisbybringingthecommunitytogetheraroundasharedvision,settinggoalsandidentifyingstrategiestomaketheirlocaleconomymoreself-reliant,morevibrant.Theycanhelptheircitizensachieverealandlastingwealth.Inthisway,citiesbecomemoreintentional,meaningthattheyaremovinginadirectiontheychooseratherthanbeingbuffetedbythewindsofchange.Whentheyfocusonthewaystheycreatewealth,theyalsochoosethefocus,theintention,theywanttogivetotheireconomies.PartIofthebookdescribestheprocessbywhichwealthiscreatedandexplainstheroleofthe
existingfinancialsysteminthisprocess.PartIIdescribesavarietyofdifferentformsoflocalcurrencies,circulatinginparallelwiththeofficialcurrency,thataddressspecificproblemsthatcitiesandcommunitiesface.PartIIIisdesignedasacasestudyandhowtomanualitdescribeshowseveralcitieshavemanagedtoengagetheirpopulationsinlong-termsustainabilityplanningandhowtheseeffortshaveeithersupportedlocalcurrenciesorhelpedcreatethem,aswellassomelessonslearnedaboutwhenitmightnotbepossibletosucceed.Wehopeyoufindthebookinspiringandthatitgivesyouenoughinformationtomoveforward.
Ourcompendiumofcommunitylevelcurrenciesisnotexhaustivetherearemanyhundredswehavenotdescribed.Butthestructuresandmechanismsweincludeareallreplicableinotherdomainstheyareonlylimitedbyyourimaginationandthecourageyouwanttotakeasaleader.Introducingnewideasisnevereasy,andwewillseethatintroducingnewideasaboutmoneyhasitsownuniquechallenges.Moreonthisinthebooksconclusionuntilthen,enjoy!
GwendolynandBernardReykjavik,Iceland
PARTI
LOCALECONOMICS
CHAPTER1
WhatisWealth?
Wealthconsistsnotinhavinggreatpossessions,butinhavingfewwants.
EPICTETUS
Theappealofbigprizelotteryticketscomesinpartfromthefantasytheticketsallow.Weimagineallthethingswecoulddo,charities,projects,realchangethatwecouldhelpmakehappen.Thereisnodenyingtheappealofvastsumsofmoney.Inourdreams,moneysolvesallourproblems,givesusresourcestomeetneedsweneverknewwehad.Butisitwealth?Youmighthavepickedupthisbookbecauseyouthoughtitwouldtellyousomethingabouthow
youcanincreaseyourownpersonalwealthanditwill.ButCreatingWealthisnotanotherget-rich-quickschemethisbookwillhelpyoufindandcreatewealthinplacesyoumightnotexpect.Italsomightshowyouhowwealthyyoualreadyare.
RedefiningWealthWealth.Itssomethingweallwant.Wealthyisrich,afterallbutrichinwhat?Inpossessions,money,income?Thisdependsonhowyoudefinetheword.Itsoriginalmeaning,fromtheOldEnglishweal(asincommonweal),wassimplyprosperityorwell-being.1Whatanotion!Howfarfromthemeaningmanyofushavecometoassociatewiththeword.Wealthismorethantheaccumulationofmoneyandresources,anditcanbegeneratedinwaysotherthanthroughconventionalfinancialmeans.Inordertotrulycapturethewealthofoursocieties,ourculturesandourenvironments,wehavetopayheedtothatoldernotionofwealthaswell-being.Wemightthinkthatwinningthelotterywillmakeuswealthyandthatwealthwillmakeushappy,butwealsoknowthatitdoesntalwaysworkthatway.Whileitstruethatpovertydoesmakeforunhappiness,lotsofmoneydoesntnecessarilybuyhappiness.Wemayhaveseencaseswheresomeonewhohashadverylowincomewinsthelotteryorobtainsa
bigcourtsettlementandyetthemoneyoftendoesntmanagetoimprovetheirlivesverymuch.Inmanysuchcases,thingsgetworseasthestressofpossessingmoneyandallitsnewdemandstaketheirtollhowtokeepit,suddenlymeetingrelativesandfriendsyouneverknewyouhad,conartistsandanarmyofinvestmentadvisors.Howdoweobtainwell-being,ifacquiringmoremoneydoesntdoit?Whenarewehappy?We
knowtheanswertothisquestionwehaveasenseofwell-beingwhenallofourneedsaremet.Notjustthebasicneedsoffood,clothingandshelter.Butalsotheneedtobeacreativeparticipantinourcommunity,tohaveavoiceinourowndestiny,topursueourownspiritualdevelopmentunhinderedbysocialsanction,tohavetimetorest,playandjustbewithourfamilies.Ourneedsaremulti-
faceted,andyetwiththedominantemphasisontheconsumereconomy,themajoreconomicactorsbusinessesandcorporationsarealwaysadvertisingtoconvinceustobuyourwaytofulfillment.
Wedontneedmoney.Weneedthethingsthatmoneycanbuy.
Overweight?Buyadietplanandanexercisemachine.Unhappy?Therearelotsofself-
improvementprogramsyoucanbuy.Spirituallylost?Buyabook,avideotape,joinasuccessfulmegachurchortakeavacationataresort.Ourneedforself-expressionisincreasinglymetthroughtheclotheswewear,thecarswedrive.Artsandmusicarelefttotheprofessionalswhohavetheirowngoodsandservicesavailableforsale.Andyetafterallthiswefindthattheconsumersolutionsdontworkthetemporarygratificationwegetfromnewproductsonlydeepenstheunderlyingneed.Butifwecantbuyourwaytohappiness,therehastobeanotherway.Weneedtoredefinewealthasthefirststepinchartingacoursetowardssustainablewealth.Sowhat
ismeantbythat?Rememberthenotionofcommonweal(publicwell-being)?Developingrealwealthimpliesmakingchoicesthatenableallmembersofthecommunitytoattainwell-being.Sustainablewealthmeansprojectingthatnotionintothefuture,muchastheWorldCommissiononEnvironmentandDevelopmentdidwhenitdefinedsustainabledevelopmentasmeetingtheneedsofthepresentwithoutcompromisingtheabilityoffuturegenerationstomeettheirownneeds.2Ifwehadsustainablewealth,wewouldhaveacommunitywithwell-beingacommunitywhoseneedsweremetwithoutborrowingitswealthfromfuturegenerations.
ASystemsPerspectiveWhatareourneeds,andhowaretheysatisfied?Itispossibletodoanempiricalevaluationsimplybylookingaroundatthedifferentinstitutions,programs,goodsandservicesthatareofferedinsociety.Notthatallofthemmeetrealneedssomeareobviouslytherebecauseawantoranartificialneedhasbeencreated,buttakinganinventoryoftheassetswehaveassetsbeingdefinedasneedsatisfiersgivesusagoodstartingpoint.
HumanandSocialDevelopmentneeds:healthandwell-being
Empowermentneeds:equity,conflictresolution,self-determination
Economicneeds:income,meaningfulwork
Materialneeds:housing,communicationsystems,transportation,energy,wastemanagement,food
Environmentalneeds:air,water,biodiversity,pollination,stableclimate
FIGURE1.1.HumanNeedsandCommunitySystems
Beforewecanbeacontributingpartofanycommunity,wehaveaneedforhumandevelopment.Weneededucation,healthcare,self-esteem,skills,recreationalopportunities.Thereareassetsinourcommunitiesthatmeettheseneedsschools,universities,childcareprograms,wellnessandmedicalservices,hospitals,recreationprogramsandfacilities.Whenthesystemsareinplacetohelpusallbehealthy,productiveandhappypeople,wecanalsosaythatourcommunityhassufficienthumancapital.Humancapitalcanbedefinedasthecapacitycommunitieshavetofurtherourdevelopmentashumanbeings,alongwiththeaggregateskills,knowledgeandabilitiespeopleinthecommunityhaveandcancontinuetomaintain.Wealsohavesocialneedstheneedsthatcanonlybefulfilledbybeingpartofacommunity.We
needtohaveasenseofconnectedness,asenseofcommunity.Weneedtofeelsafe,toexpressourselvesandenjoythebeautyofoursurroundings.Weneedasenseofmeaningandpurpose,andmeaningisinvariablygeneratedonlythroughrelationships(relationshipstoourchildren,ourfamily,ourcountry,ortoourideaofthedivine).Thesehumanandsocialneedshavegivenriseoverthecenturiestomanyofthereligionsandspiritualtraditions.Weneedsupportiverelationships,networksoffriendsandasensethatwerecontributingtothecommunity.Whentheseneedsaresatisfied,wecansaythatwehavemanysocialassets.Whenwehavesystemsinplacethatinsurewecancontinuetomeetoursocialandculturalneedsasacommunity,wecansaythatwehavesufficientsocialandculturalcapital.Tomakedecisions,resolveconflictandtoinsurethatweallhavealevelofequity,weallhavea
needforempowerment.Theinstitutionswehaveestablishedtogovernourselves,theprogramsinthecommunitythathelppeopleresolvedisputesandthelawsandregulationswehavetoprovideajustandpeacefulsocietyaretheassetswehaveinthisarea.Theinstitutionalcapitalinourcommunityisthelegalframeworkandthetraditions,structuresandotherfoundationsthatenableoursocietiestocontinuetorecreatetheinstitutionstheyneed.Whenpeoplethinkofneeds,thefirstthingsthatoftencometomindarethebasicneedsoffood,
clothingandshelter.Thesematerialneedsareobviouslyimportant,andthebuildings,manufacturedproducts,technologyandinfrastructurewedevelopinourcommunitiesaretheassetswehavetosatisfytheseneeds.Whenwehavegoodaffordablehousing,safeandhealthydrinkingwater,effectivesystemsforrecyclingandreusingwaste,renewableenergysystems,healthylocalfoodproduction,communicationsystemsthatlinkusupwitheachotherandtherestoftheworld,wehavethebuiltandtechnologicalcapitalweneedtoprosper.Ourmaterialneedsgobeyondwhatwemakeourselves,obviously,andsowecanalsospeakofthe
environmentalneedswehave.Weneedcleanairtobreathe,diverseecosystemsthatsupportawidevarietyofplantandanimallife,astableclimate,assimilativecapacityforourwasteproducts,watertosupportotherformsoflifeaswellasforustowash,drinkandenjoy.Weneedhealthysoils,pollinators;allofthesethingsaretheenvironmentalassetsthatserveasourbasiclife-supportsystem.Whentheecosystemishealthyandproductive,thecoreregenerativecapacityoftheecosystemisthenaturalcapitalthatweneedforsustainablecommunities.Wevedescribedseveralkindsofassetsandcapitalthatsatisfytheneedswehave,andstilltherehas
beennomentionyetofthefinancialassetsandcapitalwetypicallyassociatewiththewordsmoneyandinvestment.Thatspartlybecausemoneyisreallymoreofameanstoanendthananeedinitself.Wedontreallyneedmoney.Weneedthethingsthatmoneycanbuy.Wedontneedfinancialcapitalforitsownsakeifwecanobtainthethingsitbuys.Theexchangecapacityofmoneyisnow,andhopefullyinthefuture,oneofthekeyreasonsweneedit.Moneyhelpsusexchangethingsthatareofvaluetouslikeourtimeandlaborforthingsthatareofvaluetosomeoneelse.Money,however,isnottheonlymediumofexchange.Afterall,peoplehavebeenexchanging
goodsandserviceswitheachotherformillenniawithoutusingmoney.Youhelpyourneighborput
onanewroof.Hefillsyourcavitiesandgivesyouanewcrown.Youdriveyourfriendskidstoschool.Shebaby-sitsyourkids.Inboththeseexamples,nomoneychangeshands,butgoodsandservicesdo.Thevalueofthistypeofexchangeisanotherassetandaformofcapitalpotentialexchangecapital.Ourcommunitysystemshavedevelopedovercenturies,drivenbyourneedsandthenecessityof
satisfyingthem.Whenwespeakofawealthycommunity,wemeanonethathasthecapacitytomeetawidevarietyofhumanneeds,onethathadinvestedinalltheseformsofcapital:social,cultural,human,institutional,built,technological,natural,financialandpotentialexchange.Creatingandmaintainingthesediverseformsofcapitalovertimeisthesustainabilitychallenge.
FIGURE1.2.HowNeeds,AssetsandCapitalRelatetoEachOtherMorethanhalfofhumanitynowlivesincities,andthistrendisexpectedtocontinueforatleast
anotherdecade.Soourcommunitywealthisoftenthewealththatcanbefoundinourcities.Citiesaremonumentstocollectivehumanendeavoroverthousandsofyears.Theyformthephysical,spatialandeventhecognitivestructuresthatmeetsomanyofourneeds.Realizingthis,thebulkoftheconcreteexamplesofwealthcreationwediscusswillfocusoncities.
TheWealthofCitiesTounderstandalternativepathstoindividual,communityandeconomicwell-beinginanurbancontext,weneedtolookathowcitieswork,andweneedcityleadershiptoaddressthecriticalissuesofasustainableeconomy.InCitiesandtheWealthofNations,JaneJacobsidentifiedurbanregionsasthemostimportantdriverofeconomicgrowththroughouthistory.Shedocumentedbothhowcitiesandregionshadtheeconomicclouttoimportgoodsfromotherareasandalsohowtheydevisednewwaystoreplacetheseimportswithlocallyproducedgoodsandservices.Thisimportreplacementwasthekeysourceofurbaneconomicexpansion.3SincetheEarthSummitinRiodeJaneiroin1992,citiesallovertheworldhaveplayedaleading
roleintheeffortstostabilizeglobalclimateandaddressenvironmentaldestruction.Therehavebeenseveraldifferentmovementssustainablecities,healthycities,ecocities,resilientcitiesandmostrecentlytransitiontownsandseveraldifferentneworganizationsorganizedtosupportcitiesefforts.ICLEIwasoneofthefirst;itwasoriginallytheInternationalCouncilforLocalEnvironmentalInitiatives,buthasbeenrenamedICLEI:LocalGovernmentsforSustainability.4Thescopeanddepthofthismovementisconfirmedbytheproliferationofotherorganizationsthat
haveemergedoverthepasttwodecades.Thisincludes,forinstance,theInstituteforSustainableCommunities,theWorldHealthOrganizationsHealthyCitiesprogram,HealthyCitiesInternational,EcocitiesInternational,theCenterforResilientCities,theCitiesPLUSNetwork,GlobalCommunityInitiativesandthelargestoneofallUnitedCitiesandLocalGovernments(UCLG)anew
internationalcongressofcitiesestablishedin2004whenseveralglobalcoalitionsofcities(TheInternationalUnionofLocalAuthorities,MetropolisandtheWorldFederationofUnitedCities)mergedintooneorganization.5UCLGsMillenniumCitiesCampaignembracestheUnitedNationsMillenniumDevelopmentGoals,whichputasustainableenvironmentandasustainablelocaleconomyonthesamepage.Citiesareincreasinglyawarethatthesolutionstoclimatechangeandenvironmentalproblemsareembeddedintheeconomieswehavecreated.Thesecitiesarepositionedtobekeycatalystsforlarge-scalechange.Citiestakeactiononseverallevels,rangingfrombroadpolicychangeslikerezoninganareaof
thecityfromcommercialtoindustrialtoevensmallactionslikebuyingpapertowelsforpublicrestrooms.Thepoliciestakedifferentformslong-termplanningdocumentswithavisionstatement,goals,targetsandstrategies,operatingbudgetsandcapitalplans,ordinancesandregulations,annualgoalsandpoliciestoguideoperationssuchaspersonnelandpurchasingpolicies.Thelong-termplansguideordinancechangesandbudgets,andinturn,thebudgets,capitalplansandannualgoalsshapetheimplementationactivitiesthatoccureveryyear.Otherpoliciesprovidedirectionfordaytodayoperations.So,forexample,anewcitycounciloriselectedwhopromisedduringhercampaigntoreducethe
carbonemissionsandfossilfueluseofthecity.Duringherfirstdayinoffice,sheispresentedwithavehiclepurchasebythepolicedepartmentofagas-guzzlingcarforthenewfleet.Ifshetriestostopthepurchase,shemightimmediatelybefrustratedbyresistancefromthepolicechiefandcitymanagerdescribingthefactthatthevehiclewasinthecapitalplanandpartofalong-termreplacementpolicy,possiblywithcontractswithlocalcardealersthatcantbebroken.Thenewcitycouncilor sobjectionswillprobablybeoverruledbythecouncilorswhohavebeenservingformanyyears,andthevehiclepurchasewillgoforward.Thenewestcouncilmembermightprotest...butcitizensshowedinthiselectiontheywantedtoreducecarbonemissionsandfossilfueluse.Patientsmilesandknowinglooksexchangedbetweentheveteransonstaffandthecouncilwilltellherthatidealismwillbetoleratedbutthatchangeatthisleveldailyimplementationisnotthateasy.Campaignpromises,regularlocalelections,referendaandbondvotesformasteadypulseofnew
informationandcitizeninputintocitygovernment,butsignificantchangesindirectiontakemoreofaconcertedeffort.Freshlymintedcitycouncilorsareoftenblindtotheprocessesthatguidelarge-scaleimplementation,anditsalltooeasytogetpulledintothebusinessasusualpatternofbehavior,especiallywhenyouconsiderallthesystemicforcesthatworktokeepthingsthewaytheyare.Citiesarecomplexenginespoweredbyunioncontracts,standingpurchasecontractswithsuppliers,
experiencedprofessionalstaffandmaterialandenergyflowswhichhavetheirownvisibleandinvisibleinfrastructure.Majoralterationstotheinfrastructuretakecarefulplanningyouwouldnotcutsewerpipestostoptheflowofwastetothetreatmentplantifyouwantedtoreduceacityswasteimpact,regardlessofhoweasyitmightseematthetime.Inthatcase,itsobviousthattheunintendedconsequencesofactionwouldfaroutweightheshort-termresults.Itslessobvious,butnolesstrue,inotherareas(even,forexample,withagas-guzzlingvehiclethatthepolicedepartmentwants).Along-termvisionguidedbypeoplesvalueswhattheycaredeeplyaboutisaprerequisite
formobilizingcollectiveaction.Onceacityhasalong-termvision,however,thingsdonotmagicallychange.Itstillwillbehardtoredirectthepurchaseofavehicleforthefleetunlessthelong-termvisionistranslatedintotheshort-termpoliciesandprogramswhichguideimplementation.Alargervisionforawalkablecitywithfriendlyneighborhoodsandlesssuburbansprawlstillrequireschangesinthelanduseordinancesbeforetherewillbeanymeasurablechangeindensity.Alargervisionforcleanairandreducedclimateimpactswillhavetobetranslatedintoanumberofpoliciesrangingfromapurchasingpolicythatrequiresalternativestoenergy-intensiveitemstocapitalplanningforrenewableenergyproduction.
Today,veryfewcitieshavetheintegratedlong-termplansandpoliciesnecessarytopursuethetypesofimplementationactivitiesthatwillmoveacommunityinamoresustainabledirection.Oftenthepolicycontextisfragmented,short-termandinternallycontradictory.Thecitymighthaveamasterplanoracomprehensiveplanthataddressesinfrastructure,landuseandeconomicdevelopmentoverthenextthreetofiveyears.Ifcitystaffand/orthecitycouncilareorientedtowardintegration,thecapitalplanmightactuallyreflectthegoalsofthemasterplan,butalltoooftenacityscapitalplanisalonglistofprojectsthatreflectdepartmentalorcouncilimperativesinisolationfromeachother,withoutasenseofhowtheyrelatetooverarchinglong-termgoalssuchasclimatestabilizationandpovertyeradication.Citiesalmostneveraddresssomeoftheimportantunderlyingdriversforthepolicycontextasenseofsharedvalues,socialandhumandevelopmentissuesandgovernancestructures.Theactionneededtoachievelong-termsustainabilitygoesbeyondactionstakenbycity
government,andcitygovernmentactionscanbeineffectiveiftherearentconcurrentandcommensuratechangestakingplaceinthelargercommunity.Amulti-stakeholderprocessgivesindividuals,organizationsandothermajorinstitutionsinthecityaroleandavoiceinthepreparationoftheplansothatlatertheywillalsoworkwithintheirowncontexttofindwaystoimplementit.Inthisway,thecityandallitsindependentmovingpartswillstarttoworktowardthesameends.Hereagain,however,thissynchronizedactiondoesnthappenonitsownittakesdirectionandorganizationfromthecityandthestakeholders.Integrationandlong-termtimehorizonsdefinesustainabilityplanning,andaremoreimportantfor
achievingacitysgoalsthanattentiontosingleissuessuchasclimatechange,healthorlocaleconomicdevelopment.Whiletheseissuesareimportant,actiontoaddressthemcannotbesuccessfulifitoccursinasilo.Anintegratedapproachmakesconnectionsacrossissueareas,acrosssocio-economicboundariesandacrosscitydepartments.Italsohelpsinsurethatthepursuitofoneobjectivewontbeattheexpenseofanother.
Environmentalpoliciesthatmarginalizeorimpoverishagroupofpeopleorareainthecity(orinanotherpartoftheworld)wontsucceedinthelongrun.Housingplansthatignoretheirimpactonimportantopenspace,wetlandsandagriculturallandwillhurtthecityoverthelongterm.Economicdevelopmentpracticesthatrelyonanunsustainableexploitationofnaturalresourcesorhumanpotentialwillalsoultimatelyhavetheoppositeeffecttheywillfurtherimpoverishthecommunityratherthancreatingrealwealth.Ifyouasksomelocalmayorsorcitycouncilors,however,whatinfluencetheyhaveonthe
economy,theyarelikelytogiveyouablanklook.Somemayhavegoneasfarastobuildindustrialinfrastructureinthehopesofattractingmanufacturingfirms,withtheir19thand20thcenturyhighlypaidjobs,ignoringglobaltrendsthathavemovedmostmanufacturingtootherpartsoftheworld.OthersplacetheirhopeinthemarketingeffortsofthelocalChamberofCommercethatdiligentlyattendstradeshowsandplacesadstomarketthelocalityasbusiness-friendly.Someofthemoreprogressivecitygovernmentshaveinstitutedrevolvingloanfundstoserveasa
lenderoflastresorttolocalbusinesseswithcashfloworgrowthissues.Theybuildincubatorspace,offerbusinessplanningservices,maybeevenidentifysourcesofventurecapitalforstart-ups.Manygovernmentsareawareoftheimportanceoflocallyownedbusinesses,butarestillfrightenedawayfromtakingastandwhenlargefirmsthreatentocomeinandoutcompetesmallerlocalventures.Mostlocalgovernmentthinkthatalljobsareequalandthatanyandallnewtaxbasesaresacrosanct.Theeconomyisthemaster,andlocalcommunitiesaretheservantswhobendoverbackwardstoaccommodateinvestors,eveninthefaceofquestionablebusinesspractices.Redefiningwealthandrefocusinglocalinitiativesonmeetinghumanneedscanhelplocalleaders
seetheeconomyasbeingattheserviceoftheircommunity,nottheotherwayaround.Thereare
manyformsofcapitalthatdemandinvestmentforalocalcommunitytothrive,notjustfinancialcapital.Socialcapital,humancapital,naturalcapital,institutionalcapital,technologicalcapital,potentialexchangecapital,builtcapitalandculturalcapitalallneedtobeunderstoodandstrengthenedandthismultidimensionaleffortisabsolutelythedomainoflocalcommunities.
TheMyth(andPotential)ofIndividualWealthSofar,wevetouchedonthreethingsthatdefinewhatwemeanbywealth:
1.Theobviousideaofpossessingalotofmoney2.Thepresenceofwell-beingthroughthesatisfactionofabroadspectrumofhumanneeds3.Thecommunitysystemswehavedevelopedtoprovideformanyofourneeds
Truewealthmightbedefinedasasumofallthreeofthese.Yetitispossibletofeelwealthywithonlythelattertwo,anditispossibletobeimpoverishedifallyouhaveisalotofmoney,butnowaytomeetanyofyourcriticalneedsandnocommunitysystemstosupportit.TheNorthAmericanmythologyofruggedindividualismtendstomakeusblindtothefactthatreal
wealthcanonlyexistincommunity.Self-mademillionairessometimeshappilyforgetthefactthatthecontextfortheirenrichmentcomesoutofpublicinfrastructure,institutionalarrangementsandparticipationbymanyotherpeopleintheirenterprise.TheyarethefirstonestocallforlowertaxestheUSChamberofCommercespendsmoreonlobbyingthananyotherlobbyinggroupinWashington.Theyoftendontseemtorecognizethatwithouttheruleoflaw,withoutwaterandsewerservicestoindustrialareas,withoutpoliciesthatenabletheirbusinessestooperate,theywouldnotsurvive,letalonemakeaprofit.Ifmostpeopleareblindtothestructuresofcitiesandcommunitiesthatenablebusinessesand
organizationstooperatesuccessfully,wearealsoblindtothestructureoftheotherimportantingredientofindividualwealthmoney.Mostpeopledonotunderstandthecurrentmonetarysystem,hiddenasitisfrompublicview.Iftheydid,theymighthavesecondthoughtsaboutwhetherornottoblindlytrusttheirfinancialsecurity,orinsecurity,exclusivelytothisparticularsystem.Wehopeinthisbooktoopenyoureyesaboutboththeroleofcommunityinwealthcreationand
alsotheroleofmoneyandothermeansofexchange.Todothis,weneedtohelpyouremovetheblindfoldyouvebeenwearing(throughnofaultofyourown)themonetarysystemhasbeenobscuredbytheforcesthatprofitfromit.Afterall,beforeyoucancreatewealthandbuildsustainable,localeconomies,youneedtounderstandwealthwhatitisandwhatitisbasedon.Thegoodnewsisthatyoutoohavethepowertocreatewealth,realwealth,foryourself,yourchildrenandyourcommunity.Butbeforeyoubuymorelotterytickets,readontoseehoweffectivelocalactioncanaccomplishthetaskwithalotlessrisk.
CHAPTER2
CrashandBurnEconomics
Almostallsystemsofeconomicthoughtarepremisedontheideaofcontinuedeconomicgrowth,whichwouldbefineanddandyifwelivedonaninfiniteplanet,buttheresthissmall,niggling,inconvenientfactthattheplanetis,infact,finite,and
that,unlikeeconomictheory,itisgovernedbyphysicalandbiologicalreality.
GEORGEMONBIOT
TheRollerCoasterEconomyWeallknowthepositivesideofoureconomichistory.Ourcurrentfinancialsystemhasenabledanindustrialagewhichhasprovedtobethemostimpressivewealthcreationmachineinhumanhistory,atleastforthosecountriesthatadoptedindustrializationearlyon.However,thefinancialmarketsalsohaveanunfortunatetendencytohurtleforwardlikearunaway
train,careeningintovalleysofunpredictablerecession,thenchugginguphillsofnewopportunity,onlytoderailattheslightestbendinthetrackanAsianmarketblowsup,theRussianrublecrashes,subprimemortgagestriggeraglobalbankingmeltdown,etc.TheWorldBankhasidentifiednolessthan96majorbankingcrisesand178monetarycrisesoverthepast25years.1USdollars,EuropeaneurosandJapaneseyenstokethetrainsengines,shoveledintosupport
financialinterestsineverycorneroftheglobe.Tokeepthesystemgoing,wesubsidizeravenousconsumerconsumptionthatdevoursrainforests,guzzlesfossilfuelsandtopsitoffwithmeltedicecapsfordessert.Finally,intheshadowsideofoureconomywefindalsoalltheshadowsofhumanityitself:theoperationcloaksinternationalsyndicatestradinginviolence,weapons,war,terror,illegaldrugs,slavesandprostitution.Inshort,forbetterandforworse,theflawedsystemwehavehasdriventheevolutionofthehuman
speciesonthisplanettothestatewehaveachievedtoday.Ourfinancialsysteminfluenceseveryoneontheplanetfromparents,farmers,shopkeepersand
students,toallthecorporateandpoliticalleadersaroundtheworld.Mostpeopleacceptitonfaith,andyetsomeinconvenientquestionsneedtobeasked:Whydotheavowedprinciplesofmostnationalandstateconstitutionslikepeace,democracy,ahealthyenvironmentandhealthypeopledivergesofarfrompracticesweacceptasbusinessasusual?Whydoesthesystembreakdownasoftenasitdoes?HowdorationalpeoplewithnoillintenttohumanityortoEarthsenvironmentperpetuateasystemthatproducesviolence,pollutionandcorruptionasitsbyproduct?Despitethecentralityoffinancialsystemstoourdailylives,mostofusdontunderstandthe
fundamentalsofthatsystem.Andhowcouldwe?Itisashiddenandcomplexastheworkingsofasecretsociety.WehavebeentoldthattheprincipiaeconomicabehavelikeNewtonsnaturallaws,ratherthanbeingcontrolledbythedecisionswemake.Thisfaithinthescienceofeconomicshasbeenchallengedrepeatedlybyunforeseencrises.Arentsciencessupposedtobeabletopredictthe
future?Faultyeconomicassumptionscanhavesignificantramifications.Forexample,manylead
economistsdismissenvironmentalpollutionasanexternality,afactornotadequatelypricedorotherwiseaccountedforintheexistingsystem.Inotherwords,whenthetheoreticalsystemdoesnotaccountforit,theproblemitselfisabitofananomaly.Iftheverybasisforalleconomicactivitythenaturalresourcesandecosystemserviceswedependonforlifeisbeingirreparablyharmed,andyetthisisdescribedasifitwereaminoraccountingmistake,thereisaseriousproblemwiththeunderlyingtheory,notwiththefacts.Ifwecouldbringthehiddendriversofthesystemthatareembeddedinthesetheoriesintotheopenandredesignthemforhealthandrealprosperity,itmighthelpturntheshiparound.Whydoestheeconomyappeartobesoerratic?Evenif90%ofthetimesomeeconomicmodels
havepredictivevalue,theyturnouttobeoflittlehelpduringthe10%ofthecaseswhenstructuralchangeisinvolved,whichisunfortunatelythesituationwefindourselvesintoday.Afterallourhistory,whydontwehaveabetterideaabouthowtomanagethingssotherearentwildfluctuationsandsuddenchangeswheresomeareimpoverishedwhileothersreaphugeprofits?Evenbankers,CEOsandCFOswhomaketherealdecisionsareoftenblindtotheunderlyingsystemicforcesthatpresentthemwithanincreasinglynarrowrangeofchoices.Whataretheassumptions,frameworks,socialdecisionsandprojectionsdrivingtheeconomic
juggernaut?Iftheyarefaulty,thenaretherealternatives?Whatstepscanwetaketobringalloftheseinvisibleforcesintotheopensothatpeopleineverycommunitycanmakeconsciousdecisionsabouttheirowndestiny,ratherthanblindlyacceptingaculturethatseemstoleadtoitsowndestruction?Now,pleaseholdontoyourhatssomeoftheseideashavethepotentialtochangethewayyouseetheworld.YoumayevendiscoverwhyHenryFord,oneofthefathersofmodernmanufacturing,said:Thepeoplemustbehelpedtothinknaturallyaboutmoney.Theymustbetoldwhatitis,andwhatmakesitmoney,andwhatarethepossibletricksofthepresentsystemwhichputnationsandpeoplesundercontrolofthefew.2
FalseAssumption#1:TheEconomyisBeyondOurControl
Inacountrythathastakensomuchprideinitsdemocratictraditions,thewholesalecapitulationofbasicrightstothedoctrineoflaissezfaire,survivalofthefittest,freemarketideologyishardtoexplain.Yetwevelivedthroughanerawherethegapbetweentherichandthepoorhaswidenedbyordersofmagnitude.Thesocialcontracthaschangeddramaticallyinourlifetime;therewasatimewhenthegovernmentwasseenashavingalegitimateroleinreducinginequalityandpromotingsocialjustice.Thelast20yearshaveseenawidespreadchallengetothelegitimacyofgovernmentactionofanysort.Butthereishope,eveninthisshift.Ifitwaschangedonce,itcanbechangedagain.Whynotmakeitbetterthanithaseverbeen?TherehavebeenseveraltimesinUShistorywherelargeeconomicchangeshavehappenedasa
resultofdemocraticinterventiontheantitrustlawsoftheearly1900s,laborunionlaws,theNewDealunderRoosevelt.Weneedtoconsiderwhatinstitutionalchangesareneededtoeradicatepovertyifwereallywanttocreateamoresustainableworld.
FalseAssumption#2:MoneyisaNeutralMeansofExchange
Mostpeopledonotknowanymoreaboutmoneythanwhattheyneedtocountwhatsintheirpocket,balancetheircheckbooksandpaytheirtaxes.Theyknowthereisneverenoughofitforeverythingtheywantandneed,buttheyneverstoptoaskwhy.Dotheyworkhardenough?Sometimespeople
withtwoandthreejobscantmakeendsmeetfortheirfamilies.Didnttheystudyhardenoughinschool?Ifintelligenceisaprerequisiteforhighpay,thenwhydosomanyofourteachersqualifyforsubsidizedhousinginthecommunitieswheretheylive?Moneyisnotneutralwithrespecttoaffluenceandpoverty.Ournationalmonetarysystemisbased
ondebteverydollarthatiscreatedissomeonesdebt,beitthegovernments,corporationsorindividuals.Everydollarcomesthereforewithabuilt-inexpectationthatitwillearninterest.Theinterestitearnsgoestothebankandthepeoplewhobuythebonds.Thisautomaticallyconcentrateswealthinthesystem.Atthesametime,thedebtbasisformoneyalsoexertscontinuouspressureonindividualsandcorporationstogrowforeveratanycost,tostayaheadoftheinterestpaymentsonthebasicunitofexchange.Moneyisnotneutralwithrespecttocommunityeconomicdevelopment.Theexistenceofanational
monetarysysteminacountrywithregionaleconomiesasdiverseastheMidwestindustrialbelt,theprairiebreadbasketandtheHollywoodcreativeeconomyisguaranteedtounderminetheeconomichealthofatleastsomeindividualcommunities.IfMexicoisdoingbetterthanCostaRica,thevalueoftheircurrencywillreflectthis,andMexicancitizenswillbeabletobuymoreCostaRicanproductswiththeirpesos.Whenthishappens,moreproductsinCostaRicaaresold,andtheireconomywillimprove.IfHollywoodisdoingbetterthanDetroit,however,theyareboundtoacurrencywiththesamevalue,sonosimilarbalancingacttakesplace.JaneJacobs,theauthorofCitiesandtheWealthofNations,comparedthistoeveryoneatasoccergametheplayers,spectatorsandrefereesusingthesamesetoflungs.Moneyisnotneutralwithrespecttocompetitionandcooperation.Ourcurrentmoneycreation
process,withinterestbuiltin,systematicallypromotescompetitionamongitsusers,largelyduetotheneedtopayinterestonthebank-debtmoneythatdrivesthesystem.ThestoryoftheEleventhRoundbelow,takenfromTheFutureofMoney,3illustratesthisproblemasaparable.THEELEVENTHROUNDOnceuponatime,therewasasmallvillagewherepeopleknewnothingaboutmoneyorinterest.Eachmarketday,peoplewouldbringtheirchickens,eggs,hamsandbreadstothemarketplaceandenterintothetime-honoredritualofnegotiationsandexchangeforwhattheyneededwithoneanother.Atharvests,orwheneversomeonesbarnneededrepairsafterastorm,thevillagerssimplyexercisedanotherage-oldtraditionofhelpingoneanother,knowingthatiftheythemselveshadaproblemoneday,otherswouldsurelycometotheiraidinturn.
Onemarketday,astrangerwithshinyblackshoesandanelegantwhitehatcamebyandobservedthewholeprocesswithasardonicsmile.Whenhesawonefarmerrunningaroundtocorralsixchickenswantedinexchangeforabigham,thestrangercouldnotrefrainfromlaughing.Poorpeople,hesaid,soprimitive.
Overhearingthis,thefarmerswifechallengedhim.Doyouthinkyoucandoabetterjobhandlingchickens?Thestrangerresponded:Chickens,no.Butthereisamuchbetterwaytoeliminateallthehassles.Bringmeonelargecowhideand
gatherthefamilies.Illexplainthebetterway.Asrequested,thefamiliesgathered,andthestrangertookthecowhide,cutperfectleatherroundsinitandputanelaborateand
gracefullittlestamponeachround.Hethengavetenroundstoeachfamily,statingthateachroundrepresentedthevalueofonechicken.Nowyoucantradeandbargainwiththeroundsinsteadofthoseunwieldychickens.Itseemedtomakesenseandeverybodywasquiteimpressedwiththestranger.
Onemorething,thestrangeradded.Inoneyearstime,IwillreturnandIwanteachofyoutobringmebackanextraround,aneleventhround.ThateleventhroundisatokenofappreciationforthetechnologicalimprovementIjustmadepossibleinyourlives.
Butwherewillthatroundcomefrom?askedthewife.Youllsee,saidthestranger,withaknowinglook.Assumingthatthepopulationanditsannualproductionremainedexactlythesameduringthatnextyear,whatdoyouthinkhappened?
Remember,thateleventhroundtokenwasnevercreated,meaningthatitdidntmaterializeoutofthinair.Asthestrangerhadsuggested,itwasfarmoreconvenienttoexchangeroundsinsteadofthechickensonmarketdays.Butthisconveniencehadahiddencostbeyondthedemandedeleventhroundthatofgeneratingasystemicundertowofcompetitionamongalltheparticipants.Theequivalentofoneoutofeachelevenfamilieswouldhavetoloseallofitsrounds,evenifeverybodymanagedtheiraffairswell,inordertoprovidetheeleventhroundtothestranger.
Thefollowingyear,whenastormthreatenedsomeofthefarmers,therewasagreaterreluctancetoassistneighbors.Thefamilieswerenowinawrestlingmatchforthateleventhround,theroundthathadnotbeencreated,whichactivelydiscouragedthespontaneouscooperationthathadlongbeenthetraditioninthevillage.
Thisstoryisasimplifieddescriptionofhowourmoneysystempitseveryuseragainstallitsotherusers.Itissimplifiedmainlybecauseitassumesthatthereisnogrowthinthepopulation,intheproductionandthemoneyduringthisstory.Inreality,allthreeofthesevariablesgrowovertime,obscuringtheunderlyingprocess.However,itisneverthelesssystemicallycorrectthatanybodywhopaysinterestusessomeoneelsesprincipaltodoso.Evenwithinasinglefamily,moneyissuesarethemostfrequentreasonforafamilybreakdown.Wheneverythingbecomesmonetizedandfostersthesamecompetitiondrivingthecurrency,arentwelosingsomethingimportant?
TheBuildingBlocksoftheEconomy:HowAssumptionsCreateReality
Thereareplentyoftheoriesintheeconomicpantheonthatareworthyofcriticism;HermanDalyandJohnCobbcharacterizetheerroroffaultyeconomicassumptionsasthefallacyofmisplacedconcretenessintheirbookFortheCommonGood.4Theyarguethatmosteconomistsworkprimarilywithabstractionsandaresometimestemptedtoadjustrealitytotheirabstractionsratherthandevelopingmorerobustexplanationswhenrealityandtheoryareinconflict.Thisappliestoeconomicthinkingaboutprices,thefreemarket,theeconomicbehaviorofhumanbeings,resourcesandjustabouteverybasictenetofthescienceofeconomics.Assumptionshavealsoguidedtheconstructionofframeworksandinstitutionstofacilitatethe
economicactivitiesneededformodernhumancommerce.Theseinturnhaveshapedourlives,everythingfromtheproductsweusetotherapidurbanizationoftheplanet.Ifwecanidentifythesehiddenassumptionsandusethetoolsavailabletodaytoreshapethemonetaryinstitutions,weareontheroadtochangingourcitiesandthequalityofourlives.
TheBankingSystemMostpeoplearenotawareoftherolethatbankfinancingplaysinthecreationofmoney,orthefactthatthecreationofmoneyisdonebyprivatebanks,andthatthesystemisnotworkingwell.Afterall,thereareallsortsofgovernmentlogos,symbolsandstatementsonthedollarsweuse.Furthermore,thedollarprintingpressesarelocatedintheUnitedStatesMint,andtheUSDepartmentofTreasurystoresanddistributesthemforouruse.However,contrarytowhatallthissuggests,thatdoesntmeanthatthegovernmentcreatesmoney.Youcanhaveasmanydollarbillsthatyouwant,ontheconditionthatyourbankcandebityour
account(todayinelectronicform)forthesameamount.Yourbanksimilarlyrequestsdollarbillsasneeded,andgetsitsownaccountdebitedaswell.Dollarbillsrepresentonlyaverysmallpercentageoftheamountofdollarsincirculation.Thevastmajorityofthemoneythatchangeshandsintheworldisoncomputersandledgers,notinactualnotesandcoins.Evenonapersonallevel,veryfewofourtypicaltransactionsusecashweusechecks,creditcards,debitcardsanddirecttransfersfromourbankaccountstoothers.Sohowdoesthegovernmentobtainthemoneyitneeds?Likeyouandme,throughincome(inthe
governmentscasethroughtaxes)andbyborrowing.Moneyiscreatedforthegovernmentbythebankingsystemwhenitincursdebtbyissuingbondsatthestateandlocallevel,andtreasurysecuritiesatthefederallevelwhichareloansthataremadebythebankingsystemandthensoldontheinternationalmarket,withtheprincipalandinterestrepaymentguaranteedbyourtaxsystem.THEUSGOVERNMENTALDEBTMAZETheUSfederalgovernmentalsohasanarrayofwhatitcallsnon-marketablesecuritiesthatarenttradedonthemarketlikeUSSavingsBonds:intergovernmentaldebts(whenthefederalgovernmentborrowsfromsavingsaccountslikeSocialSecurity)andCertificatesofIndebtednesstheTreasuryissuesthatdontpayinterest.Allofthesestillrepresentgovernmentdebt.
Bondsarethelong-termdebtincurredbyalllevelsofgovernmentforlong-terminvestmentinthingslikeroads,wastewatertreatmentsystems,waterpipes,prisons,librariesandschools.Atthefederallevel,thelong-termdebttakesalsotheformoftreasurynotes(aonetotenyeardebt),treasurybonds(20to30yeardebts)andsomethingcalledaTreasuryInflation-ProtectedSecurity(or
TIPS)whichareissuedfor5,10and20yeardebt.Atthestateandlocallevelbondslegislaturesandcitycouncilsvoteonbonds,andthentheyareboughtbybanksandotherinvestors.Typicallythelowinterestpaidonthemunicipalbondsistax-exempt,soinvestorscanearnincomefromtheinterestpaid(withstateandlocaltaxes)withoutpayingtaxesonit.
Short-termdebtisalsoincurredbythegovernment,usuallytoaddresstheneedforcashflow,justasabusinessmighthaveacreditlinefortimeswhenincomeislessthanexpenses.Atthefederallevel,short-termdebtisloanedbythebanksintheformoftreasurybills,whichallmatureinlessthanoneyear.Atthestateandlocallevel,short-termdebtcomesintheformoftaxanticipationnotesandbondanticipationnotes,whichareloansfromthebanks,usuallyatalowratethatislinkedtotheratesonthetreasurybillsatthefederallevel.Sowhenacityissuesabondforaschoolbuttheydonthavethemoneyinhandyet(ittakestimetosellthebondstothebanks),theycangotoabankforabondanticipationnote.Whenacityneedstopayitsbillsbutallitstaxesarentcollectedyet,theygotothebankforataxanticipationnote.
Inshort,thegovernmenttriggersthecreationofthemoneyitneedsbygoingintodebt.Thedebtincurredbygovernmentisfirstandforemosttothebankingsystem.ThebanksdonotalwayshavetobeUSbanksforeignbanksandgovernmentsalsobuyUSgovernmentdebt.ButdespiteconcernsthatChina,theoilcountriesandotherforeigninterestsownalotofUSdebt,themajorityofthedebtisstillowedtoprivatebanksprivatebusinessesthataresetuptomakeaprofitontheprocessofmanagingmoney.Allofthisinterestpaidonthedebtistheequivalentofaninvisibletax,becausealltheinterestdoesultimatelycomefromthetaxeswepay,eventhoughwedontgettovoteontheinterestrates.Internationally,sixcentralbanksincludingtheFederalReserveintheUnitedStatesare
ownedbytheprivatebanksalthoughmostcountriesdohavepubliclyownedcentralbanks.5Itmakesnodifference,really,whetherthecentralbanksareownedbythepublicorbyprivatebanks;theirfunctionisstillthesame.Theirmainfunctionistokeepthesystemworking.Theywereestablishedtohelpavoidbankingpanicsandrunsonbanks,andtomaintainthestandingoftheUScurrencyintheworld.Theyalsoplaytheroleoflenderoflastresort:ifbanksandfinancialmarketsarentwillingtobuygovernmentbonds,theFederalReservewilldoso.Finally,mostcentralbankshaveexpandedtheirmissionovertheyearstoregulateprivatebanks.However,experiencehasproventhattheirinterventionsdontalwaysworkthewaytheyhopeitwill.Governmentisnottheonlyonetotriggerthecreationofmoneybythebankingsysteminthisway.
Individualsandbusinessesalsodothesamewhentheytakeloansfrombanksfortheirhomesandbusinesses.Sowhenwegotobankersforaloan,theyarenotopeningtheirvaultandtakingmoneyouttogiveus,theyarecreatingnewmoneybasedonthefractionalreservesystem.Whenwetakethatmoneyandputitintoanotherbankthatotherbankcountsthatmoneytowarditsreserves,onthebasisitcaninturncreatemorenewmoney.Itsnotabadbusinessmodel.ThesinglemostprofitablebusinessintheUSbySECcode,isthecentralbank,theFederalReserve.6ButmostpeoplesimplydontknowthattheFederalReserveisbarelymorefederalthanFederalExpress.Moneyisalotofthings:textbooksdescribeitasameansofexchange;itisaunitofaccount,a
storeofvalueandavehicleforinternationaltrade.Wehavecombinedallthesefunctionsintooneinstrument,andthisinstrumentiscontrolledbyprivatebanksthatneedtoearninterestontheissuanceofthemoneytomaketheirprofits.Becauseallofthemoneywecurrentlyusecomesfromthissystem,fortherestofthebook,wewillrefertothistypeofmoneyasbank-debtmoney.
TheFreeMarketSystemEvidenceofbothmarketsandmoneypredaterecordedhistory.Moneywasusedtofacilitatemarketexchanges,asprovenbythemanyformsofsmalltokens(whosemostlogicalusewouldbeasamediumofexchangetovalueanexchangeofgoods)thathaveturnedupinarchaeologicaldigsaroundtheworld.Arguably,marketsrepresentacharacteristicfeatureofhumanexistencewearepartlydefinedbythefactthatwesharegoodsandservices.Nopersonisindependentofsociety;thetradingandsharingwedoprovideforourneedsinawayapparentlyuniquetoourspecies.
Theproblemariseswhenwemovethemarkettothecenterofhumanexistence,insteadofitbeingamechanismwithitsappropriateplaceinamorediversesetofhumaninstitutions.AmoryLovinscapturedthecentralissuefacingoureconomicthinkingwhenhesaid...marketsmakeagoodservant,apoormasterandaworsereligion.7Thegiantglobalexperimentswithplannedvs.marketeconomieshavedemonstratedthatthemarketisaveryefficientandeffectivewaytoallocategoodsandservices,butwhenweignoreitsfailuresinotherareasanduseitasauniversalpanaceaforallourproblemsfromsavingendangeredspeciestofosteringsupportoftheartswearemakingitourmasterandourreligion.Evencontemporaryenvironmentaleconomistsarenotbuckingthistrend.Theirantidotetothe
warpedregulatorysystemistostarttoplacefinancialvaluesontheenvironmentalservicesofferedbytheplanet.Howmuchwoulditcosttoreplacethepollinationservicesbeesofferwhentheyareextinct?Howmuchwoulditcosttoreplicatetheglobalwatercycletoproducehealthywater?Canwebuyourwaytoclimatestability,andifnot,whatwoulditcosttorestoreourclimatetohealth?Theobjectivityofthemarketisstillseenasafinalarbiterfortheneedtomakerealvaluejudgmentsinapluralisticsociety.Butthemarketisnotobjectiveitisacontrivanceashumanandvalue-ladenasanyotherinstitution.Athree-dayintroductiontoEnvironmentalEconomicsconductedinBulgariain1993illustratesthe
valueshiddeninourmarketmechanisms.8Themethodologicalemphasiswasoncost-benefitandcost-effectivenessanalysistohelpregulatorsdeterminethemostappropriatetechnologiestointroducetoaddressproblems.Participantsalsolearnedsomethingaboutriskassessment,sogovernmentcouldbesurethattheissuestheyfacedwere,infact,thegreatestriskstohumanandenvironmentalhealth.Afterlearningthenewtoolsforenvironmentalmanagement,Bulgarianregulatorshadagestaltexperience:oneoftheirteamsdeterminedthatthebestwaytohandlethecasestudytheyweregiven,inwhichafactoryinacitywasbelchingwastethatkilledpeopleratherquickly,wastorelocateallthenativeBulgariansthatlivedtheretoacleanerpartofthecountryandmoveinVietnameseworkers,whohadaperceivedlowervalueintheirsociety.Needlesstosay,thegoaloftheworkshopwasnottoteachthislesson,yetitsnotsurprisingthatthefundamentalassumptionsbeingusedaboutthepriceoflifecouldleadtothisoutcome.WhentheUSBureauofLaborStatisticsfoundin2007thatcorporateCEOsearn885timeswhat
minimumwageemployeesearn(Dotheydo885timesmorework?Arethey885timesmoreclever?)and364timesmorethanthewagesofanaverageemployee,canwehearechoesofaristocratsandfeudalserfs,evenaswevebegunthe21stcentury?9Becauseoftheseinherentinequitiesinmajoreconomicinstitutions,themarketisnotaninvisiblehanddrivenbytherationaldecisionmakingofautonomousindividuals.Itpreventsthevastmajorityfromobtaininganythingthatresemblesthedecentlife,libertyorachanceathappinessthattheUSAsfounderspromised.Equityandself-determinationarebasichumanneeds.Anysocietywillbemorestablelesslikely
tobedisruptedbyunrest,revolutionorotherconflictifallofitsinstitutionsprovidepeopleavoiceintheirowndestinyandinsurealeveloffairnessinallrelationships.Thisisnolesstrueofeconomicinstitutionsthangovernanceinstitutions.
TheFinancialMarketasaSystemThetermfinancialsystemisusedsofrequentlythatweoftenlosesightofitsmeaning.Systemshavecertaincharacteristics,andbyunderstandingmoreabouthowsystemsworkwegainvaluableinsightsintohowtoimproveourlocalfinancialsystem.Eachlocaleconomyisabitlikeadifferentkindofcar.Eachmakeandmodelhasitsownuniquefeaturesaconvertibleroof,cruisecontrol,oneburnsdieselwhileanotheruseshightestgasoline;therearehybrids,electriccars,trucksandvans.Buttheyallhaveatransmission,wheels,asteeringsystem,gaugesthatgiveyouanideaofthefuellevel,
warninglights.Sobyunderstandingwhatallcarshaveincommon,youalsocanunderstandmoreaboutyourparticularvehicle.Tostartatthemostbasiclevel,thedefinitionofasystemis,accordingtotheMerriam-Webster
dictionary:aregularlyinteractingorinterdependentgroupofitemsformingaunifiedwhole.10Inacar,theseareallthecomponents,andtheunifiedwholethatisformedisgreaterthanthesumofindividualparts.Ifyoulinedupthewheels,theengine,theaxles,thesteeringwheel,thewindshield,theseats,thebody,themirrorsandthegaugesalongthefloorofyourgarage,itwouldjustbealargepileofstuff.Butonceallthepartsareworkingtogether,thecarcanrolloutofthedrivewayanddownthestreet.Asystemisaunifiedwholewithinteractingparts,andthepartshavecharacteristicsthatallsystems
share.Onepartisthatsystemsflowsomethingthatmovesthroughthesystemandinteractswithotherparts(likegasolinemovingthroughtheengineandmakingthepistonsmoveupanddown).Anotherpartisasystemstockaplaceinthesystemwheretheflowmighttendtoaccumulate(thegastank).Whenwedescribetheinteractingpartsofsystems,weassumethatonevariableinasystemhasaneffectonothervariables.Thewordforthiseffectisfeedback,andinteractionscanproduceeitherpositivefeedbackornegativefeedback.Positivefeedbackiswhenachangeinonevariableproducesachangeinanothervariableinthesamedirection(moregas,morespeed).Negativefeedbackiswhenachangeinonevariableproducesachangeinanothervariableintheoppositedirection(morebrake,lessspeed).Positiveandnegativefeedbackamongdifferentvariablesinasystemcanproduceanumberof
differentresults.Inourcarexample,thegoalofthesystemisequilibriumthedriverofthecarwantstotravelatthespeedlimit,sothereisacombinationofpositiveandnegativefeedbackthatproducesarelativelyconsistentresult.Thesameistrueinourbodies,whereourbodytemperatureismaintainedatarelativelyconstantlevelof98.6Fthroughthepositivefeedbackofmetabolismcombinedwiththenegativefeedbackofperspiration.Whenthereisonlypositivefeedbackinasystem,orwhenthesumofallthefeedbackinthesystem
ispositive(justlikebasicmath,wheretwonegativescanequalapositive),thesystemproducesareinforcingresult,wherethingsgetworseandworseorbetterandbetter,dependingonthevariables.Therearemanyexamplesofthis:compoundinginterestinabankaccount,populationgrowthorsomeimportantprocessesinclimatechangearejustafewoftheobviousones.Inthebank,moremoneymeansmoreinterestispaid,whichmeansthereismoremoney,andsoonpositivefeedbackplusmorepositivefeedback.Withpopulation,moreparentsproducemoreoffspring,whointurnbecomeparents.Withclimatechange,morewarmthmeanslesswhiteiceatthepolestoreflectthesunlight,which
makesthetemperaturestherewarmer,whichinturnleadstolessice.Inthisexample,moreCO2makesmorewarming(positivefeedback),morewarmingmeanslessice(negativefeedback),lessicemeansmorewarming(negativefeedback),andthenetresultispositive,creatingaviciouscycle.Thesetwopatternsacombinationofpositiveandnegativefeedbackthatresultsinequilibrium
orinreinforcingincreaseordecreasearecalledarchetypes,whichmeansapatternofbehaviorovertimethatcanbeseeninavarietyofdifferentsystems.Therearemanysystemarchetypes,andunderstandinghowpatternsofbehaviorinsystemscanbechangedisakeytounderstandingtheeconomyaswell.11Theeconomysbehaviorovertimeexhibitsthecharacteristicsofanarchetypalsystemwithcyclesofexpansionandcontractiondrivenbypositiveandnegativefeedbackfromdifferentvariables.Ataverysimplelevel,onekindofeconomytheboomandbustnaturalresourceeconomyofgoldrushesandfossilfuelscanbeseenasanarchetypecalledlimitstogrowth.Inthisarchetypalpatternofbehavior,positivefeedbackontherightsideofFigure1below
leadstoexponentialeconomicgrowth(theresultofreinforcingfeedback),whichfinallyhitsthewalloffiniteresourcesontheleft,whichthenleadstoexponentialdeclineasthepositivefeedbackoftherightreinforcingloopcollapsesinreverseonitself.
FIGURE2.1.TheLimitstoGrowthArchetypePleaseremember:positivefeedbackdoesnotmeanmore,oranincreaseitmeansthatboth
variablesmoveinthesamedirection.12Obviously,theglobaleconomyismorecomplexthanthisillustration,althoughonanaggregate
level,thisparticularpatternofreinforcingfeedbackandbalancingconstraintsistrue.Weliveinarelativelyfiniteworld,wheretheonlyexternalinputcomesfromthesun(ignoringmeteoritesandthecontributionstosciencefromthemoonrockscollected30yearsago),andyetwehavestructuredoureconomyasifwehadaccessto1020similarplanets.ThesubjectofthearchetypewasexploredextensivelyinthebookTheLimitstoGrowthbyDennisandDonellaMeadows,JorgenRandersandWilliamBehrensin1972andthenrevisitedbytheauthorsinanewbookcalledLimitstoGrowth:The30-YearUpdatepublishedin2004.13CreatingWealthfocusesmoreontheinvisiblestructuresoftheeconomy(thatdrivetheexponentialincreaseanddeclineontherightsideofthediagram)thantheveryvisiblelimitswehavebeenreachingontheleft.Toconsidertheeconomyasasystem,itisimportanttolookattheflowsthroughthesystem,the
stockswherethingsaccumulateinthesystem,aswellasthevariablesandfeedbackpatternsthatdrivechangeinthesystem.Moneyisacriticallyimportantflowthroughtheeconomicsystem,andthewaysinwhichitaccumulatesandprovidesfeedbacktoalloftheothervariablescanalsobeillustratedusingthelanguageofsystemdynamics.Whenabankissuesaloantoabusinessoramortgagetoahomeowner,theyrepaytheloanat
higherratesofinterestthanthebankoffersonitsdeposits,oneofthebasicequationsofthecurrentbankingbusinessmodel.Asystemdiagramofthisinteractionwouldbeasfollows:
FIGURE2.2.TheCurrentBankingBusinessModelInFigure2,themoredepositsabankhas,themoreloansitcanissue.Themoreloansitissues,the
moreinterestitearns.Themoreinterestitearns,themoreinterestitcanpayonthedeposits,whichinturnwillattractmoredepositsasimplereinforcingloopwithpositivefeedback.Onthisverysimplelevel,banksareendlessmoneymachines.Inmuchthesameway,ourindividualaccountsshouldmakeusincrediblywealthywithaccumulatedcompoundinginterestovertime.Thesamefactorsthatreduceourcompoundinginterestaccountslikethefactthattoliveweoftenneedtomakewithdrawalstopurchasegoodsandservicesalsomitigatethebanksprofits.Notallloansarerepaid.Thedemandforloansfluctuates.Thebanksthemselvesneedtobeattentivetotheinterest
ratesofthecentralbankandthebondmarkets.Theamountofmoneyondepositchangeswiththeeconomy,aspeopleareeithersavingorspendingmore.Theneteffectofthemoneymachineswehavecreatedwhenweauthorizedbankstohavea
monopolyonthecreationofmoneyisthatovertime,therealvalueofthisbank-debtmoneydeclines.Thereisabuilt-inexpectationthatmoneyneedstoearninterest.Wheneverydollarincirculationcameintoexistencewiththeissuanceofdebteitherprivatedebtfrommortgagesandbusinessloansorpubicdebtwithbondsandpublicborrowingthosedollarshadbetterbeworkingashardastheycantoproduceareturn.Thisreturncomesintheformofinterestpaymentsondepositsorreturnsoninvestmentsmadeinproductiveenterprises.Ifinsteadofputtingmymoneyinthebankorinvestingitinthestockandbondmarkets,Iputitina
canundermybedathome,themoneyinthatcanwillbeworthlessfiveyearsfromnowthanitisrightnow.Onalargerscale,thedecliningvalueofmoneyisfactoredintobusinessaccountingthroughtheuseofadiscountratewhichincludestheinterestrateusedtodiscountfuturecashflows.Nowlookatitfromthecompanyside.Thecompanygetsaloanfromthebankforitsbusiness,and
hastorepayitovertimewithinterest.Thecostoftheloanisoneofthecompanyscostsofproduction,alongwithresourcecosts,laborcostsandotheroperatingcosts.InFigure3,severalkeyfunctionswithinabusinessorganizationareidentified,withfinancebeingpivotaltoboththebeginningofabusinessanditsongoingprofitability.
FIGURE2.3.TheCorporateProcessThefinancingofabusinessisusuallyamixofdebtandinvestment.Themoreinvestmentthatis
available,thelessdebtneeded,butthereareoftenperverseincentivesbuiltintoourtaxandaccountingsystemsthatmakedebtmoredesirablethanitwouldbeotherwise.Soevenifitisntabsolutelynecessary,businesseswilloftenhavedebtontheirbooks.Debtcomeswithinterestpayments,sotheinterestthecostofthemoneyisdeductedpriortodeterminingwhetherornotthebusinessisprofitable.ThisisillustratedbysmallerblackfeedbackloopsinFigure4.Thetotalfinancingavailablewilldrivetheproductioncapacity,whichinturnisacombinationof
thenaturalresourcesneeded,thelaborcostsandotheroperatingcosts.Oncethereisaproduct,itissoldforaparticularprice,andtheincomefromsales(aftertaxesandothercostsofproduction)arededucted.Thisiswhatdeterminesthereturnoninvestment(ROIinthediagram).ROIistheprofitthatisdistributedtotheinvestorsinthebusiness,andthecyclestartsoveragainthemoreprofit,themorereinvestmentispossible,themoreproductioncapacityand(assumingthereisdemandfortheproduct)themoresales.Theexternalfactorsthatinfluencetheoutcomeofanybusinessventurearethedemandforthe
product,competitionforsalesofthesameorsimilarproducts,thecostsofproduction,taxratesandthecostofmoney.Mostofthesecostfactorsaredirectlyrelatedtotheproduct,andneedtobeconsideredintheoverallbusinessplanwhendeterminingiftheventurewillbeprofitable.Moneyistheonesystemiccostwhichinfluencesboththeprofitmarginonaparticularproductand
alsohowprofitiscalculatedandthetotalvalueofthereturns.Onasystemiclevel,thecostofmoneyisabigpartofthereasonthatitisnotsufficientmerelytomakeaprofit.Companiesneedtomakeaprofitthatcontinuestoincreaseatanincreasingratewhenthecostsofcapitalandthevalueofmoneythroughoutthesystemareinaconstantstateofinflationarydevaluation.Figure4illustratesthereinforcingnatureofthisdynamic.
FIGURE2.4.HowBankMoneyInteractswiththeCorporateProcessOfcourse,resourcesandlaborarenotunlimited,andsothisreinforcingsystemwilleventuallyhit
thewalldescribedearlierinFigure1.Peakoil,resourcedepletion,scarcefreshwater,climatechange,exponentialpopulationgrowth,thewideninggapbetweentherichandthepoorallofthesearesymptomsthatindicateweareapproachingtheseouterlimitstogrowth.Whentherearescarcitiesofkeyresourcesoil,water,pollination,foodcostsgoup.Whenpeopleshealthdeterioratesbecauseofpoornutrition,lackofsafewater,poorhealthservicescostsgoup.Theprofitderivedfromadepletionofhumanandnaturalcapitalisnecessarilyashort-termgainatthecostoflong-termwell-being.Itslikespendingtheprincipalinyourbankaccountitmightgetyouanothermealonahungryday,buttherewillbenomoremoneyinthebanktomorrow.Ifcostsgoupasthelimitstogrowtharereached,thenyetanotherdelayedloopwhichprovides
additionalreinforcingfeedbacktoacyclethatwasalreadygrowingexponentiallyisaddedin.Highercostsmeanthatprofitandreturnoninvestmentwillbelower.Thisinturnwilldrivetheneedformoredebt,moreinflationandmorepressureonalreadylimitedresources.
FIGURE2.5.AddingHigherCostsInourcurrentera,wherehighpricedoilandoverleveragedassetstriggeredaneconomiccollapse
whichforcedtheUSgovernmenttoprovidehugebailoutloanstobanks(createdwithgovernmentbondsanddebt)andthenotherhugestimulusgrantstostateandlocalgovernmentsandbusinesses(alsocreatedwithgovernmentbondsanddebt),thissystemdynamicshypothesisseemstoholdtrue.
Aslongasthefundamentalassumptionsandconditionsdontchange,thisisatrapasystemicspiralthatthreatensnotonlythehealthofourmoneysystem,butalsoourwell-beingandthelife-supportsystemsEarthprovides.ThishypothesisisntjusttheoreticalitisprovenbythegraphinFigure6.Anytimeyouobserve
anexponentialgrowthcurvelikethis,youknowthatthereisareinforcingsystemofpositivefeedbackbehindit.ThetotalUScreditmarket,i.e.,borrowingbygovernments,corporationsandindividuals,isas
closetoastatisticalfitofanexponentialcurveasisscientificallypossible.(Forthosewithaneconometricbackground,theR2valueof.9889meansthatitisalmostaperfectfit.)14
FIGURE2.6.TheExponentialCurveofMoneyCreationintheUS.Thelightlinerepresentsaperfectexponentialgrowthcurve.ThedarklinerepresentsthegrowthinTotalUSCreditMarketDebt.TheR2figurerepresentshowcloselythetrendtrackstoperfectexponentialpatterns98%.Source:FlowofFundAccountsoftheUnitedStates.FederalReserveStatisticalRelease#Z.1,September17,2010.[online].[citedOctober23,2010].federalreserve.gov/releases/z1/current/
Exponentialgrowthinmoneysupplycanonlyendupwithaninflationaryblowout.Weshouldrememberthewarningofoneoftheforemosteconomistsofthe20thcentury,JohnMaynardKeynes:Byacontinuingprocessofinflation,governmentcanconfiscate,secretlyandunobserved,animportantpartofthewealthoftheircitizens.15
SystemsChangeWhatarethefundamentalassumptionsandconditionsneededtointerveneinthisdestructivecycle?Wherearetheleveragepoints,thoseinterventionswherearelativelysmallamountofeffortcanachievemuchlargerresults?Often,asystemsdiagramcanhelpidentifypromisingpossibilities.Inthisviciouscycle,therearetwoimportantdriversthebank-debtsourceofourmonetarysystemandtheeconomicpolicieswehaveenactedtofacilitatetheprocessofhumanandnaturalcapitaldepletionforthesakeoftheeverhigherprofitsthatthesystemdemands.Thesearethetwovariableswherepolicyinterventionscouldhaveanimportantimpactonthedestructiveforceofthesystem.
EconomicPolicyChangeThelegalstructuresandpolicieswehaveenactedandthepublicinvestmentswehavemadetoenablecompaniestobeasprofitableaspossiblenumberinthethousands.Inmuchthesamewayascitiescannottransformthemonetarysystemontheirown,theydonothavetheabilitytochangethedominantpolicycontext.Thereareafewpoliciesworthmentioning,however,whichdeserveparticularattentionaswemoveintoanewera.Lookingbackoverthelongarchofhistory,thereareseveralimportantchangesweencounterin
the21stcenturywhicharesignificantlydifferentthanpriorcenturies.Upuntilthelate20thcentury,humanbeingslivedinaworldwherenaturewasabundantandhumanbeingswere,bycomparison,
scarce.Thenaturalworldwasawesomeandscarytherawpowerofstorms,earthquakes,floods,volcanoes,droughts,plaguesallkindsofnaturaldisastersgavehumansaclearsenseoftheirinferiorityonthescaleofthings.Itsnowonderthatconqueringnaturewasagoal(atleastforWesterncivilizationmoresuccessfulandlessviolentrelationshipswithnaturehadbeencultivatedintheEastandamongNorthAmericanFirstNations)whenwewereregularlydefeatedbytheseoverwhelmingforces.Butnaturewasalsoabundant.Therewerelotsoffishinthesea,andfreshwaterflowedinpristine
streamsdownmountainswheretheairwasclearandcrisp.Agriculturehaditsupsanddowns,butthe20thcenturydawnedintheUnitedStateswithover80%ofourpopulationlivingonfarmsandgrowingtheirownfood.ThewoodfromforestshadalreadygonetowarshipsinBritain,butintheUStreeswereplentiful,andthesteelindustryhadtakenthepressureoffthetreesthathadbeenusedforships.Today,inthe21stcentury,wearefacingadifferentworld.Natureisincreasinglyscarce,and
humansareincreasinglyabundant.Thepoliciesthatwereenactedinaneraofabundantnatureneedtobechanged.Inthatera,thepricesofnaturalresourceextractionwereatzerocosttoacompany,andwereoftenevensubsidizedbygovernment.Machinescreatedbytheseresourcesdidtheworkofmoreandmorepeople,andemissionsintotheair,waterandsoilwereallowedwithoutregulatorylimitsorfines.Arguably,eventhemathematicsofthebankingsystemitself,whichseemstorelyonaninfinitecapacityoftheworldtocontinuetogrowandproduceprofits,needstoberethoughtinaneweraofobviouslimits.Theparadigmofinfinitegrowthhasallowedandevenfosteredtheincreasingconcentrationandcentralizationofwealththroughthetacitassumptionthattheresmorethanenoughforeveryone:arisingtidefloatsallboats.Yetonthenaturalresourcesideoftheequation,thetideisnotrising,itsreceding,andsomeoversizedyachtsarecrushingthecanoesintheirwake.Theenablingpolicieswhichneedtobeaddressedtochangethesystemfallintotwomain
categories:Earthandcorporations.TheEarthpoliciesareallthosewhichformandregulateourrelationshiptothenaturalworld.Thecorporatepoliciesarethosewhichstructurethekeyinstitutionswehavecreatedtofostercollectiveactionandwealthcreation.Thisisatallorder,obviously,andfulldetailsarebeyondthescopeofthisbook.Buttheethicthatisneededtoshapethesepoliciesonanylevel(local,stateandnational)canbedescribedherebriefly.
EarthPoliciesThevaluesandethicsthatgovernourrelationshiptoEarthneedtoembodyadeepandabidingsenseofrespectandcareforalllife.Justasthe20thcenturysawtherealizationoftheHumanRightsmovementsdemandsforequality,the21stcenturyneedstorecognizethecriticalimportanceofbiodiversityandabandonthosepracticeswhicherodethewealthofspeciesweneedtosurviveintothe22ndcentury.Ourpoliciesneedtomakealldestructivepracticesprohibitivelyexpensiveandmorallyimpermissible.Theseinclude,butarenotlimitedto,monoculturecrops,geneticengineering,destructionofhabitat,emissionanddisposalofwastesbeyondEarthsassimilativecapacityandextractionofnonrenewableresourcesfromEarthscrust.Theprecautionaryprinciplehasbeenintroducedintoseverallegalsystemsasonewayofturning
backthetideandvaluingtheintegrityofEarthsecologicalsystemsabovenarrowcorporategoalsofproduction,consumptionandprofit.Mostlegalsystemsnowplacetheburdenofproofonpartieswhoobjecttoanewtechnology,developmentprojectorinnovationtodemonstratethatitdoesharm.Theintroductionoftheprecautionaryprincipleshiftstheburdenofprooftotheproponentofanewidea,sothattheywouldneedtodemonstratethatitwillnotharmimportantbiological,humanor
communitysystemsbeforeitwasintroduced.Otherpoliciesneedtobeintroducedthatrewardactivitieswhichenhancetheongoingcapacityof
ecosystems,humanandcommunitysystemstocontinuetoproducetheassetsthatmeetourneeds.Taxbreaksforecosystemrestoration,educationalprogramsandorganicfoodproductionarethreepossibleexamples,alongwithincentivesforloweringconsumption,reducingpopulation,payinglivablewagesandinvestinginrenewable,local,energygeneration.Insummary,thepoliciesweneedeliminateharmfulpractices,curbtheintroductionofnew
practicesthatwoulddomoreharmthangoodandencouragepracticesthatarelife-enhancingandpromotemoreharmonyamongallthedifferentinhabitantsoftheEarthcommunity.
CorporatePoliciesTofollowthemodelwevedescribedforEarthpolicychanges,weneedtoidentifyandeliminatepoliciesthataredestroyingtheecosystem,exploitinghumanbeingsorunderminingdemocraticgovernance.Wethenneedtocurtailtheintroductionofnewideasandpoliciesthatwouldhaveharmfuleffects.Mostimportantly,weneedtointroducepoliciesthatbringcorporatelifeintoharmonywiththelife-supportsystemsonEarth,sothatthesetwomostpowerfulprocessesdonotcontinuetoworkatcross-purposes.ThemoderncorporationemergedattheendofthefeudalperiodinWesternhistory,whenthe
Europeanpowerswereexploringotherpartsoftheworldandengaginginexpandedcolonizationandinternationaltrade.Theoriginalcorporatechartersenabledindividualstobandtogetherinacommonbodytoundertakeenterprisesthatwerebeyondthecapacityofeventhewealthyaristocracyofthetime.Theideaofacorporationbeingitsownentity,alegalpersonofsorts,goeshundredsofyearsbackintime.YetthiscorporatepersonhoodtookonnewdimensionsinindustrialAmerica,ascompaniesgrew
andpeoplestartedtochallengetherolesandresourcestheyclaimed.Courtshavenotalwaysaddressedtheissueofwhethercorporationsarepersonsinthesamewayasindividualsare,butalargeandgrowingbodyoflawdoesaffordcorporateplaintiffsanddefendantsmanyofthesamerightsandprivileges.Asrecentlyas2008,whenthemercenaryfirmBlackwatersuedtheCityofSanDiego,California,togetthecitytoissueacertificateofoccupancyfortheirtrainingcenterwhenthefirmhadnotfollowedthecorrectprocedureforobtaininglandusepermits,thejudgeruledinBlackwater sfavoronthebasisofthefirmsconstitutionalrighttodueprocess.16Anothermorerecentexampleofthisistherulingin2010ontherightsofcorporationstoaddalmostunlimitedmoneytotheelectoralprocessintheUS.ASupremeCourtcaseCitizensUnitedv.FederalElectionsCommissionupheldacorporatelyfundednonprofitorganizationsFirstAmendmentrighttoinvestinandpublicizeapoliticaldocumentarytargetingthen-presidentialcandidateHilaryClinton.Oneoftheimportantdifferencesbetweenlegalentitieslikecorporationsandrealpeopleisthatreal
peoplehaveaninnateability(barringsomekindofmentaldisorder)torecognizetheirinterdependencewithotherpeopleandwithnature.Legalentitieswhichareestablishedtomakeaprofitareorganizedinsteadaroundoverlynarrowgoalsandignoretheimperativesofaninterdependentweboflifeandsociety.Thebottomlineforfor-profitcorporationsintheUnitedStatesistheprofitthatisreturnedtoshareholders,aphenomenonalsoknownasshareholderprimacy,andthismandaterequiresthatcorporateleadersbehaveinsometimescompletelyinhumanandunnaturalwaysthatultimatelyunderminesocietys(andeventhecompanys)longer-terminterestsinreturnforshort-termgains.Further,ifpoliciesincorporatingtheprecautionaryprinciplewereimplementedinconcertwith
incentivesforinvestmentthatenhancedhuman,socialandecological,wewouldsucceedincurtailingfurtherinnovationsthatcauseharmandintroducingbeneficialpracticestorepairthedamagethatsbeendone.ImagineUSSugarunveilingalong-terminvestmentplanthatwouldrepairthedamagethatoverdevelopmenthascausedintheEvergladesbecauseitsintheircorporateinterest.OrifFreeport-McMoRanCopper&GoldInc.,theownersofClimaxMineinColorado,restoredthemountainsintheFreemontPassareatotheiroriginalpristinestate,itwouldbeamassivelong-terminvestmentforecologicalsystemsrestorationthatwoulddwarftheoriginalprofitsmadefromstripminingmolybdenuminthe1900s.Onanoperationallevel,policiessuchaslifecycleaccountingandemployeeownershipstock
optionswouldhelpthestructureofcorporatedecisionmakingchangesothatitissystematicallymoreaccountabletoallthesocialandecologicalsystemswhichsupportitandtotheemployeesthatmakeitwork.Thiswouldbeonewaytohelpchangethenarrow,short-termfocusthatunderminescommunitylifeinfavorofprofitfordistantinvestors.
MonetaryReformAttemptstochangethenationalmoneysystemintheUShavealonghistorydescribedinTheLostScienceofMoneybyStephenZarlenga,thefounderoftheAmericanMonetaryInstitute.17Inourtime,membersofCongresssuchasDennisKucinich,aformerpresidentialcandidate,arealsopushingformonetaryreformatthenationallevel.Thiswouldhaveanenormousimpactonthepublicspendingthatcanbedoneandonoureffectivetaxrates.Estimateshavebeenmadethattheinvisiblemoneytaxwepaytocovertheinterestcostsofthemoneyweuseaddsseveralthousanddollarstotheaveragetaxbilleachyear.Therearealternativestotheprivatemonopolyonmoneywhichbankshaveenjoyedsincethe
creationoftheFederalReserveSystemin1913.ApublicanddemocraticdebateonthealternativeswouldcertainlyilluminatewhatformostUSAcitizensisunknownterritory.TherehavebeentwotimesinUShistory,infact,whenthiskindofprivate,debt-basedmoneywasnotthemaincurrencyinuse.DuringColonialtimes,notesknownnowasColonialScripwereusedformosttransactions.ThesenoteswereissuedbytheColoniesbasedonthelevelofeconomicactivitytheyanticipated.Thesystemworkedsowell,infact,thatitunderminedtheprofitsandtaxescollectedbytheBritish,anditwasoutlawedin1764.ManyscholarsattributeboththeBostonTeaPartyandtheAmericanRevolutionmoretotheBritishprohibitionofColonialScripthantoanyofthefactorstaughtingradeschoolhistoryclass.DuringtheUSCivilWar,thecostsofthewaralsomadeitimperativeforthegovernmenttoissue
notesthatwerentborrowedfromprivatebanks.Thesewereknownasgreenbacks;theyweresubsequentlydiscreditedasthegovernmentreturnedtothegoldstandardandthebanksregainedcontrolofthemoneycreationprocess.AnotherattempttochangethemonetarysystemintheUS,theChicagoPlan,wasmadeinthewake
oftheGreatDepression.Thisplanwouldhavedivideddemanddepositsfromsavingsdepositsandrequireda100%reserveondemanddeposits.Bankbondswouldcoverthereserverequirement,andthefederalgovernmentwouldissuethecurrencyandallmoneysasneeded.ItwasintroducedintheHouseandSenatein1934,butitnevermadeitoutofcommittee.Peoplehaventforgottentheplan,andinourtimeeconomistssuchasMiltonFriedmanhavebeenitsadvocates.Anyplanformonetaryreformwouldneedtoconsiderthreebasicobjectives:1.Endingpracticesthathaveprovenharmfultothecommongood2.Curtailingfurtherinnovationsthatwouldaddtotheharmthatsalreadybeendone3.Addingnewpracticesthatbringourfinancialsystemintocongruencewiththehuman,social,
andecologicalsystemsthatsupportlife
Thepracticesthathavenowprovenharmfultothecommongoodaretheconstellationofforceswhichfosterandexacerbatetheendlessboomandbustbusinesscyclewherebywealthisconsolidatedintofewerandfewerhands.Monopolisticcontrolofmoneyisattherootofthissystem.Forthispracticetoend,weneedtorethinkourmoneysystem.Wearenot,however,recommendingasolutionthatwouldreproducetheflawsofamonopolisticmoneysystembysimplyreplacingabankmonopolywithagovernmentmonopoly.
Ifsupplyanddemanddrivetheinvisiblehandofthemarket,bank-debtmoneykeepstheinvisiblefootontheacceleratorofthegrowthimperative.
Aswithagriculture,amonoculturecrophastheeffectofmakingeverythingdependentonitshealth
andwell-being.Ifyougrowonlyonecrop,youaremoresusceptibletotheravagesofinsectsandblight.Thesameistrueofthemonetarysystemwehaveadopted.Textbooksstatethatthereareseveralfunctionsthatmoneyservesitisameansofexchange,astoreofvalue,aunitofaccount.Ashistoryandcurrentexperienceconclusivelyprove,allofthesefunctionsdonotneedtobecoveredbythesameinstrument.Oureconomywouldbemoreresilienttobigchangesandwouldhavefewerdisruptionsifthereweremorediversityinthewaysinwhichwemakeexchanges,storevalueandkeepouraccounts.
TheVortexofUrbanizationWhiletheeconomicrollercoasterappearstogoupanddownthebusinesscycles,thefluctuationsinthestockmarkettherollercoasteritselfisheadinginexorablyintoacentralizedandconcentratedvortex,likematterandenergybeingsuckedintoablackholeinspace.Thepatternsofbehaviorvisibleintheeconomyproducesimilarformsinotherhumanendeavors,mostnotablyinthecitiesaroundtheworld.Onthephysicallevel,therollercoasterisleadingtourbanizationonanunprecedentedglobal
scale.Asstatedearlier,theUnitedNationsclaimsthatforthefirsttimeinhistory,morethanhalftheworldspopulationlivesincities.Furthermore,manyofthesecitiesinturnarebecomingmegalopolisesataremarkablerate.Megacitiesofmorethan10millionpeoplewererare20yearsago(therewereonlyninein1985,mostofthemwithfamiliarnamesParis,London,NewYork,Beijing,Istanbul,Moscow);nowtheworldhas25ofthem.Karachi,Dhaka,Manila,Jakarta,Lagos,ShenzhenandCairoaresomeofthenewermembersofthemegacityclub.Somecitiesgrowbyover10,000peoplepermonthandarecompletelyincapableofprovidingthenecessaryinfrastructureandservicesfastenoughtoservethenewpopulations.18Thisexplosionofurbanpopulationhasleftmillionsofpeoplelivingindangerousandunhealthyslums.Citiesgrowingatextraordinaryrateshavenochoicebuttoabandonmostrationalideasabout
urbanplanningthereisnowaytodescribetheresultingurbanenvironmentsexceptasgiganticexperiments,accidentsofhumanmigration.Wholeneighborhoodsshareonefilthyportalet,iftheyrelucky.Therearehumansettlementsthatliveonandinlandfills,theirsoleeconomyscavengingthewasteofothersfortheirlivelihood.Homesmadeoffoundmaterialscardboard,tin,plastictarpsaretheonlyshelterforoveronebillionofEarthshumaninhabitantstoday.Norunningwater,nosanitation,rampantdisease,constanthunger,violence,crimeandoppressionareawayoflife.Ifthecurrentsituationcontinuesunabateduntil2020,oneoutofeveryfivehumanbeingsonEarthover
2.5billionpeoplewillliveinaslum.19
Cities,DemocracyandEconomicChangeForalltheirdifficulties,citiesarethelevelofgovernmentclosesttothepeople,andtheyprovidepeoplewiththelargestnumberofcriticalserviceseverythingfromeducationtowastewatertreatment.TheyarecollectivelythelargestgovernmentonEarth,dwarfingstateandnationalgovernmentsinpublicservicebudgetsandemployees.Whileinsomepartsoftheworld,citybudgetscomedirectlyfromnationalgovernment,citiesstillneedtobetheonesprovidingtheservices;itistheonlywaytoeffectivelyandefficientlyservethemajorityofthepopulation.Thismakescitiesthelogicalnexusforincreaseddemocraticpracticeingovernmentandmore
democraticeconomicsystems.NewEnglandcitiesandtownsintheUS,forexample,havesomethingthatiscloselyakintodirectdemocracy,wheretheirbudgets,ordinancesandothercityactionsneedtoberatifiedbyvoters.IntheTownMeetingformofgovernment,theregisteredvotersmakeupthecitylegislatureeveryyearanddeliberateandvoteonallcitymatters.Citiesneedtodeepentheirmandateforrealdemocraticandeconomicchange.Todothis,theyneed
toinvolvetheirresidentsingovernmentmoreeffectivelyfourstoriesofhowcitieshavedonethisareincludedinChapter13.Citiesneedtounderstandhoweachoftheireconomiesworkandwherethereareopportunitiesformakingeconomicimprovements.Theycandothisbyconductinganinventoryoftheirassetsandidentifyingwheretheyhaveunmetneedsandunderutilizedresources.Citiescanalsodesignandsponsornewwaysofmakingexchangesandprovidingincentivestomatchtheirassetsandresourceswiththeneedsoftheirresidents.ExamplesofsomeofthewayslocalcurrencieshavemobilizedpeopleandimprovedeconomicconditionsareofferedinPartII.Tostartprojectsandidentifythekindsofcurrencieswhichmightbemostuseful,cityleaderscanfollowthedirectionsofferedintheAppendix.Citiescanandwillchangetheworldastheyabsorbandaccommodatethemajorityoftheworld's
population.Thechoicecityleadershavetomakeiswhethertolettheforcesofglobalizationandpopulationmobilizationovertakethem,orwhethertotaketheinitiativetoconsciouslyanddeliberatelyplanforavitalanddynamiclocaleconomy.Thebuildingblocksfortakingthisinitiativearethesubjectofthenextchapter.
CHAPTER3
CommunityCapitalism
IbelievetotallyinaCapitalistSystem,Ionlywishthatsomeonewouldtryit.
FRANKLLOYDWRIGHT
Ifyoulookupthedefinitionofcapitalisminthedictionary,itwillsaysomethinglikethis:aneconomicsystemcharacterizedbyprivateorcorporateownershipofcapitalgoods,byinvestmentsthataredeterminedbyprivatedecision,andbyprices,production,andthedistributionofgoodsthataredeterminedmainlybycompetitioninafreemarket.1Inthatcontext,thetermcommunitycapitalismsoundsabitpeculiararewegoingtotalkaboutcommunityexpropriationofprivatepropertyinthischapter?Theanswerisemphaticallyno.Yettherearemanyformsofcapitalwhicharenotentirelyinprivateownership,orthatbenefitfromservices,infrastructureandotherpubliccapital,sothischapterwillhelpyouunderstandhowacommunitymanagesallitsformsofcapitaltocreaterealwealthforitsresidents.Ifyoulookatthecommunityasanenterpriseanditscitizensastheowners,thecapacitythe
communityhastocreaterealwealthandwell-beingcanbecharacterizedasthecommunitycapitalusedtoproducethatwealth.Onedefinitionofthewordhasbeenassetsavailableforuseintheproductionoffurtherassets.Thewordsorigincomesfromcaput,theheadofacow,fromatimewhenpastoralcivilizationscountedthelivestocktheyownedtodeterminetheirwealth.Ifassetsareexamplesoftherealwealthwehavetomeetourneeds,thencommunitycapitalrepresentsthecapacitytocreatethisrealwealthonanongoingbasisforthebenefitofthecommunityanditsmembers.Thisgenerativenatureofcapitalisofparticularinterestforcommunityleaders.Communitycapital
thegenerativecapacityofacommunityformsthefoundationoftheeconomy.Athousandboardsareassetsthatmightbeenoughtobuildahouse,butmanagingaforestforsustainableyieldandoperatingasawmillwillhelpinsurethatmanymorehousesgetbuilt.Theforestandthesawmillarethecapitalbase.Theircombinedcapacitytocontinuetoproducelumber,alongwiththeforestscapacitytoproduceoxygen,toabsorbcarbondioxide,toprovidehabitatforwildlifeandtoserveasacriticalpartofthewatercycle,willhelpinsureahealthyandsustainablehumancommunitycancontinuetolivenearby.Competentcapitalistsknowthatinordertoproducetheitemsthatmakeitpossibletoearnaprofit
andcreatewealth,theyneedtomaintaintheircapitalingoodworkingorder.Thismeanscontinuallyreinvestinginupkeepandmaintenanceoftheassets,keepingontopofthelatesttechnologyandminimizingthecostsofproduction.Theaccountingandtaxations