The Future Of Money

By Bernard Lietaer

Money matters. The way money is created and administered in a given society makes a deep impression on values and relationships within that society. More specifically, the type of currency used in a society encourages – or discourages – specific emotions and behaviour patterns.

All our national currencies make it easier to interact economically with our fellow citizens than with ‘foreigners’, and therefore encourages national consciousnes. There currencies were designed to foster competition among their users, rather than cooperation.

Money is also the hidden engine of the perpetual growth treadmill that has become the hallmark of industrial societies. Finally, the current system encourages individual accumulation, and ruthlessly punishes those who don't follow that injunction.

The United Nations forecasts that by 2050, the number of people aged 65 to 84 worldwide will grow from 400 million to 1.3 billion (a three-fold increase). The number of people aged 85 and older will grow from 26 million to 175 million (a six-fold increase).How will society provide the elderly with the money to match their longevity?

The harsh reality is that the post-industrial global economy does not need – and therefore cannot and will not provide – jobs for the eight billion forecast for 2019.

How can we provide a living to additional billions of people when our technologies make jobless growth a clear possibility?

Eighty-five per cent of all insurance payments worldwide now go towards compensating for natural disasters. *

Four times more people now die in natural disasters than in all war and civil disturbances combined.

Substantial changes in weather patterns have been observed everywhere.

We are in process of losing between 30% and 70% of the planet’s biodiversity within a time span of only 20 to 30 years. The other difference from all previous extinction is that this one is due to the actions of one species – our own – which also claims to be the only one endowed with intelligence and consciousness. *

If not checked, many of our current practices may so put at serious risk the future that we wish for human society and the plant and animal kingdoms, and may so alter the living world, that it will be unable to sustain life in the manner that we know.

‘Global climate change is a real and pressing danger’, carrying with it significant environmental, economic, social and geopolitical risks.

Only when we have resolved the next ‘money question’ will there be any real chance to address the climate change and the biodiversity extinction problems in a timely and systematic way.

How can we resolve the conflict between short-term financial interests and long-term sustainability?

The world economy poses more dangers than we had imagined. Problems we thought we knew how to cure have once again become intractable, like temporarily suppressed bacteria that eventually evolve a resistance to antibiotics. . . . There is, in short, a definite whiff of the 1930s in the air.’

In order to deal with the challenges just described, we are going to have to change as much in our consciousness about money over the next 20 years as we have over the past 5,000 years.

Today’s interpretation of money needs to be questioned if we are to address these issues.

However, another outcome is also available – one that would lead to ‘Sustainable Abundance’. Sustainable Abundance provides humanity with the ability to flourish and grow materially, emotionally and spiritually without squandering resources from the future. A synonym could be wise growth.

‘In times of extraordinary change, it is no failure to fall short of realizing all that we might dream – the failure is to fall short of dreaming all that we might realize.’

The following core thesis forms the foundation of this book. We are now engaged in a structural shift of the world system, and this shift offers an unprecedented opportunity to give birth to Sustainable Abundance.

‘In systems terms changing structure means changing the information links in a system: the most important of our economic information systems, our money system, has been ignored as a key leverage point for inducing the necessary and desirable changes. This is the void that this book intends to fill.

‘The study of money, above all fields in economics, is the one in which complexity is used to disguise truth, or evade truth, not to reveal it’(J K Galbraith).

Most people, when they find out where money really comes from, are as disbelieving as some children when they first find out where babies come from. ‘How could this possibly be true?’ they wonder.

Economics textbooks deal with the question of what money does, but not with what money is.

Money is not a thing, but an agreement – usually an unconscious one.

National currencies make economic interaction with our fellow citizens more desirable than with ‘foreigners’, thereby cultivating national consciousness. Less obvious is the mechanism of the interest, which will be shown to foster competition among users of the currency.

Money is an agreement, within a community, to use something as a means of payment.

The first magician’s trick concerning money is to make us believe that we need the magician’s help to create money. This is definitely not the case, unless we choose to take sleight of hand for reality.

The main characteristics of today’s system were pieced together in pre-Victorian England, just in time to trigger the Industrial Revolution. Its legacy – the money system that prevails today – looks as if its designers had asked: how can we create a money system that reinforces our nation-state, and concentrates resources to enable systematic and competitive heavy industrial development?

Every country in the world, regardless of its level of development or its political orientation, has bought into this pre-Victorian construct. Even Communist countries have reproduced all its key features, except that banks became state-owned rather than private, which in practice did not prove beneficial.

From the perspective of the objectives pursued by the money system, we are still living with what propelled us so effectively into and through the Industrial Revolution.

Money is typically geographically attached to a (1) nation-state. It is (2) ‘fiat’ money, i.e. created out of nothing, by (3) bank debt, against payment of (4) interest. *

The simple question ‘Where does money come from?’ propels us back into the world of magic. Not only does money perform the act of disappearing and reappearing, it is also, quite literally, created out of nothing.

The origin of money may be surprising to some. Every dollar, pound, euro or any other national currency in circulation started as a bank loan.

The full implications of applying interest on the loans creating money are the least understood of the four characteristics.

Interest indirectly encourages systematic competition among the participants in the system. Interest continually fuels the need for endless economic growth, even when actual standards of living remain stagnant. Interest concentrates wealth by taxing the vast majority in favour of a small minority.

When the bank creates money by providing you with your £100,000 mortgage loan, it creates only the principal when it credits your account. However, it expects you to bring back £200,000 over the next twenty years or so. If you don't, you will lose your house. Your bank does not create the interest; it sends you out into the world to battle against everyone else to bring back the second £100,000.

The current monetary system obliges us to incur debt collectively, and to compete with others in the community, just to obtain the means to perform exchanges between us.

The rate of interest fixes the average level of growth that is needed to remain at the same place. This need for perpetual growth is another fact of life that we tend to take for granted in modern societies, and that we usually do not associate with either interest or even our money system.

A third systematic effect of interest on society is its continuous transfer of wealth from the vast majority to a small minority, due exclusively to the monetary system in use, and is completely independent of the degree of cleverness or industriousness of the participants – the classic argument to justify large differences in income.

The three side effects of interest – competition, the need for perpetual growth and wealth concentration – are the hidden engines that have propelled us into and through the Industrial Revolution.

It is worth remembering what John F. Kennedy remarked: ‘Those who make peaceful revolution impossible will make violent revolution inevitable.’

From the 1980s onwards, banks found that they were forced to move into new arenas of businesses

Their biggest profit centres are likely to be credit cards, foreign exchange, derivative trading, securization, specialized insurance products or other exotic ‘financial products’ designed for sale to individuals and businesses.

‘We can be knowledgeable with other people’s knowledge, but we cannot be wise with other’s people wisdom.’

The purpose of mainstream media is not so much to inform or report on what happens, but rather to shape public opinion in accordance with the agendas of the prevailing corporate powers.

The mass media provide people primarily with commercial messages. It is hard to discover in most of today’s newsmedia the kind of information that would help citizens of democratic societies to reach well-informed political decisions.

Values are not inborn but a cultural creation, and our culture has become saturated by the corporate advertiser’s agenda

The net result is that materialism and consumerism has become the real religion and world-view that gets inculcated in contemporary children.

In a democracy, what is ultimately at stake is the legitimacy of both the media and the corporations.

As corporations gain in autonomous institutional power and become more detached from people and place, the human interest and the corporate interests increasingly diverge. It is almost as though we were being invaded by alien beings intent on colonizing the planet, reducing us to serfs, and then excluding as many of us as possible.’

‘The main problem of the future will be the glut of unnecessary people who will be irrelevant to the needs of corporations, and therefore will be uneducated, untrained, ageing and resentful

We are entering an age of hopelessness, an age of resentment, an age of * rage . . . The world belongs already to the global corporation. The nation state is now desperately sick.’

‘The corporations pretty much determine all the basics of modern life, just as the Church did in the Middle Ages.

While these concerns are relevant and poignant, I have come to the conclusion that we are all prisoners of the same money game. In short, the money system is what creates the structural conflict.

Many signs point to the idea that a ‘job’ for everybody, which became prevalent only during the Industrial Age, may be dying with that age.

Conventional wisdom states that unemployment is mostly a blue-collar problem, and only a temporary one at that. But these assumption are now hopelessly out of date, even in activities which have long been considered immune to technological obsolescence or corporate layoffs.

Most of us have been trained to believe that we learn a profession, are hired by a company to perform a job in that profession, and – if we do all the right things – we will move up through the ranks until retirement. But this whole idea has already become as obsolete as the dodo.

Large corporations worldwide have been shedding people at a rate of between one and two million people per year.

Growth without increased employment is not a forecast; it is an established fact.

Dr William Bridges, an expert on employment trends, asks the question: ‘What is the percentage of jobs which are performed by temporary labor?’ Most people’s estimates fall in the range between 2% and 20%. His answer: ‘In fact, it is 100%; 85% of us still happen to be in denial.’

What appear to be boring technical decisions relating to banking and currency regulations are probably some of the biggest political time bombs around.

The record also shows that the only really effective way for large-scale centralized approaches to reduce serious structural unemployment is to prepare for war.

Such economic reasons for war have been found not only for World War II, but for many other conflicts as well.

Community breakdown has become a universal pattern all over the modern world. Although it is usually not perceived that this trend relates to money, this chapter will show that both the cause of the problem and its solution can be found in money systems.

‘The idea that the family is a stable and cohesive unit . . . is a myth. The reality is that trends like unwed motherhood, rising divorce rates, smaller households, and the feminization of poverty are occurring worldwide,’

To understand how community is lost, we must find out how it is created. Of all the disciplines which have studied community, the most useful insights come from anthropology.

Anthropologists have found that community is based on reciprocity in gift exchanges.

A commercial transaction is a closed system,a gift is an open system. It leaves an imbalance in the transaction that some possible future transaction completes. The gift process creates something that the monetary exchange does not. A new thread has been woven into the community fabric. *

It should not come as a surprise that to unravel the fabric of a community you do the opposite of what helped create it in the first place. Therefore, I propose as a general rule that communities break down whenever non-reciprocal monetary exchanges replace gift exchanges.

We should consider community not as a state, but as a process. If it is not nourished by regular reciprocal exchanges, it will tend to decay or die. That is why I define a community as a group of people who honour each others gifts, who can trust that their gifts will be reciprocated some day, in some way.

No wonder that the process of community decay is also the highest in the more ‘developed’ countries.

In a society where you need to pay your son to cut the grass, the nuclear family breakdown is on its way. And when you decide to put Grandpa in a nursing home, not only is the extended family gone,but you will also have to pay for the day care centre.

We just learned the apparently general rule that whenever money gets involved, community breaks down. However, this turns out to be true only when scarce, competition-inducing currencies, such as our official national currencies are involved. In fact, the use of some other types of currencies can have exactly the opposite effect of building community.

‘A true community is inclusive, and its greatest enemy is exclusivity. Groups who exclude others because of religious, ethnic or more subtle differences are not communities.’

One wish that a vast majority of people can agree upon is to rebuild community - complementary currencies can significantly help in reaching that goal.

Because of money’s central role in our societies, a lot of different and powerful organizations and people have their say in this domain.

Most countries in the world have no legislation making it illegal for anybody to ‘agree within a community to use something as a medium of exchange’.

It has been proved time and again, for instance, that crime cannot be reduced just by adding more police, or that failing education cannot be remedied by throwing money at the problem. Nothing can replace a community where people watch out for each other, or where older children mentor younger ones. And complementary currencies have been able to build community and other social capital in a way that national currency simply fails to do.

As the prominent French monetary theorist Jacques Rueff claimed, ‘Money will decide the fate of mankind.’257 Will we have to see the last fish die, or the last rainforest cut down, before we realize that we will not be able to eat money?

After a lifetime of study of the causes of the demise of civilizations, the historian Arnold Toynbee concluded that only two common causes explain the collapse of 21 past civilizations: extreme concentration of wealth and inflexibility in the face of changing conditions.

Industry and environment can no longer be compartmentalized.

If conventional industrialization keeps growing, it risks bringing down the ecosystem; if the ecosystem crashes, it will bring down the economy.

The planet itself is sustainable. The open question is whether it will include us.

Currency is always about relationships. All other things being equal, different kinds of currency will tend to induce different kinds of relationships among its users.

We are not dealing with a traditional economic, financial or monetary crisis. We are living through a major mutation of the socio-economic fabric of our global civilization.

The quicker we realize that the traditional solutions will not be appropriate for our current situation, the faster we can create the emotional, political and intellectual framework where appropriate solutions may emerge.

Just remember that we are doing the choosing for your children, for your children’s children, and for a significant part of the biosphere as well.

During his survey of 5,000 years of money’s history, Glyn Davies identified electronic money as one of only two exceptionally important technological innovations in money. ‘There have been two major changes, the first at the end of the Middle Ages when the printing of paper began to supplement the minting of coins, and the second in our own time when electronic money transfer was invented.’

A country’s currency is indeed also much more. It plays the role of the central nervous system that commands the values of all asset classes in that country.

Ultimately money is trust, which lives and dies only in human hearts and minds.

‘The debate about the future of money is not about inflation or deflation, fixed or flexible exchange rates, gold or paper standards; it is about the kind of society in which money is to operate.

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