Program Your Own Money

By Douglas Rushkoff. Published in What Comes After Money? on 27 September 2011

The credit crunch may actually be good for business.

No, not in the short term. When money becomes more expensive, it is harder for most businesses to get the capital they need to conduct their most basic operations. Even successful companies borrow money to buy materials, pay employees, and cash in on invoices that have yet to be paid. Without the cash flow provided by banks, it is a lot harder for many companies to function – much less expand.

With any luck, however, the future of business will be less dependent on banks and the currency they lend into existence. The Fortune 500 will become something other than brand names on piles of debt, and business operations will be characterized more by what companies produce than by how much credit their “stories” can earn them on one of the stock exchanges.

Yes, we are watching something melt down. But I’d argue that the thing that’s dying is not business itself, but a financial parasite – a speculative marketplace that no longer funds business but instead seeks to extract value from healthy commerce. More a funds vampire than an infuser of needed capital, the investment industry has been exposed as a drag on business. The future of commerce looks bright to me because it may be unencumbered by the weight of this nonproductive capital.

This all began back in the Renaissance, when a waning monarchy was looking for ways to preserve its power in the face of a rising merchant class. The merchants were becoming richer than the royals. So the monarchs came up with an idea: chartered monopolies. By granting one of these new companies exclusive province over a particular industry or region, monarchs earned their undying loyalty – as well as a generous portion of shares in the enterprise. They began to write laws that favored their chartered companies, such as preventing inhabitants of colonies from creating any value for themselves; they had to ship raw resources back to the mother country, where they were processed into clothes or other finished goods.

This model of business-by-extraction carried over to finance as well. European towns had used local currencies for centuries. Farmers would bring their wheat to a grain store, which would in tum give them receipts for the amount of grain the store was keeping for them. These receipts served as local currency. The system was so efficient, and people were living so well, that people of this era were taller than at any time before the last few decades. By making local currency illegal, a monarch could force people to use his own more expensive “coin of the realm” instead. Instead of being earned into existence, this money was borrowed into existence.

Over the next four hundred years, the business of money slowly grew bigger than business itself. A central bank creates money and charges interest to the next bank down the line, and so on, until it gets to the business that needs it to do something useful. The problem is, more value is being extracted on each level than businesses can produce. There are simply too many institutions – too many lenders – to be paid.

As the banking industry grew bigger and less regulated, institutions consolidated, making the notion of a local lender obsolete, as well. Loans are centrally processed by bankers who have little knowledge of the companies or people to whom they are lending – and little reason to learn about them, since they are simply packaging and selling the loans, anyway.

The house of cards had to fall eventually. The truly amazing thing is how long it lasted. And as our attempts to prop it back up continue to fail us, we might consider whether there is a better way to do business. I think there is.

The beauty of this era – this networked, high-tech, and decentralized world – is that we no longer have to do everything from the center. The laws and regulations requiring us to run our finances and resources through tremendous industrial age corporations are more obsolete than ever. And real people are beginning to catch on to how inefficient and risky it is to conduct their transactions in this way. They are starting to trust the real world around them more than the mythologies created by the public relations departments of distant corporations.

Moneys are programmed. They behave in certain ways because they have been embedded with certain biases. The United States mortgage and banking crisis of 2008, for example, was no more the fault of particular bankers’ behaviors than the underlying biases of the centralized, monopoly currencies we use. This is why bailouts of those banks have not led to any broader economic recovery. At least that’s the opinion of a growing population of citizens and businesses turning to the use of what they call “complementary currencies” – alternative, net-enabled, bottom-up money systems that let them accomplish what money loaned out by the Fed just isn’t letting them do anymore.

Complementary currencies treat money as a utility, rather than an asset class. Their bias is toward functionality instead of savings, transaction instead of speculation. And they are spreading quickly across America – not just in the crunchy progressive Northwest (where people have been working on local currencies for decades) but the dying industrial towns of the rust belt, the inner city of the New York metropolitan area, and the nonlocal business-to-business transactions of strapped corporations themselves.

In 1995, as recession rocked Japan, unemployment rose and currency became scarce. This made it particularly difficult for people to continue to take care of their elderly relatives, who often lived in distant areas. The Sawayaka Welfare Foundation developed a complementary currency by which a young person could earn credits for taking care of an elderly person, and then spend them on the care of their own relatives in distant towns. At last count, the alternative currency was accepted at 372 health centers throughout Japan, and all administered by a simple piece of software. Close to a thousand alternative currencies are now in use in Japan.

In October 2008, as the U.S. credit crisis paralyzed business lending, companies started signing onto barter networks in droves. One system called ITEX, which allows businesses to trade merchandise, reported a 37 percent increase in registrations for the month of October alone. Utilizing more than 250 exchange services now available through the internet, companies can barter directly with each other, or earn U.S.-dollar-equivalent credits for the merchandise they supply to others. This bartering already accounts for $3 billion of exchanges annually in the United States.

Complementary currencies hearken back to an earlier form of money – the local, grain-based currencies in wide use throughout Late Middle Ages Europe before Renaissance corporatism and centralized money schemes were invented by monarchs. Local currencies were earned – not borrowed – into existence. They reflected the abundance of the season’s grain, and did not depend on artificial scarcity for their value.

Local currencies actually lost value over time. The grain store needed to be paid, and some grain was always lost to moisture or rats. This meant people wanted to spend the money as quickly as possible, rather than holding onto it. So towns spent and reinvested their money constantly. People did preventative maintenance on their equipment, and paid their workers well. They worked less and ate better than we do today. People had so much extra wealth that they invested in their futures by building cathedrals.

That’s right – the cathedrals of Europe were not built with Vatican dollars, but local currency. The people of these towns were looking for ways to help their grandchildren profit off current wealth. Cathedrals attracted pilgrims and tourists, and have kept many towns profitable to this day.

By making local currencies illegal, monarchs were able to monopolize money, and tilt investment and wealth toward the center. People could no longer earn money into existence – they would have to borrow it from a central bank, at interest. While this kind of money worked great when it was allowed to function alongside a local currency, it was not particularly well suited for local transactions. It was just too expensive and too scarce. It did not reflect the needs or bounty of a town, but the needs and artificial scarcity of a market created by a monarch. Going into business meant borrowing from the central bank – and then paying it back, at interest. And where did the extra money come from? Someone else who borrowed it and would necessarily go bankrupt.

Either that, or borrow more money. And thus, the requirement of a central bank-dominated economy for infinite expansion – often at the expense of the environment and labor. But most importantly, the new economic scheme was designed to drain wealth from the periphery – such as colonies, territories, and rural areas – and pay it back to the middle. And it’s the way banks work to this day, each borrowing from a higher, more centralized authority.

Internet-enabled complementary currencies breathe life into the decentralized marketplace of real businesses. Our networks give us a way to verify transactions and develop trust. Second, perhaps more importantly, they help us see the way many of the tools we use are the result of programs. Where availability of printing presses may have encouraged counterfeiting of official currencies, the availability of computers and networks is encouraging the creation of altogether new ones. We are proving more likely to treat our money as software, and to write our own.

Local currencies have spread far beyond the experimental fringe to over four thousand U.S. towns at last count, because of both the new scarcity of dollars and the availability of software and tools. Beginning a local currency requires no store of capital – it is as easy as visiting the websites for local economic transfer systems (LETS) or Time Dollars.

In my own town, for example, there’s a tiny organic cafe called Comfort that is seeking to expand. John, the owner, secured a second location for a sit-down restaurant, but doesn’t have enough money to renovate the space. Although he has great credit, he cannot get a loan from any of the banks in town. Even though the bankers know him, they don’t have lending authority from the conglomerates that own them. So what’s John to do?

John has turned to the community for help. He invented “Comfort Dollars” that people can buy at a discount of 20 percent. If you spend $1,000, you receive $1,200 in Comfort Dollars that can be spent at the restaurant. John gets the cash infusion he needs to complete his expansion – and for cheaper than the bank would charge him. The local community gets a 20 percent discount on food they would be buying anyway, as well as the chance to invest in making their town better. This is a 20 percent return on investment, payable as fast as the investor and his family can eat.

The Comfort Dollars scenario reveals just how much of the mess of the recent economic crisis resulted from the way we “outsourced” our finances to begin with. The real problem underlying the global financial meltdown had much less to do with low efficiency, bad labor, or poor innovation than it did with the decreased utility of the financial industry itself. Money has stopped working properly – at least in its capacity to lubricate transactions. The sad part is that money is working exactly as it was designed to.

Once we accept the fact that the money and banks we have grown accustomed to using are not the only ways to generate capital, we liberate ourselves and our businesses from a finance industry that has enjoyed a monopoly over our commerce for far too long. They have not only abused our trust through corrupt self-dealing, but abused their privilege through systemic usury. Businesses are only obligated to support their employees, owners, and customers – not an entire finance industry.

The financial meltdown will help many businesses realize that their priorities have been artificially skewed toward making bankers and investors happy – and their own communities less so. As we start to finance locally or from our own nonlocal communities, our services will become more finely tuned toward them as well. We will get better at what we do, rather than obsessed with growth (to pay back lenders) or financing (to achieve that growth through acquisition).

This is all good – at least for businesses that have any remaining connection to a community or core competency. It will be possible to scale companies appropriately rather than to infinite expansion. It will be easier to take and share profits rather than watch them be extracted by last year’s lenders. It will favor local and connected businesses instead of big chains operated from afar by corporations behaving as if it were still the 1500s and they had a royal imprimatur on their business license.

The future of business – real business – is bright, as it has been for close to a millennium. It just might not be reflected in the Dow Jones Industrial Average for quite some time, if ever. That’s because instead of earning money, we’ll be creating value.