Money Is Not Value-Neutral

Francis Ayley is president of Fourth Corner Exchange and a business consultant who has been active in monetary reform for 30 years. He founded North London LETS, the second-largest Local Exchange Trading System in the UK, in 1990.

Lia Ayley is a psychotherapist and freelance writer who saw North London LETS grow from an idea in Francis’ mind in 1990 to a thriving local currency system. She is currently a member of the management group of Fourth Corner Exchange and is delighted to see a community currency system established in Whatcom County.

Part 2

In part I of “The Truth About Money,” we discussed how there are many alternatives to the current money system that we all operate within and use every day (“The Money System—Isn’t There a Better Way?,” Whatcom Watch, July 2006, page 10). Once you understand that our present money system is merely one of a number of possible monetary systems, the next question is: Is the system we currently use the best of all available options? Let’s take a look at money from this point of view.

Mainstream economic theory typically spends very little time discussing money, relegating it to the lowly position of an unimportant, neutral medium of exchange. In fact, while ‘money’ as an abstract concept can be understood as being a neutral medium of exchange, money as a living reality is colored by the system within which it operates. The structure of any monetary system influences the behavior of the people using that system, and inevitably affects their ideas about and their relationship with money as well.

Our present money system is a remnant from medieval days, when goldsmiths issued paper money as a convenience for those people whose gold was held in their vaults. This is the origin of the “gold standard” and the idea of money being “backed by gold.” The goldsmiths also began to loan money, at a high rate of interest, to those who had need of it but were without gold. They made sure not to issue too much money, in order to keep demand high so that they could continue to charge high interest rates. In this way they kept tight control on the amount of money in circulation.

This method of issuing money was designed to serve the interests of private profit and bankers, not the needs of the people or the common good. Over 400 years later, we have yet to develop a universal medium of exchange to replace this archaic mechanism.

The first bank, the Bank of England, was established in 1694 for the benefit and profit of its shareholders, and every bank created since then has also had a for-profit agenda. The money system we use every day was designed, not to truly meet the needs of the people who use it, but to allow banks and their shareholders to profit from people’s need for a universal medium of exchange. Today we have a public money supply, which everyone is compelled to use, that has been designed, created and is maintained not by governments (as is commonly believed) but by institutions whose primary goal is private gain.

Economists have traditionally justified limiting the issue of money with the argument that this is necessary in order to “maintain its value.” In reality, this agenda has more to do with maintaining control over the money system than with maintaining value. Scarcity in the money supply forces those who use money into competition with each other, which is unnecessary and socially destructive. Limiting the money supply without regard for the actual goods and services people have available to trade prevents people from trading with each other even when the resources for meeting their needs are all around them, creating poverty and all the social problems which spring from it. It also encourages debt, thereby enriching those who loan money even further and impoverishing those who have least.

The practice of charging interest, and the rise of publicly traded corporations obliged to place the financial interests of their shareholders above all else, creates a system where money tends to flow towards those who already have it and away from those who don’t. The overall effect of using this kind of money is to create conflict, economic inequality, violence and poverty in the world.

Everyone acknowledges the loss of community that we have suffered over recent decades, yet nobody has successfully identified the cause of this destruction. In the United States, in particular, we are becoming a nation of isolated individuals. A recent study published in the American Sociological Review found that the number of people who have someone to talk to about matters that are important to them has declined dramatically over the past two decades. Between 1985 and 2004, the number of people saying there is no one with whom they discuss important matters nearly tripled, from 10 percent to an astonishing 24.6 percent. The number of people the average person confides in has also declined, and “the largest losses ... come from the ties that bind us to community and neighborhood.” 2

Our current form of money fosters selfishness, greed and antisocial behavior and actually penalizes people who behave in a cooperative, socially responsible manner. It doesn’t matter how community-minded you are, or how much you want to work cooperatively with others. Cooperative and community-building activity is undermined by our money system, because cooperation is antithetical to its nature. Many well-meaning activists and social reformers have failed to bring about long-lasting social equality and social justice because their efforts have been undermined by the money system within which they work. The truth is that we have never had a universal money system designed to serve the best and highest interests of the people.

The idea, then, that money is value-neutral is seen to be a fallacy when examined within the context of our current system of exchange and its alternatives. A truly neutral medium of exchange would have no coercive effect on people’s behavior, yet the biggest difference between the mainstream money system and a healthy local currency system is the way people behave within each system.

In a healthy local currency system, money is issued at source, as people need it. There is no interest charged, and no one profits simply by holding a large amount of currency. Free from the effects of an artificially-created scarcity, antisocial behavior, selfishness and greed disappear within the local currency group, to be replaced by goodwill, cooperation and mutual trust. You have to see this to appreciate its full impact.

When I (Francis) founded North London LETS in 1990, along with a group of friends, we were heavily criticized for wanting to create a community-based currency. The most consistent criticism was a negative prediction about what would happen to our group. Our critics said that individuals would join our group, use the goods and services, run up a large commitment (debt) and then leave the group. At the time we didn’t know what was going to happen because none of us had ever done this before, but we were determined to find out whether local currencies worked.

During the eight years I was on the management team, I saw over 1,500 Londoners come into our system to exchange goods and services. During that time I did not see a single delinquent account. Not one of those people left the system without bringing their account back to zero. Many of them left with credit, which they donated to other members in need.

In a local currency system, transactions are public information to the members of the trading group. This means that someone who behaves antisocially within the group immediately becomes accountable for their behavior, which usually means that other people simply refuse to trade with them. They are then forced to either change their behavior or leave the group. They have no other options. People quickly realize that their reputation within the group is essential to their future participation, and act in a more socially responsible manner as a result.

During the past 17 years I have seen hundreds of people join local currency groups and watched their behavior change from competitive to cooperative. Some people make this transition quickly and smoothly. Others have varying degrees of difficulty adapting to a socially responsible money system. If they cannot adapt, they inevitably leave the system. This rarely happens, however. One of the most consistent pieces of feedback I have received from new members of local currency groups is that this is what they have been looking for their whole lives.

We are often told that as human beings we are aggressive, violent, selfish creatures, focused primarily on our own self-interest. If you look at people’s behavior within the traditional money system, it would be easy to conclude that this is true. If you observe people’s behavior within a healthy local currency group, however, you receive a very different picture.

Today, millions of people around the globe are discovering alternative money. They are rebuilding their communities, taking back their economic power, rejuvenating their local economies, becoming self-sufficient and exchanging goods and services in a nondestructive manner. In the United States, local currencies have been slow to emerge. Much of this has to do with a lack of information in the media. There is an invisible barrier around the USA, through which certain information simply does not pass. Much of the information about successful alternative money systems in other countries simply doesn’t get reported here.

Money, as it is used within a system of exchange, is not value-neutral but is colored by the system within which it is used. In our mainstream, scarcity-based monetary system, people are coerced into behaving selfishly, competitively and antisocially in order to “get ahead” and succeed in financial terms. Within a community currency money system, people are free to follow their natural inclinations towards cooperation and mutual support, and are penalized for acting antisocially.

If we are to ever live in peace with one another and in the world, it is imperative that we use a socially responsible money system. Do we want a system of exchange based on profits for a few, a system which by its very nature fosters competition, greed and poverty? Or do we want a system created to serve the needs of the people who use it, one which encourages cooperation, mutual goodwill and community renewal?

The choice is ours. §

1. YES! Magazine, Spring 1997.

2. “Social Isolation in America: Changes in Core Discussion Networks over Two Decades,” American Sociological Review, 2006, Vol 71 (June: 353-375), Miller McPherson, Lynn Smith-Lovin, Mathew E. Brashears.