Proposal for a Local Village Monetary System Based on Trusteeship
by Robert Swann, 1977 or 1978
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This proposal for a village monetary system that's totally independent of the national government applies to villages anywhere in the world, even though this discussion relates specifically to India. I am offering it for discussion because of its intrinsic merits-not because of the world monetary crisis. Nevertheless, we are very much aware of the present world monetary crisis, in which even the vaunted U.S. dollar could at any moment come tumbling down.
As a January 11, 1979 article from London's The Hindu stated:
The Western world is in a nightmarish situation. Western
fortunes are very much tied up with the free flow of oil
from West Asia. The West has not recovered from the mid-1973
oil crisis which technically left the free enterprise industrial
economies with 20 million skilled men unemployed... The
Western monetary system has passed through the most turbulent
fiscal crisis, and observers here suggest that if the decline
of the dollar is not arrested in the next few months, the
system may even collapse.
Three days later, Bombay's Financial Express reported
that the value of the rupee had fallen over 80 percent between
1947 and 1977, and that during the last decade, the rate
of inflation increased to almost twice its previous rate.
The Financial Express also printed a report about
the difficulties encountered by small farmers of India in
obtaining loans from banks. These reports make clear that
as a matter of survival, it may be necessary in the near
future for the rural sector to develop its own monetary
unit. Otherwise, the alternatives will be either a return
to the clumsy barter system, or the demand for gold will
increase and exchange will become difficult to the point
of stagnation. For the poorest sector this will be disastrous.
Inflation: A Tax on the Poor
What I hope to emphasize is that of the three monetary powers
that national states have usurped-police power, taxing power,
and monetary power-monetary power could be nonviolently
returned to the people with the least resistance from the
state. Just as land reform has been voluntarily undertaken
by the Bhoodan/Gramdan movement on a local trusteeship basis,
so can the institution of an honest and fair banking or
monetary system be accomplished by an alternative, self-reliant
monetary system run and controlled by the people and for
the people, rather than for the benefit of a few large farmers,
financiers, industrialists, and politicians.
Moreover, it must be emphasized and repeated over and over
again for the benefit of all those persons, even most economists,
who are not familiar with the nature of the banking system,
that the monetary power is equal-if not superior-to the
taxing system of the modern state. This is because the state,
through its central banking powers, can issue as much money
as it pleases in order to accomplish its political ends.
Nationalization of the banks, therefore, has only served
the purpose of strengthening the state's monopoly on the
issue of money, and thereby its ability to exploit this
power for political ends rather than the well-being of citizens.
Inevitably, this will lead to greater inflation and degradation
of the national currency. The power to monopolize the issue
of money could be likened to the power to tax, except that
the social costs of issuing or printing nonproductive money
is likely to fall more heavily on the poor. Thus we could
say that any deliberate inflation of the national currency
is a tax on the poor.
Issuing Money for Productive Purposes
What must be constantly kept in mind cannot be emphasized
too often, which is that the national state's present use
of political power to issue money is not the way money should
be issued. This is to say: money issued by the state for
nonproductive purposes, such as the purchase of war materials,
or the payment of salaries to bureaucrats who produce nothing
of real value, creates inflation. For productive purposes,
on the other hand, banks are issuing money through the lending
process with great reluctance. Yet it is only for productive
purposes, such as planting seeds and other agricultural
needs, or for short-term needs of industry, for which money
should be issued legitimately in order to insure the absence
of inflation. We could say with a fair degree of certainty
that if the present system for issuing or printing money
were stood on its head, or reversed, and the only issue
encouraged or permitted was for the production of food and
clothing, there would not be inflation. Additionally, any
relatively self-sufficient region that chose to undertake
such a revolutionary change could, within a few years, evolve
into a flourishing economy.
But in addition, and this must also be emphasized, this
can only take place when the issue of money and the banking
process are separate from the state and its political purposes,
and also only when they come under the social process of
trusteeship. (The word "trusteeship" is used here in the
Gandhian sense, in which the banks would be run on a nonprofit
basis, and the local village or community would be represented
on their boards of directors, as would the Sarvodaya, or
social workers, who had proven their dedication to the welfare
of the community as a whole. Decisions, therefore, on the
granting of loans and other policies would be made on the
basis of "welfare for all," not merely the benefit of a
few.) That is to say, banking must become an industry carried
on under the practice and leadership of persons dedicated
to trusteeship.
It hardly needs to be pointed out that of all the commercial
sectors created by society, the two that are most logical
and important to develop under trusteeship are one, those
dealing with the land and natural resources, and two, the
banks.
Just as land and natural resources should not be exploited
as they are under capitalism, neither should money, which
is the necessary medium of exchange, be made the object
of profiteering. Just as efforts at land reform tend to
become a way for power-seekers to manipulate power once
taken over by the state, the state control of the banking
industry becomes a means of exploiting the system for political
ends, and not for the benefit of the people. In fact, this
power can be abused because only a few people understand
the significance of it. It is often used without public
restraint or protest, because the public does not comprehend
how it is being cheated.
The Transfer of Power
This leads us to a question that many people raise as to
whether the state will be jealous of the power of the trusteeship
to monopolize money issue and therefore try to stamp out
by law (or police action) any action by dedicated people
seeking to obtain justice and equitable distribution of
income for the rural population as a whole, and for the
poor in general. I think a number of answers can be made
to this question:
In the first place, when faced with clear social or economic
injustice, a satyagrahi or a nonviolent worker,
does not ask the questions merely: Will I be imprisoned
or suppressed for my efforts to replace injustice with justice?
Rather, he or she determines the morally correct course
and proceeds forward.
Second, we must realize that for the most part, the state
or politicians will not feel threatened by what will be
considered, in the first instance, only a minor movement
toward change in the banking system. Presently, most national
states do not have laws forbidding the private issue of
money. (In the U.S. the only condition for such private
issue is that the private currency, usually called "script,"
must be exchangeable with U.S. dollars.) Such an exchange
is easily provided for and all script systems have taken
this into account.
Third, the modern state is generally quite preoccupied with
other more pressing matters and I doubt will devote much
attention to what will be seen as a minor threat. Moreover
the state is, in any case, undergoing an increasing process
of disintegration or entropy, which I believe will make
it less able to suppress any genuine alternatives to its
present system.
These are the negative reasons for doubting the power of
the state to suppress. On the positive side, there will
be many allies in the political and banking sectors that
will support such a positive initiative as we are here proposing.
Many of these people are aware of the complete inability
of the government to solve problems such as inflation, or
to help the poor, and the rural sector in general. Properly
educated, these people can become allies in the struggle
for justice and also co-workers, whose skills and knowledge
will be essential to the success of such a movement.
A Separate Monetary System
My prediction is that as the U.S. dollar begins its more
rapid collapse, all national currencies will begin to follow,
and during the ensuing debacle, people everywhere will be
willing to try almost any alternative that offers some protection
against the loss of their savings. During this period, barter
and gold will return for a while to their time-honored roles.
But people are too accustomed today to the convenience of
paper money and the checking system, and will be inclined
to accept an alternative that offers the same convenience
but also offers protection against inflation. If, at that
point, we have laid the groundwork through education and
small-scale demonstrations, then we may have set the stage
for a major breakthrough. This breakthrough would mean the
beginning of a universal currency system totally separate
from all nation-states and would presage the end of the
age of nationalization, the scourge of the nineteenth and
twentieth centuries, a scourge that has led to two world
wars and still threatens to annihilate the majority of the
human race through atomic warfare.
This proposal, although limited in scope, aims toward a
larger and total system. It is directed toward those workers
in the nonviolent constructive programs, particularly in
India, where both the greatest need exists and the most
extensive groundwork has been laid by the Sarvodaya. If
a beginning can be made here in India, perhaps at least
the worst effects of the approaching collapse of the national
currency can be averted, and at best a beginning made toward
a world currency and the end of nationalistic and international
warfare.
For more information, please contact the
E. F. Schumacher Society:
140 Jug End Road | Great Barrington, MA 01230 USA
Phone: 01.413.528.1737
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