Community Survival in
the Age of Inflation
by Robert Swann, 1981
South Egremont, Massachusetts
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The Growth of Barter
"Poles Survive Collapse of Currency by Using Own System of
Barter." This headline ran in the New York Times
on October 23, 1981, just two months before the declaration
of martial law in Poland. The article reports that "more than
one third of Polish wages aren't matched by goods in shops,
and that gap increases every day." As a result of a general
flight away from money, "the most desired and least available
products-spirits, cigarettes, sugar, meat, wash powder, to
name a few-have become the means of exchange."
Under Communism in Poland, prices were held artificially low.
Presumably, a rationing system provided some equity for consumers.
But shortages of food lowered the market value of ration cards,
and people demanded "hard goods." Food riots had already taken
place in Poland, and the article predicted more of them. Undoubtedly
this threat was one of the reasons behind the declaration
of martial law, which became world headlines two months later.
In the U.S., most of the population can meet its basic needs
without price fixing on food or rationing cards. However,
an increasingly larger proportion of the population is discovering
that, due to inflation and reduced wages, making ends meet
is getting harder every day. Moreover the present administration,
in its effort to slow inflation, has taken away a great deal
of the safety net created over the last forty years by the
welfare system-welfare payments, length of unemployment benefits,
etc.
Out of sheer necessity, therefore, more and more people are
turning to barter as a supplemental means for survival. In
her book What Will You Take for It, published by
Garden Way of Charlotte, Vermont, Annie Proulx describes in
some detail the extent of the growth of barter in the U.S.
over the last few years. Many communities across the country
have set up variations on a barter exchange. One example is
Give and Take, a community barter exchange group based in
Burlington, Vermont. According to Proulx, this group was:
...starting to bring the unemployed, welfare
recipients, and people with low incomes into a community
marketplace where they could exchange their skills and labor
for services and goods without cash. The group's membership
varies from 75 to 400, depending on the current needs of
the trading community, and takes as its motto St. Paul's
statement, "...every man shall receive his own reward according
to his own labor." The members' skills and services are
listed in a quarterly catalog for a fee of $3. (There are
the usual overhead expenses that must be paid in cash.)
The range is broad.
The offers, or GIVES in a recent listing include: a
Frisbee partner, soup cooking instructions, house painting,
yard work, a subscription to any environmental publication,
bread baking, VW repairs and maintenance, carpentry, canning,
knitting instructions, a chain saw and operator, errands
for the elderly, storage space, a fenced meadow, flat stones,
sand, sheetrock taping, goat kids, quilt and potholders,
light hauling, a window caulking service, wood splitting
and cow milking.
The other side of the swaps are TAKES, the services and
things members need. These include, homemade bread, hand
made mittens, honey, maple syrup, transportation, kitchen
supplies, rust spots on a car fixed, shelves put up, the
outside of a mobile home washed and waxed, the use of a
tent, a skill saw, a camera, a weekend at a camp, mulch
hay, a ceiling painted, and windows washed.
Many of these exchanges are springing up in large cities,
generally in poorer neighborhoods. But they have often taken
on the character of a skills exchange rather than a hard
goods exchange. Carpenters, plumbers, everything in the
way of skills may be exchanged without money through such
skill banks. A typical skills bank would operate in the
following fashion:
A central staff keeps track of credits and debits
in the bank, and solves any problems that come up. Contact
among members is made in several ways, such as through
a community bulletin board with different skills posted,
through telephone call-ins to the central office, which
matches the skills needed with a skill offered, or though
a skills directory given to each member of the bank.
In her book, Annie Proulx suggests that while
these skills banks are "usually an urban or suburban phenomenon,
organized skills banks should work in rural communities,
particularly where the influx of city or summer people has
been too rapid for newcomers to be absorbed into the traditional
life of the region." She gives specific examples of how
a skills bank could work for rural people-especially new
arrivals in the rural areas. For the expanding back-to-the-land
movement, her book and a subscription to the EXCHANGE
NETWORK, a bimonthly newsletter linking a range of nationwide
barter groups, should be high priorities. (EXCHANGE NETWORK,
c/o Volunteer, 1214 16th St. N.W., Washington, D.C. 20036.)
Take Poland, and the financial pages of our own major newspapers,
as examples indicating that we are entering into a period
of increasing economic crisis. As the present national currencies
go down in value, communities will need to create alternative
methods for local exchange using barter and labor exchange
systems. Gradually, as these systems become more sophisticated
and better bookkeeping or accounting systems are developed
(with aid from the low-cost availability of microcomputers),
we should see an emergence of new forms of money. Let us
visualize how such community issued money systems may come
about and how we can begin thinking, planning, and experimenting
to develop them.
Community Issued Money Systems
From a legal viewpoint, money is nothing more (or less)
than a claim. But from a technological viewpoint, money
is a tool. Like any other tool, it can be shaped to perform
in different ways. Just as both a scythe and a combine are
tools for cutting wheat, money should be designed to perform
in different ways with different objectives. In the same
way that we are presently designing and creating more appropriate
hardware for small-scale needs, we must create an equally
appropriate tool for exchange.
I do not mean to suggest that creating a better money or
exchange mechanism will solve all the problems confronting
our society. Not by a long shot. But just as E. F. Schumacher
pointed out, if we create inappropriately scaled tools,
we end up with many social problems-unemployment, dissatisfaction
with work, alienation, etc. The tool we presently use for
exchange is therefore inappropriately designed for the various
functions for which it is intended. As a result, serious
economic and social problems have followed. Among these
problems is the wide-scale inflation that we know today.
Economists are presently arguing about possible "solutions"
to these problems, but because they-like most modern technologists-often
look for "macro" solutions, they have virtually overlooked
the possibility of microsolutions. Caught up as they are
in the London and Paris scene "advising" heads of governments
how to control the vast machine called the economy, they
can hardly spare time to consider micro- or small-scale
community approaches to the problem. It is, therefore, I
think up to those of us who are the advocates of appropriate
technology and small-scale systems to become the inventors,
creators, and producers of an appropriate technology for
money and banking. We cannot expect the answer to come outside
of our own ranks.
Moreover, this is vital to us, because all of the other
appropriate technologies with which we are involved eventually
depend upon a proper and decent exchange system. When the
dollar system fails through runaway inflation or for whatever
reason, we may survive in some fashion through barter or
labor exchange systems. But if we are to expand and grow
to become not merely a counter culture or a New Age subset
of the larger culture, then we must create a new money system
to replace the present one. In this new money system, all
the attributes we value-cooperation, self-reliance, community,
etc.-will have the potential to become the growing and dominant
part of the entire culture. Focusing on creating this new
system, we will not only survive the coming economic crisis,
but we will also develop what Schumacher called an "economy
of permanence."
But can local communities or local banks issue their own
currency now, and what good would it do? The fact is that
barter exchanges and skills banks issue currency in the
form of debits and credits for goods and services. The difficulty
is that they have a limited circulation and acceptability.
An ideal currency would have the broadest possible acceptance-virtually
worldwide and universal. I think it's possible that beginning
at the community level, such a currency could be issued
today due to unique factors in our historical situation.
Here is a case where high technology, such as microcomputers
or semi-conductors could be put to use for small-scale or
local development. After all, money is primarily a matter
of bookkeeping, figures, and calculations. All of these
tasks have been made easy and low-cost by the revolution
in the field of microprocessing.
If we are to begin to design a local money system that would
work for the development of the local economy or region,
there are a few necessary elements and characteristics to
such a system:
It would have to be simple to understand, but consistent
with our experience of the present money system. That is:
It would have to consist of both cash (or paper currency)
as well as a checking system, or another form of bookkeeping
that utilizes the computer to simplify accounting.
Unlike our present money system, it would have to be redeemable
or exchangeable in some form in real value. It wouldn't
necessarily need to be gold or silver. Rather, it would
be something that meets the needs of everyday use, such
as energy. Without a redemption system, it would be difficult
to convince people of its value. After all, isn't the reason
the dollar has become so devalued because it cannot be redeemed
for real value by the primary issuer-the U.S. government?
Most importantly, we would need to establish a measurement
of value that was as universal as possible, and not subject
to value swings up-and-down (as is our present money system).
In other words, it would have to remain as constant in value
as possible. This would help it establish a sense of permanency
and security as well as make it more practical for exchange
to take place. Such a method of measurement would be the
most revolutionary element in the design, and would be the
key factor in creating a universal system of money and banking
that worked without the need for central banks or governments
to become involved in money issue.
Once this standard of value had been arrived at, the state
or federal government could monitor it, just as the Bureau
of Standards maintains and monitors other standards of measurement,
such as weights and units of space. However, it would not
require state intervention into the economic sphere as is
now the case.
And finally, it would have to be organized at the local
level and controlled by the community as a whole. For example,
each community would elect members of the board of the issuing
bank, which would preferably be a nonprofit institution.
Under such structure, banking would become truly more of
a profession; bankers would be paid for their services,
but the community would decide how and where its savings
were to be reinvested.
Let me reiterate briefly these four specifications: A local,
appropriately scaled currency should be: Consistent with
customary practices (cash, checking, and accounting systems);
redeemable in some form of real need of every day value;
although it will be based on local production, it should
be of a universal measure of value; and finally, organized
at the local level and by the community as a whole.
Energy as a Universal Unit of Measurement
In order to make as clear as possible what is suggested
here, I would like to make a simple proposal that we consider
using some form of energy as the unit of measurement and
as the reserve currency for redemption purposes. It is generally
recognized that energy is a factor in all forms of production
and in meeting the needs of society as a whole. In this
respect gold, commodities or resources that provide essential
energy are replacing gold as the traditional form of reserve
currency. Thus oil is referred to as "black gold."
In brief, to outline how this transfer could take place,
let us begin with energy production. Almost every community
has renewable resources for producing energy. Such resources
could be wood, wind, hydro, or waste material that can be
burned in a modern furnace, such as a pyrolytic burner that
converts wood wastes or other wastes into gas, oil, or charcoal.
All such energy sources can be converted into electricity
or measured in kilowatt-hours.
The first step would be to create a community-based organization,
possibly set up as a cooperative (as a worker-owned business),
or owned by a community development corporation, to produce
energy from any or all of the locally available sources.
This organization would sell notes, called energy notes,
at the going rate of electricity. For example, if local
utility rates are presently 10 cents a kilowatt hour, then
1 dollar would buy 10 kilowatts for future delivery. Owners
of the notes, sold in lots of 10, 50, and 100 units (comparable
to current values of one, five, and 10 dollars), would hold
these notes for future redemption in kilowatts-no matter
what their future dollar rate. In effect, these owners would
have a guarantee against future inflation of electric rates.
This would be the attraction for purchasing notes. The community
organization or corporation would issue the notes only in
amounts equal to their projected output of electricity,
thus avoiding inflation of the currency.
Energy Notes: Redemption
The responsible organization or corporation would invest
the dollars received in exchange for the energy notes to
buy equipment to produce local energy. This equipment could
be pyrolytic converters for wood waste, wind generators
for a wind park, or generators for hydroelectric, depending
upon the most abundant source of renewable energy available
in any particular location. Up-to-date cost analysis demonstrates
that such intermediate technology in today's markets exists,
assuming the availability of proper renditions (such as
tested wind sites).
For example, a wind park capable of producing 1.25 megawatts
of power could be built for a capital investment of less
than 2 million dollars, using 25 machines that each average
170,000 kilowatt-hours per year. Assuming that an average
family needs around 5,000 kilowatt-hours a year, the production
of the wind park would produce sufficient electricity for
800 families. In comparison, current costs of constructing
nuclear power plants are running several times the capital
investment necessary to produce the equivalent amount of
electricity.
The electricity generated would be fed directly into the
existing grids of utility companies under the PURPA legislation
mentioned in the last chapter. The utility company would
either be paid cash for this electricity, or ideally, agree
to accept the energy notes issued by the energy cooperative
or community-based corporation as payment, kilowatt-hour
for kilowatt-hour. Such a system would constitute the optimal
way to redeem the energy notes. For instance, assume that
Mary Smith has bought 5,000 kilowatt-hours for $500. That
would mean that, at any time in the future, Mary could pay
an electric bill of 500 kilowatt-hours with five of her
100 kilowatt-hour notes.
The utility company would have to agree to accept such payments
in advance of selling energy notes. Some utilities may be
willing to do so and others will not. However, if there
was a broad base of public support for the concept, including
environmental, antinuclear, and other citizen groups, it
would be difficult for utilities to refuse a reasonable
proposal. PURPA legislation requires utilities to accept
or buy such energy but does not specify the terms of the
sale. These terms are left up to state-regulated public
power commissions. In either case, under the same PURPA
legislation, the utility companies are required to carry
independently produced electricity on its grids.
The validity of the energy notes does not, however, rest
on the agreement of the utility companies to redeem them.
The community corporation that originally issued the notes
might ultimately be the redeemer based on its cash income,
which would increase as electric rates increase. The investor
in energy notes could still receive 10 kilowatt-hours of
value in the future for a 10-kilowatt-hour energy note purchased
today.
Liquidity and the Role of the Local Bank
Redemption is one concern for the creation of an appropriate
currency; liquidity is another. Assume that John Jones purchased
energy notes equal to 10,000 kilowatt-hours of electricity.
Knowing that as a single man he only consumes about 3,000
kilowatt-hours of electricity per year, he has made an investment
in his future as well as an investment in his community's
self-reliance. But unexpectedly, John finds he needs cash
today. He might sell the energy notes to a friend, or barter
them for services he needs. However, if a bank would accept
the notes, it would provide John with a broader base for
the sale of his energy notes. It is the appropriate function
of banks to be the managers of money and to deal with the
question of liquidity.
A local bank has an important function in the creation of
a community-based currency. A local bank could buy and trade
in energy notes like it might in foreign currency or securities.
The dollar value of the energy notes would fluctuate as
the price of electricity increased. Another institution
might be set up to provide the same function, but a bank
already has the staff and processing equipment to handle
the management of money. Such equipment and staff would
be costly to duplicate.
In order for a local bank to agree to accept energy notes,
it would have to have confidence in the capability of the
community corporation initiating the project. But again,
broad-based public support would make it hard for the bank
to resist handling the new currency. Soon, other companies
beside the utility company might accept energy notes in
payment for bills. Mary Smith might open a savings account
with her extra energy notes. Before long, there could be
a broad local market and trade in energy notes, all traded
with the confidence that ultimately this currency, at least,
is redeemable for something of real value-energy that can
heat the home or warm the meal or produce the light to read
by. There would also be the added satisfaction that this
energy was produced locally from renewable resources.
For more information, please contact the E. F. Schumacher
Society:
140 Jug End Road | Great Barrington, MA 01230 USA
Phone: 01.413.528.1737 | E-mail:
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