A World Currency Based
on Community Land Trust Resources
by Robert Swann, 1977 or 1978
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The Problem of Inflation
One of the most pressing problems in the world today is
the "inflation" of currency. In this essay I propose that
in moving toward a system of land and resource stewardship
embodied in the Community Land Trust model, we are laying
the groundwork for a new system of money exchange that is
noninflationary, local, and at the same time, universal.
Most economists will agree that the problem of currency
inflation is in large part due to the fact that the central
banking systems that drive national economies are subject
to urgent political pressures such as "national defense,"
welfare, or the "urban crisis," whose costs allow the government
to expand the issue (creation) of money at its discretion.
This ability of governments, to create vast amounts of money
for political reasons, is certainly the major cause of inflation.
It marks the beginning of what is called the "wage/price
spiral;" prices go up either due to increasing demand created
by government handouts to industry and/or welfare, or to
workers demanding higher wages to compensate for increasing
consumer prices.
Yet another cause of inflation is directly related to land
itself. This is due to speculation in land, wherein the
speculator demanding unearned (nonproductive) returns for
his/her investment forces increasing amounts of capital
to be buried in the land. Meanwhile, the speculator with
his/her unearned income creates increased pressure on prices
of consumer goods without an offsetting increase in production
of real goods. To the degree that Community Land Trusts
can remove speculation from land and resources, they therefore
help to remove inflationary pressure on all consumer prices.
Moreover, it has been demonstrated in various parts of the
world that only a small portion of land needs to be involved
in order to slow or stop speculation. As the effect of speculation
is a rather local affair, control of perhaps 5 percent or
less of the land (by a local Community Land Trust) is all
that is necessary to stop inflation of land prices. Therefore
Community Land Trusts do not need to control a very large
portion of land in any given locality to have a strong effect
on inflation caused by speculation.
At any rate, the root cause of inflation remains the central
government’s printing of "political" money. It is the heart
of the problem. Clearly, the solution to the problem of
inflation is to remove the political incentives for issuing
vast amounts of money. Either that, or a totally different
approach to the issue of money must be taken. I submit for
many reasons that it will not be possible to remove the
political motivations of the central governments. One reason
is that the business of politicians is to get elected. Politicians
will pass huge budget deficits, even if their decision amounts
to billions of dollars of inflationary pressure, if their
constituents demand it. This behavior is embedded in the
political system. For example, has anyone ever seen a president,
let alone a congressman or woman, vote against a substantial
part of each new national budget increase, even if he/she
advocated a "balanced budget" in order to get elected?
It seems obvious then that a new approach must be taken
to the issue of money. The very nature of money itself must
also be different. How can this be done? I suggest that
it must be accomplished at the local level. If we are seriously
looking toward a permanent solution to inflation, money
must be issued by local communities based on the real production
taking place. Otherwise, all "solutions" will merely be
political efforts, which if temporarily successful, come
at a cost to the poor—usually in the form of welfare reduction.
If a major solution is for local communities to issue their
own currencies, how will this work? Would not such a system
be even more confusing than the present system, with its
some eighty or ninety different national currencies, and
all the difficulty of exchange ratios between them? Yes,
but only if each community were to issue its own currency
separate from other local currencies. But that is not what
I am proposing. Instead what I am suggesting is not so different
from the present practice within each country. While the
central banks and central government control the overall
issue of money by entering the money market and buying and
selling vast amounts of government securities, local communities,
or rather local banks, also issue new money (on a daily
basis) through the granting of commercial loans. Thus, it
is not a question of local issue of money. Rather, it is
a question of whether the money issued should be national
currency, or a new kind of currency.
Clearly, if we are to avoid the pitfalls of the present
system with its many different national currencies, we must
create a local currency, which while issued locally is also
a universal currency that can be circulated anywhere in
the world. In other words, we must move on the one hand
to the local level, and on the other hand to the world level,
or toward a world economy as Rudolph Steiner and other philosophers
have indicated. How can this be done? How can we create
a universal currency, and what is the role of the Community
Land Trust in this?
Creating a Universal Currency
First we must recognize the difference between a paper currency,
or a fiat currency, and a currency based on some real good
or goods. For example all modern currencies or national
currencies are paper or fiat currencies; they are not based
on any real good or commodity. This is a relatively recent
development. Up until 1972, when President Nixon closed
the "gold window" and refused to exchange gold for dollars
on an international basis, gold continued to play an important
exchange role on the international level. Even further back
in history, in the 1930s when President Roosevelt stopped
payment of gold for dollars to U.S. citizens—and all other
countries followed the U.S.’s example—gold was still important.
Up until recently, therefore, gold has been the commodity
used for exchange; paper currencies were measured in gold—so
much gold for a given paper unit, for example ten dollars
equals one ounce of gold. To the degree that the exchange
of goods related to a real commodity—gold—inflation was
restricted, because people could always convert their paper
currency in gold (at fixed exchange rates) in order to avoid
paper currency inflation.
Even today the practice of purchasing gold continues (although
not at fixed exchange rates) in many parts of the world—including
the U.S. Last year, Congress removed the restriction on
holding gold. But with the removal of the fixed gold exchange
ratios, paper currency has been free to inflate at increasing
rates. We have seen this happen. Although fixed rates of
exchange between paper currency and gold did not entirely
prevent inflation, it certainly acted as a deterrent and
demonstrates that some basis reality (or in nature) is important
for any currency to remain noninflationary. The important
thing is that as long as gold remained the measure of value
for exchange, it provided a universal form of currency;
in effect, an ounce of gold (or its paper equivalent) remained
an ounce of gold no matter what on Earth it was exchanged
for. Most importantly, in order to have a universal currency,
a common measurement or standard is essential, in the same
sense that a common measurement of space or weight is essential
for economic transactions. At present we have two standards
of space measurement and two standards of weight measurement.
We must move toward a single standard for economic exchange.
If we are to create a universal currency, we must look to
the most universal reality in nature—not merely to gold,
which is unequally distributed around the world and is only
available to relatively few people. To return to gold as
the basis for a universal currency would only be to return
to the inequitable distribution of wealth, which in the
past, was the reason why national governments finally eschewed
gold as the measure of value. We must, therefore, seek a
more universal basis for measuring value.
Measuring Value
A wide variety of possible commodities could be used to
measure value. We could, for instance, use wheat (or rice),
probably the most universally needed commodities for human
survival. But any single commodity will have the disadvantage
that it represents only a part of the total package essential
to human or economic exchange. On the other hand we cannot
use commodities that do not have a high degree of universal
usefulness. If we examine commodities that are universally
used around the world, around thirty are essential to world
trade. These thirty commodities represent the bulk of three
essential categories: energy, agriculture and forestry production,
and Minerals. Under energy we find oil, coal, and gas to
be most important. Under agriculture and forestry we find
grains, cotton, beans, and wood most important. And under
minerals we find copper, tin, gold, silver, platinum, etc.
Using a statistical approach we can establish an index
of all these commodities weighted according to each commodity's
significance in world trade. Economists have already done
this and such indices are available. Thus, the supply and
demand fluctuations of any single commodity of world production
provides us with a universal measurement for establishing
an exchange system fit to build a world economy. Such a
concept is not new and has, in fact, been proposed by many
economists seeking to find a better basis for an international
currency system than gold. It was, for instance, proposed
at the famous Bretton Woods conference by two American economists
but rejected in favor of John Maynard Keynes's proposal
largely because of the so-called "storage" problem presented
by diversified commodity systems.
The "storage of value" is the second problem baffling
economists searching for an alternative to gold as a means
for establishing an equitable exchange system. Gold became
used as a "medium of exchange" because of its superior qualities
as a "store of value"; it did not deteriorate with age.
Only two other metals, silver and platinum, have the same
qualities, and to some degree they have entered into the
exchange process for this reason but not to the same degree
as gold. Nevertheless, while gold, silver, and platinum
have the advantage of storing value, they have relatively
limited value in actual use (gold plates, industrial uses,
etc.). To base a currency on such limited practical use
is clearly not a worthwhile economic objective.
Furthermore, one of the primary causes of the inequity
between deteriorating, renewable resources such as farming
and forestry and nondeteriorating, although nonrenewable
resources, has been our exclusive reliance on gold in the
past. To bring these two parts of the economy into equilibrium,
we must base the issue of money on the entire range, or
"basket," of renewable and nonrenewable commodities.
In fact, we could construct a strong argument to demonstrate
that precisely because our exchange mediums (currencies)
have been based on nonrenewable resources, we are now facing
a world scale crisis, not only in economics, but in the
world’s ability to survive continuing industrial pollution
on a scale that may result in apocalyptic disaster in the
coming years.
The Role of Community Land Trusts in Creating a Universal
Currency
The point that paper money is not backed by real commodities
may seem somewhat obscure—particularly to most economists,
who are not taught to use common sense. The average person,
however, can understand it intuitively at least, because
it makes common sense. As a matter of fact, in the U.S.
there is an organization organized by farmers and economists
called the National Organization for Raw Materials, which
advocates "100% parity for raw materials in general, agriculture
in particular." The basic contention of this organization,
which seeks legislation to establish parity, is that the
failure to include raw materials (basic commodities) within
the money system on an equal basis with industrial goods
is the primary cause of the discrepancies between agricultural
products and industrial products on a world scale.
Fortunately, this "apocalyptic disaster" will
probably not happen because the "center" will
break down (inflation is evidence of this breakdown). In
other words, Central governments will be unable to sustain
economic growth and the resulting disintegration of entropy
will provide the opportunity for the transition to a local
and a world economy at the same time. But such a transition
will only be possible if we are able to solve the riddle
of a locally based and universal money system.
Back to the problem of storage: Why is it important and
what is the role of the Community Land Trust in solving
this problem? One could observe, for instance, that today’s
currencies are not backed by gold or any other commodity
and, that therefore, a backing for currency must not be
necessary. But we have also observed that a failure to be
willing to redeem gold for paper currency is partly the
cause of inflation and the failure of fiat (paper) currencies.
Furthermore, we also know that the major reason, if not
the only reason for the creditability of currency issued
by the central government is that most people assume that
the central government is "standing behind" the currency,
and therefore, continue to place their confidence in it.
And it is true, of course, that the degree to which the
federal or central government can impose taxes on the country
as a whole, it can if it has the political will to do so
to back the currency and prevent inflation. The results,
however, would be disastrous and throw the country into
depression and deflation since the government cannot enter
into the real economic process but merely manipulate the
symbol—money. And this is why politicians will not risk
imposing taxes and "balancing the budget"—even though it
would prevent inflation.
Some economists and politicians will insist that there is
another way to stop inflation, which is to set up a strict
range and price control board to hold down prices. But who
will control the politicians who will continue to print
money for pet projects, for "defense", etc.? Does anyone
honestly believe that a wage and price control will work
without control over the issue of money? Only Hitler was
successful with such policies, because he had the power
to enforce them.
What we are suggesting here, then, is a method by which
we can separate politics from economics. This separation
must be made if we are going to have a healthy system. It
may even be a matter of survival itself.
Redemption
In order to create this money system, which is not dependent
upon politics and the power of taxation, we must concern
ourselves with the problem of credibility. We must ask ourselves
whether or not our universal currency will be accepted as
creditable if it cannot be redeemed for a commodity, as
was formerly true with gold. Put a different way, it could
be said that within a local economy, individuals will accept
a currency issued locally because they know and trust the
people, or bank, issuing the money, while this is not likely
to be the case beyond the local level. (We see on an international
level that this is why gold remained as an international
exchange medium for so long. Nations do not trust each other
and, besides, national governments change—often quickly.)
If we agree, then, that some form of redemption is necessary
for a non-national, or nonpolitical, form of money, we must
ask what is necessary and how can it be accomplished? This
is the heart of the problem, because once credibility can
be assured, then exchange on a universal basis becomes possible.
Now we must consider what is needed for redemption. First,
we recognize that redemption is only needed as security
and, therefore, serves primarily as a matter of trust and
secondarily as a matter of prudence. The greater the trust,
the less storage for redemption is necessary.
As to the question of what needs to be stored, it is a matter
of preference: for what commodity would people prefer to
redeem their paper currency? My assumption is that probably
they would prefer gold—for all the reasons it has traditionally
been the most desired commodity for storage. It is hard
to imagine anyone walking into a bank and asking for so
many bushels of wheat in exchange for paper currency. Therefore,
any local bank would have to retain some gold for redemption
purposes. With the change in U.S. law, this is now possible
in the U.S. Nevertheless, while gold would only be needed
for redemption, a substantial backing of some relatively
nonliquid but fully diversified commodities would also be
necessary to back the original issue of money and to retain
adequate credibility. Such a "storage" system would represent
to some degree the three major categories of energy and
agriculture, forestry, and minerals.
In this respect, the Community Land Trust is in a unique
position. In theory, at least, once Community Land Trusts
are widely spread across the world, they will hold vast
rights to mineral, coal, oil, and forestry resources, which
represent a considerable energy resource. Most importantly,
all of these resources are naturally stored in the ground
or in trees. Thus one of the major problems, the cost of
storing commodities, which economists have used as an argument
against a commodity-backed currency, is avoided with the
Community Land Trust as the sponsoring and authorizing organization.
Finally, we must deal with one of the most basic questions:
On what basis is money to be issued at all? The simplest
answer is, only on the basis of the production of real goods.
Only when money is issued on the basis of real production
can we insure against inflation. But also, of equal importance
is production of goods with social value, meaning those
that are not detrimental to the community (certainly not
armaments, for example). As long as money is issued on this
basis we can, in fact, issue money as it is needed. There
can be no "money shortage" as existed in the Depression
and during every "recession" of the so-called business cycle.
Most importantly, because we included the nonrenewable commodities—agriculture
and forestry—in our basket of commodities to back our currency,
we can now create as much currency as needed by issuing
loans to farmers and factory developers to bring about increased
production of food and forestry products, without any inflationary
effect. In short, a sound money issue will provide for all
our needs (but not our greed).
The Role of the Community Land Trust in a Commodity Based
Banking System
We can begin to see the outline of a community based banking
system in which the Community Land Trust plays a key, initiating
role. Because the CLT (my abbreviation) is a store of resources
for the community, it can act as the initiator of a land
banking structure. While this might be done through a separate
bank authorized by the CLT, the resources of the CLT provide
the real basis for such issue. Moreover, the CLT leases
its land to farmers and families for housing, commercial,
and industrial uses. Such lease income, like the tax income
to the central government, also provides the credibility
for the establishment of a community bank that issues money
(or credit) needed for local production.
It is also obviously true, however, that a single CLT would
not be adequate by itself to provide the diversified resource
base on which to issue money. Rather, it will require an
association of several CLT’s, first on a regional basis
but eventually throughout the world.
This may be a long way down the road from happening, and
it probably is. But a start may be possible within the foreseeable
future as the CLT movement grows and acquires resources
. On a small basis, it is conceivable that within the next
five or six years, a beginning can be made. It depends on
how many people perceive the need and how rapidly the Community
Land Trust movement grows.
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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