Escape routes: Fleeing Vesuvius – which way should we go?

All contributors

Compiled by Caroline Whyte

The editors and I asked this books’ contributors to send us their recommendations for things that could be done on a personal, community, national and international level to help prepare for the future. Naturally enough, our request was interpreted differently by different people: some contributors focused exclusively on the subject of their articles in the book, such as the need to curtail greenhouse gas emissions or undertake financial reforms, whereas others took the opportunity to provide much more general advice.

Additionally, not everyone was convinced that it’s helpful to think in terms of escape routes at all. Lucy McAndrew wrote in this regard that “the bottom line is that there is no escape route. If we have created an unstoppable economic domino effect, we’ve also created, with more devastating consequences, an unstoppable environmental effect — in terms of climate change and in terms of biodiversity collapse”. As we’ll see though, she doesn’t think we should just despair over this situation; she has some ideas for concrete action which I’ve included further down.

Emer O’Siochru also believes that “there is nowhere to escape to”, but her reasoning is somewhat different. She goes on:

“We are already reasonably well placed here in Ireland compared to anywhere else in the developed world. We should instead stand our ground […] There is no single cataclysmic [event] to escape from. The events we fear are in the now, happening daily and weekly, all the time. These events will build, breach a threshold, cause major disruption followed by a re-adjustment and form a new baseline from which events will build again. Whether we allow the disruption/s to be so complete that substantive recovery is not possible is entirely in our own hands. The future is ours to create out of this process; nothing is predetermined.”

On that note, let’s start looking at recommendations for the different levels of action.

Personal action

Re-skilling and staying healthy

Most of the contributors share a belief in the importance of developing skills that would make us less reliant on the industrialised economy. David Korowicz suggests that “an investment in knowledge and skills is the wisest and cheapest of investments”. Brian Davey describes how most people in low-energy civilisations are skilled in basic food growing and preparation, making and repairing clothes and maintaining their shelter: “Activities and training that pre-figure these basics are most useful — and many people [in industrialised countries] don’t have these skills, which are not valued.”

In a similar vein, Nate Hagens believes that “novelty activities” that are plentiful in the oil age will die out and be replaced by “activities more aligned with human time scales — like gardening, or art, or sports”, and he too believes that it’s a good idea to get involved with such activities sooner rather than later. He adds that “human capital — one’s health, skills and talents — will start to replace the security of being able to buy anything with enough digits in the bank — indeed getting back to top physical health is one of the best investments of time and resources one can make, irrespective of future resource availability”.

Oscar Kjellberg suggests that we should “take an interest in basic food growing and preparation and shelter maintenance”, while Lucy McAndrew says we need to “practice basic husbandry.” Anne Ryan comments that “with gardening, transport, technology, recycling, cooking and growing, you can pass on what you know and learn from others.” More detailed ideas for developing food security can be found in Bruce Darrell’s panel immediately below.

Developing a food security strategy

Bruce Darrell

Start by assuming that the land producing your food is deficient in essential minerals and has an imbalance of major nutrients. Assume that the food produced will be deficient in key minerals and will be of minimal nutritional value. Assume that this food may prevent you from starving, but will not sustain or improve your health. Your key task is to correct mineral deficiencies and balance soil fertility.

Educate yourself about the relationship between:

  • the availability and balance of the minerals in the soil
  • the productivity and health of plants grown in that soil
  • the nutritional quality of the food produced
  • the health of the animals and humans that consume that food
  • the amount of resources expended on healthcare
  • the extent of nutrient cycling used
  • the overall resilience of your family/community/society

Develop a Food Security Strategy. Determine what food security would look like for your family and community in two, five and ten years’ time. Develop a map or plan on how to achieve these goals which would answer the following questions:

  • How much food will be produced and what type of diet is most appropriate?
  • Who will be producing food and how are they going to get the necessary skills?
  • Where will the food be produced and what facilities and transformations are needed?
  • How will knowledge and information be obtained, recorded and shared?
  • How will access be secured to the land, facilities and seeds needed to produce food?
  • How will the water, minerals and fertility be sourced and cycled?
  • How will supplies of food be stored, processed and distributed?
  • How will surpluses and deficiencies be exchanged within the community and with other communities?

Map your land and the surrounding landscape to determine which areas are needed for ecological services and biodiversity, which areas can be best used for intensive food production, and which areas can be mined for nutrients, material and soil to improve the first two. This ecological triage will see the long-term degradation of parts of the landscape but the significant improvement in the quality and productivity of other areas.

Test the soil to determine the fertility availability and balance, the deficiencies of trace minerals and potential toxicity caused by excessive amounts of heavy metals and pollutants. Develop strategies for dealing with both the deficiencies and toxicity, including changing the location and method of food production if necessary.

Concentrate efforts on smaller areas of land rather than having a diffuse effect over a larger area. It is better to produce smaller amounts of higher-quality food than to try to produce large amounts of low-quality food with increased risk of losing everything.

Use remaining access to money and affordable energy to import fertility and trace minerals, to make major structural changes to the landscape, to build necessary infrastructure and to purchase tools and equipment that will assist in future food production.

Import the broad spectrum of trace elements in the form found in seaweed or other plant materials, ground rock dust or sea salt. Import concentrated forms of specific nutrients that you know are deficient in your soil and carefully incorporate them, ideally through the composting process. Do not let a strict adherence to organic principles or beliefs in natural gardening methods prevent you from quickly fixing what is deficient.

Increase the nutrient-retention capability and biological activity of your soil by increasing the organic content of the soil, incorporate biochar if appropriate, and change the land-management practices to reduce soil erosion and leaching of minerals.

Capture the fertility and carbon that currently flows through your community. This can be done through composting, sheet mulching, anaerobic digestion, production of biochar, and through fungal decomposition. Incorporate this material into the land designated to produce your food, or store it until this land becomes available.

Restrict exports of fertility from your land and community, unless you have an abundant and sustainable supply of fresh minerals and fertility to replace what is exported. If minerals are difficult or expensive to obtain, do not sell or trade food as a means of obtaining cash or other materials and goods.

Develop sustainable and robust nutrient cycling systems so that all of the minerals and fertility that are harvested is returned to the land. This includes human wastes.

Test the nutritional density of your food by using a simple refractometer to determine the amount of sugars, vitamins, minerals and other solids that are dissolved in the juice of vegetables, fruit and plant sap. The nutritional density should increase as mineral deficiencies are corrected, fertility is balanced and production methods are changed to increase the biological health of your soil. If it doesn’t, you are doing something wrong. Food with high nutritional density will improve your health, and is a sign of a healthy and abundant ecosystem.

Wise spending

Dan Sullivan thinks we should consider whether we are reinforcing existing power structures with our spending, or helping to change them: “Regardless of the environmental consequences, money spent on land and natural resources is money given to privileged title holders, while money spent on labor products is money given to your fellow producers. Although all products involve both labor and natural resources, the proportions vary widely.”

Patrick Andrews emphasises the effects of our decisions as individual consumers on the economy and environment. He writes “I recommend you really reflect on who you are supporting when you spend money. What is the nature of the businesses you are engaging with? What’s their purpose and what is your relationship to them? What impact do they have in your community? Can you influence them? We tend to underestimate what impact we can have as customers — by being more conscious of all the choices we make each day when we spend our money, we can have a positive influence on the businesses we engage with.”

Corinna Byrne has a specific suggestion along those lines: “if consumers insist on detailed food-labelling based on the carbon footprint of products, this would help to drive agriculture to reduce emissions.”

Material investments: choosing frugality and reducing greenhouse gas emissions

Dmitry Orlov, among others, discusses spending more in terms of its personal effects than its effects on the economy as a whole. This fits with his general analysis, which suggests that the larger economic system will probably collapse so there’s little point in large-scale consumer activism. He thinks you should “make arrangements to lose your money slowly over time rather than all at once in a single financial confidence hiccup. Withdraw your money from circulation by tying it down in durable objects that are guaranteed to have residual use value in a non-industrial context.”

Dan Sullivan shares this emphasis on frugality: “Personally, use as little land and natural resources as you can without unduly hampering yourself. Repair rather than replace, and look for products whose value reflect labor costs rather than resource costs.”

John Sharry believes you should “remember to make the most of the wealth and resources you currently have, as these will be much more scarce in the future.” Oscar Kjellberg advises you to “get rid of your unsustainable assets and make yourself debt free. Involve yourself and your money in a community with natural resources to fall back on in case something happens.” Richard Douthwaite also believes that we need to cultivate frugality and build community bonds: “Each family should try to reduce its outgoings as far as possible because it will not be able to rely on an outside income in future. It should therefore link with its neighbours to meet common needs.” As we shall see, this theme of building community is a very popular one.

David Korowicz comments that “we will never be materially richer than now, what we have is a precious resource to be used wisely.” He describes what he calls “resilient investments”, the aim of which, he says, “is not to give a conventional return-on-investment. It is to preserve your welfare in an uncertain future by providing something that is likely to be useful and important in that future. It does not have to make financial sense now.” He believes that “now is the time to liquidate assets held abroad (property, investments); and non-resilient ones at home.” He also thinks that “real assets, production & skills” will hold more value in relative terms than “cash, equities, bonds and much property.”

He has some suggestions for specific things to invest in: “Just because energy and food have the most direct impact on the collapse of systems does not mean that we should just think only in terms of investing directly in renewable energy and food. We might also think of workhorses, trailers, and harnesses; containers and demi-johns; barges and sail boats; shovels & hoes; basic chemicals; waste re-cycling; curing & preserving; bottling & canning; forestry & hydro-saws; reserve communications systems; storage facilities; and so on.”

Corinna Byrne stresses the need for personal investments that reduce greenhouse gas emissions: “Switching from the use of peat for home heating to renewable technologies such as solar and geothermal power is recommended. The installation of small wind turbines to power one’s home will also help. When it comes to food, much of what we eat is produced under emissions-intense conditions. Growing your own and purchasing locally may contribute to reducing emissions.”

With regard to energy use, it may be better to keep things as simple as possible, even if that means losing some efficiency. David Korowicz writes “Don’t be seduced by the most efficient technology. It is far better to have something simple and locally repairable, even if inefficient, than something highly dependent upon globalised systems for upgrades, components and repairs.”

Dmitry Orlov thinks we should “consider what’s coming in the context of emergency preparedness — except that this emergency is not expected to end. Stockpile supplies and learn skills to maintain and repair your most important possessions and equipment for as long as possible after new products and replacement parts and supplies are no longer manufactured. Devise alternatives for heating, cooking and transportation that do not rely on fossil fuels. Find alternatives to inhabiting the landscape that do not rely on current built-up infrastructure and provide you with direct access to food (plants and animals).”

Avoiding a bunker mentality

A number of the contributors believe that there is a danger of over-emphasising the role that self-sufficiency should play. Graham Barnes is one of them. He writes that “despite a personal predilection for living in the moment, I would place ‘taking an interest in the future’ as #1 on a personal action level — above the other contender — reskilling/self-sufficiency — which I support and admire but can be part of a bunker mentality.”

Lucy McAndrew makes a moral argument for building community: “[…] we must, for the sake of all that is valuable in the human, resist the urge to shrink our moral circle. We must overcome the tendency that fear will imbue us with to fortify our own ‘castles’ at the expense of community.”

She goes on to suggest: “Instead, and against every fear-mongering product and media-call, we must create links within villages and towns and recognise that even those who think they are against us are actually for us, since they, too, are for survival.” Some readers might question whether being for survival means being for everyone’s survival, or for the survival of one’s own community, or even just one’s own self.

But in any case, there are other practical reasons to avoid a bunker mentality, some of which David Korowicz identifies: “Your wealth will not provide you with a separate peace. Firstly, because most of what is regarded as wealth will vanish. Secondly, we are all dependent on the globalised economy, if it fails, if fails us all. Thirdly, you are unlikely to survive without the skills and networks of others. Finally, sitting upon your hoard surrounded by the anxious and destitute is not safe.”

Emer O’Siochru describes the negative effects of a bunker mentality on the larger community: “Attempting to recreate self-sufficiency at family level in basic food, energy and shelter is not a realistic strategy if generally adopted. Others have pointed out its flaws if adopted unilaterally. Its widespread adoption would certainly accelerate knowledge destruction and social breakdown. It is exactly the same failed strategy adopted by the Congested District Board and the later Land Commission that so undermined the village communities on the Western seaboard, caused centuries of emigration and destroyed the Irish language.”

The role of specialisation

Emer O’Siochru writes that “specialisation fostered by the growth of settlements is still the same powerful wealth and well-being building tool it was when it pulled Europe out of the Dark Ages. Increasing local life-support system integration requires more and better specialist technical knowledge, not less.”

In apparent contrast, Brian Davey believes that “most of us are too specialised for our own good. The chief danger is to think that we are special and that our unique information and skills, which currently fit a high-energy, highly specialised economy, will remain indispensable.”

It seems likely that in the future almost all of us will spend more of our time on activities that are geared to basic day-to-day survival, such as growing food, chopping wood, making and mending clothes, maintaining shelters and looking after livestock. However, specialisation will have an important role to play as well; it just won’t be dependent on high-energy inputs anymore.

Davey is probably right in suggesting that people who spend a great deal of their time in front of a computer screen, such as myself, will experience some big changes in their lives. Instead we’ll need people like coopers, a profession that’s not very much in demand at the moment but that used to be quite important (my great-grandfather was one). Another profession likely to experience a resurgence in popularity is blacksmithing. And some existing professions will remain too, of course: we’ll need expert plasterers to build the kind of ship hulls that Dmitry Orlov describes in his second article, midwives, potters, architects who know how to use local building materials, vets, bakers — the list goes on.

An uncluttered mental landscape

Anne Ryan emphasises simplicity, both in material and in psychological terms: “it is always easier to cultivate hope if one is coping well with present circumstances. We can all use enough to create personal stability. Avoid being too busy, or having a surfeit of possessions; cut down on unnecessary decisions. It is true liberation to know how to live well with just the right amount of material accumulation. Talk to friends and family members about these issues.”

Lucy McAndrew discusses the need for imaginative thinking: “Remember that empathy is reaching out with your imagination, it is a stretch, an extravagance, and therefore it is characteristic, essential to what we are as animals. What extravagant humanity has done is to reach out into the material realm and ensure its comfort, at the cost of the future. Now we have to use our imaginations extravagantly to square the circle of how we can maintain our own comfort in the face of increasing discomforting environmental realities, and in the face of an increasing knowledge of the effects of our actions.”

Graham Barnes, as already mentioned, believes it is important to try to think clearly about the future. He points out that “most of us lead busy lives. Much has been written about the work/life balance and there has been a tempering of the American Dream ‘work for success’ ethic with a search for ‘quality time’. But the zeitgeist is changing more fundamentally than that now. Work and quality of life are two legs of the stool; the third is future. Securing a sensible work/life balance on its own is a self-centred agenda and only an unstable equilibrium is possible without the third leg.”

Nate Hagens also emphasises the need to take an accurate view of the future: “Ultimately, we have been living beyond our aggregate means for sometime and are presently in a society wide ‘Wile E. Coyote’ moment. Given the prevalence of ‘unexpected reward’ as a driver of our behavior, to lower our expectations of the future, and redefine for ourselves and our family what we consider ‘success’ will be a psychological robust strategy that will serve us well in many ways. Who knows, if enough people get healthy, make new friends, redefine wealth, and change their skill sets to something useful for when the fossil pixie dust starts to disappear, we will have not only improved our individual futures but in doing so made a more resilient, sustainable culture as well.” As we’ve seen in Davie Philip’s article, movements such as the Transition Towns one are built on the premise that the future need not be uniformly worse than the present, but rather, as Hagens implies, that progress will be measured in more accurate ways than the present practice of conflating it with an increase in GDP and personal spending.

John Sharry comments that “being aware of the coming peak oil/climate crises can take its personal toll on an individual’s mental health. Seriously contemplating the consequences can cause you to feel anxiety, depression and at times despair. Further, because your awareness will take you outside the large-scale denial in mainstream society, you are likely to feel an ‘outsider’ or marginalised. Certainly if you talk publicly about the problems you can be perceived as a bit of ‘crank’ or even a ‘kill joy’ socially. Preserving your own mental health and well-being is as important as taking action and there are many things that can help.”

He advises us to “seek support from like-minded people who are share your concerns and who don’t belong to the mainstream denial. Joining an environmentally aware organisation such as Transition Towns, Cultivate or Feasta will bring you into contact with a support community.” He believes we have to “accept that the majority of people will not accept the problems and be largely in denial until a major crises hits. See your job as building an ‘oasis’ of awareness and preparedness with a small group of like-minded people.”

He continues: “Many people who face a ‘fatal diagnosis’ report that after an initial period of grief or despair, the news can make their daily life more precious as they learn to appreciate what they have. Learn to enjoy the moment and to prioritise the things that matter the most to you in your daily life such as connection with family and friends etc.”

David Korowicz also emphasises the importance of friendship, in particular its psychological benefits: “you will have to stand up and put your neck on the line [since the longer you wait to take action the more options will be lost]. It can be lonely. Find some fellow travellers to share in the trials and triumphs; and the hilarious predicament in which you find yourselves.”

Nate Hagens adds that “for many reasons if there is less stuff to go around, and higher possibility of certain stuff not being available, having more friends, (and a variety of them) will help both individual and community trajectories.” Let’s go on then to investigate how some of those community trajectories might play out.

Local/community action

Almost all contributors place particular emphasis on community-level action. Emer O’Siochru writes that “the most effective scale to intervene is the local or community scale so I will disregard the others to give it its due prominence. A resilient local community can act as a circuit breaker to halt or slow a cascading collapse of the larger systems and provide absolutely essential support for individuals and families while they adjust to the new reality. My recommendations are both practical and political […] Get thee to a village or small rural town. A ghost estate house might be got very cheap. If you can afford to, hold on to your rural house as a summer dacha and/or your city house as the best place to be in a sudden or single emergency event.”

Dan Sullivan thinks that when you’re deciding where to live you should “vote with your feet but vote intelligently. The municipalities, states and countries that get the biggest shares of their revenue from taxes on land, natural resources and pollution will have more stable economies and more affordable lifestyles for productive citizens than those which tax productivity.” He believes we need to “show local governments how they can prosper from untaxing productivity and up-taxing land, pollution, and resource extraction to the degree that those things happen in their neighborhoods.”

Building community

Dmitry Orlov suggests you “make connections with people around you and work to identify ways to gain access to what you need to survive in absence of an official economy. Convert virtual communities to face-to-face interaction. Make enough personal connections so that you can go “electronically dark” if the network fails or take yourself off the map if the political climate turns predatory.”

Brian Davey also takes a pragmatic approach: “the issue is not: what can I (or I and my family) do to survive the coming crunch?” — it is what can the communities and networks that I belong to do to survive? And what is my contribution to the collective process? As a rule of thumb, if you play a role looking after the community in these basic activities, it is likely that the community will look after you. Important in this respect is to provide support for those members of communities that are vulnerable — the elderly, disabled, sick.”

He believes that at present we tend to neglect our ties with neighbours in favour of more geographically distant relationships: “[…] many of us are members of very widely dispersed communities who keep in touch via electronic and digital communications and we may have very limited near contact with people who live in close geographical proximity. In a crunch situation distant relationships may remain important but, for the provision of essential supplies, it is obviously closer communities, and what they are doing collectively, that are important. Many of us don’t really belong to local communities, so the first step may be getting to know neighbours. People eating together is a good start — the word companion comes from the Latin ‘com pani’ — with bread.” Neighbourhood street parties and potlucks, where everyone contributes something, have a role to play here.

Davey continues: “This may seem very banal and we may see ourselves as having a more important leadership role, becoming a hero or heroine of local, national or international enviromental politics. In fact, it is not the leading lights who make fine speeches and internet videos that are the most important when things start to get difficult — but the ones who can train others how to bake bread, and how to grow the grain to make it with….”

“Anyone reading this book is unlikely to be a complete social isolate and without any practical skills at all — but if you are — then just join something. A community garden is ideal. If you look you will find a few odd people out there who have also seen the chaos coming…like those in the Transition Initiatives. Far more than worrying about how you are going to invest your remaining money, though that’s important — get involved!”

Similar approaches to building community are suggested by Anne Ryan: “Join any of the existing movements: for local food, a local credit union, a local exchange system, swap club or transition-town group. Or join a group campaigning for carbon quotas or a citizens’ income. You can also bring your knowledge and your questions into groups to which you already belong, such as church, trade union, sports club, study group or workplace.”

How big should a community be?

The answer to this depends on what the community is trying to do. Graham Barnes comments that “actions appropriate for a ‘precinct’ of maybe 150 people are rather different from those appropriate for a ‘demos’ of 30,000. Feasta is arguably a precinct; a Liquidity Network [for developing a local currency] probably needs a catchment area of 30,000 or so for critical mass and substantial self-sufficiency. Community currencies are an important part of the emerging localist agenda, but only a part of it.”

Community size can make a difference in the ease of spreading information. Barnes explains that “in a precinct you may be preaching to the converted. In the process the precinct becomes better informed but can create more distance between the group and the man in the street. In a demos, you have to spread the word with more accessible and less ‘technical’ messages, and [the Liquidity Network] must become expert at this type of dialogue.”

Community activities

Laurence Matthews thinks communities need to engage in meaningful debate about climate change: “The need at local level is […] to change public opinion: for people to argue in the pubs, in the shops, in the churches, and not least to their local political representatives, for the need to take climate change seriously; to counter the complacent feeling that recycling and cutting down on plastic bags are in some way an adequate response to climate change. Profligate use of carbon, e.g. frequent air travel, has to be seen as irresponsible and socially unacceptable, in the same way that drink-driving has become. This will take courage, persistence and diplomacy.”

In order to discuss important issues effectively, we sometimes need to take a step back and discuss the discussion itself. In this vein, Patrick Andrews reminds us to reflect on the manner in which communities function, and to try and ensure that everyone is getting a say: “At community level, I suggest you pay attention to the ways that individuals interact when they get together in your community. Are the discussions dominated by a few people, or is everyone’s voice heard. Do the structures encourage proper conversations? Are the voices of both men and women able to be heard? What about young and old?”

Lucy McAndrew also focuses on the emotional health of communities: “we must practice trust and empathy, not at the expense of ourselves (we must learn self-defence, too!) but so that we can create a meme, a mental virus which will infect and inspire the people around us and allow us to deal with any forthcoming crisis in the most dignified, the most respectful and, in the highest sense, the most human way imaginable.”

In addition to these ideas, what tangible actions should communities take? Richard Douthwaite believes they should strive to become as economically independent as possible: “Every community should try to meet its basic needs from its own resources and any necessities brought in from outside should be largely to increase choice and balance by similar goods going the other way — exchanging apples for oranges, for example.” One can imagine a scenario such as that described in Orlov’s second article, where apples and oranges are transported by small sailing boats, along with spices and other goods that travel relatively easily and are in high demand.

Several contributors discuss the topic of community finance. David Korowicz suggests that “investing within your community makes you safer by making the community stronger.” He thinks we should “invest to avoid stranded assets. At some stage in an investment cycle there may be a major disruption that will halt the project. Ensure that useful assets will be left behind. For example, don’t front-load grid infrastructure investment; develop localised energy generation first.”

Richard Douthwaite elaborates on the idea of investing within one’s community: “Every community should have its own investment organisation to allow its residents to invest in activities in their own community. This will enable them to take a holistic view of possible investments. They will be able to assess their social and environmental return as well as the income they are likely to generate.”

Oscar Kjellberg has a similar proposal for developing local investment unions: “Stimulate people to reflect on who they are supporting when they are saving money. Find ways to attract savings from investors who want to save with your community and its assets rather than paper assets at stock exchanges or in equity funds that will lose even more of their value as the oil crunch worsens. Develop local enterprises through a community investment bank which should be a place where savers and entrepreneurs can socialise and discuss the development of the community. Create a local business alliance around it.” Community-supportive investment tools such as the equity partnerships and local energy bonds described in this book would fit in neatly with this approach.

To these suggestions we can add the many that Davie Philip makes in his article on the Transition Towns movement. One that particularly struck me is that “as a community [you need to] identify and strengthen your physical, social and human assets. Value the tangible and the intangible, especially the skills and talents of local people.” As mentioned above, setting up a local currency could help with this.

Limits to community action

For certain issues, however, it seems clear that action on a local or community level is insufficient; one of these is climate change. This cannot be tackled by local initiatives alone as one community’s good work could very easily be undone by another’s negligence. Laurence Matthews writes, with regard to this, that “developing local resilience etc. is all very well in itself and as an awareness-raising exercise, but the urgent need is for serious national and global action.” So now let’s look at those types of action in more detail.

National action

The differences in contributors’ approaches become more pronounced at this level. Anne Ryan writes that “if you find you are having success with a local movement, you could go a bit further afield, into national civil society, international civil society, even into government. That is not to say that we should all try to get elected; it is also important to maintain civil society — all those groupings and activities that exist outside the state and the free-trade market — so that government is always reminded of its responsibilities.”

This approach assumes that the current political system, with its emphasis on the roles played by different stakeholders such as governments and business, will be viable in the future. However, Graham Barnes believes that it cannot deal adequately with the problems we are facing. He writes: “It is impossible to know whether politicians are dim, lazy or think they perceive a self-interest in the dysfunctional status quo. And pointless trying to find out. It seems likely that the nation state will be more of an obstacle than a progressive partner for the changes needed. It is in any case relatively powerless compared to international business. So I wouldn’t exactly say ‘don’t bother’ with national action agendas, but I would demand proof of seriousness from any national politicians before spending any time with them.”

In contrast, Dan Sullivan thinks we need to avoid demonizing those in power: “[we should] focus on what is right or wrong rather than who is right or wrong. Some of the great changes of history were triggered by people from among the privileged elite realizing that their privileges were wrong and doing something about it.”

Emer O’Siochru, for her part, believes that “politics really do matter. The Nation State is not dead nor should we wish its demise. Political power is useful, at the very least to remove bureaucratic obstacles, and at best to undertake the fiscal and monetary reforms that could really help us. People who are aware of the crisis should not be too proud nor too clever to march in the streets.”

Anne Ryan agrees with O’Siochru that large-scale collective action is worthwhile: “Efforts for change are most successful when people work together. Solidarity can amplify the voice of the movement of enough; and when your voice has a better chance of being heard, your hope is maintained.”

When one remembers that, just prior to the current war in Iraq, record numbers of people marched in the streets all over the world to oppose it but that they were nonetheless ignored by most of the politicians involved, it’s tempting to conclude that this kind of action is a waste of time. However, the historical record provides plenty of examples where popular pressure did produce political results.

Of course, popular pressure is a double-edged sword: sometimes it brings about results that are highly undesirable, as Brian Davey points out in the article he co-authored with Mark Rutledge. But in my view this should not be taken as a reason to refrain from political activism — rather the opposite. People will need to have accurate information and to know their options in order to avoid mass panic.

John Sharry writes in this regard that “while the general population is largely in denial about the nature and scale of the problems we face, this will change very quickly once a series of major crises hit. At this point people will become devastated, angry and very volatile. It is crucial at this point to have a worked-out and well-communicated understanding of what is happening that provides a pathway forward that brings people together. We need to prepare to provide leadership to a devastated population so as to avoid large scale social unrest and a dangerous social vacuum, and instead inspire people towards constructive action.” In this context, Davie Philip’s definition of leadership as “the ability to inspire initiative and new thinking with those around us” seems appropriate.

Although Sharry provides a strong practical argument for political involvement, we might well wonder whether we have enough time for this kind of strategy. Dmitry Orlov doesn’t think so. He writes that we should “stop wasting time and energy on conventional activism or political involvement. It is more efficient to simply wait for people to come round than to actively try to persuade them. Take “Believe me now, or believe me later!” as your motto. Time is on your side, not on the side of those who insist that they be persuaded.”

While it’s certainly clear that time and energy are scarce, we’ve already seen how the nature of some of our problems — climate change in particular — is such that the need for large-scale action appears to be inescapable. Specifically, there need to be enforceable global caps on greenhouse gas emissions, plus a global framework to encourage carbon sequestration and the preservation of existing carbon stocks.

That’s the stick that forces us to engage in political action, but there are carrots as well. Anne Ryan comments in her article that “politics is about public, collective choices and is closely connected to morality.” Seen in that light, the implications of some of the international programmes that are suggested in this book are quite stunning. What if we combined the curtailing of greenhouse gas emissions with ending the Third World debt crisis and providing billions of people around the world with a nest egg for investing in renewable energy, healthcare and education? The world would likely become a considerably more stable place in political terms, which is an obvious improvement, but it would also be a better one in that we would have taken a step towards redressing many historic injustices. Personally I think that that would be quite a worthwhile thing to try and do, well worth a stab anyway.

The question of political strategy remains, though. Haranguing politicians to try and get them to adopt certain policies might well backfire, particularly if the general public isn’t convinced of them either. As Brian Davey says in his second article, sometimes a more oblique approach works better.

It’s also worth remembering that there isn’t always a clear cutoff between active attempts at persuasion and the simple relating of facts: often both things happen in the same conversation. What if a curious but not-entirely-convinced person asks questions about the decisions one has made about one’s life? How much time, if any, should one devote to answering such questions?

So what should governments do?

Well, let’s assume that governments are willing to act as we wish. What should they actually do? John Sharry is most concerned with the short- and medium-term challenge of dealing with system collapse:

“Whereas many people within the environmental movement are envisioning what a sustainable society might look like, the most dangerous time will [be] the transition time which will be experienced as societal and economic collapse. Preparing for managing this transition time is crucial to survival. […] In small informed groups, prepare a series of national emergency or ‘disaster’ plans that will attempt to anticipate the exact nature of the many near future crises that will occur so that a range of adaptive responses can be strategised and prepared. This can include plans for dealing with energy and food scarcity, mass unemployment, population migration, currency and financial collapse etc. Both community, national and international responses need to be considered […] so that informed community and national leaders as well as plans and policies can be available once the major crises hit.”

In order to deal with future problems we’ll obviously need to have competent people around, and so Emer O’Siochru argues that we need to “campaign politically to hold our young and well educated in Ireland. We will need all our various engineers, scientists, mechanics, medical professionals and even generalists like architects, planners and system engineers. It is very important for the middle aged amongst readers to note that a youthful population is the only real insurance of a modicum of comfort for our old age.”

On a more general level, Laurence Matthews emphasises the responsibility governments have to be honest. He writes that we need to “induce governments to speak out plainly to their populations, to tell them the truth in plain language, as in wartime. Can they not pay their people the compliment of treating them as adults rather than fickle children who must be shielded from the truth? We need some leadership, in fact.”

Of course, it is possible that many politicians are simply unable to comprehend the depth of the predicament we are in. One certainly gets that impression when one looks at the investments that governments are currently making. David Korowicz points out that we need to avoid unwise investments at the national level as well as the individual one: “Don’t dig a deeper hole — buying a new car, or building more airports, motorways and incinerators is just.. stupid.”

Dan Sullivan draws also draws our attention to the ways that governments allocate taxpayer money: “Avoid supporting subsidies for greener technology, for greener technology merely pollutes less, and subsidies for technology increase dependence on technology. Paying someone to pollute less is still paying someone to pollute. Those who have arranged their lives so they can travel mostly by walking and bicycling should not have to support those who drive cars with their tax money, even if they are supporting those who drive electric cars.”

He thinks national governments need to delegate more responsibility: “Politically, ask national governments to do less, and to allow local governments greater flexibility. Consider that an ordinary citizen can easily talk to all of his municipal officials, but has an increasingly […] difficult time reaching county, state and national officials. In contrast, the lobbyists for Exxon, which has gasoline stations in tens of thousands of municipalities across the United States, have influenced every US Senator and Congressman. Yet they have never spoken to the people who run most of the municipalities where their gas stations are located.”

Money and business

Richard Douthwaite focuses on the role played by a nation’s currency. He thinks that there needs to be at least two types of currency, one for saving and the other for spending. Moreover, countries should keep their income and capital flows apart, as was done in the Sterling Area in the past: “International capital flows should not be mixed up with income flows. Each country or region should ensure that its import/export account for consumption purposes is always in balance. Imbalances may be permitted in capital flows but only for the purchase of capital goods.”

He believes that we need to move away from debt-based money, and that the area which a currency serves needs to be smaller, for the most part, than at present: “Apart from short-term personal loans, debt-based lending should be phased out in favour of income- or output-sharing participation. Debt-free money systems should be introduced at regional level.”

Patrick Andrews also discusses finance, in particular changes to banking: “My biggest dream at the national level is to turn a bank into a social enterprise, one that is owned by the community (not by the government — it is very different!) and where the voice of customers, staff, the community and the environment are heard in the board room. We should all push for that. This is not an easy thing to set up and implement, there will be lots of resistance at all levels. But to have a bank truly focused on serving the community as a whole would be worth pushing for.”

This fits in closely with Oscar Kjellberg’s idea, described above in the section on community and in more detail in his article, of developing community investment banks where savers and entrepreneurs would make decisions about the development of their community together. As mentioned above, Kjellberg thinks that local business alliances should be built around these types of community banks. On a national level, he suggests that the local business alliances should be joined into a national network.

Land, energy and climate change

As described in Emer O’Siochru’s article, a basic change in the taxation system could help to address climate change and future energy shortages. Here are her recommendations for national-level action:

“Campaign politically for a site value tax on all developed and potential development land that will create the economic incentives to develop local integrated energy, food and waste systems in our rural settlements.” Dan Sullivan’s article explains how such a tax would also shelter communities from economic storms by discouraging speculation on property.

O’Siochru continues: “Campaign politically for a land value tax on the remaining agricultural, forest, bog land and scrubland that will create the economic incentives for preserving healthy eco-system services i.e. carbon capture and storage and biodiversity while maximising food production for local and export consumption. If we do not use our large area of fertile land productively, others in dire need will see that it is used, but perhaps in a way that might suit us less.” Of course it’s also possible that such land would be commandeered by people who aren’t in particularly dire need — i.e. rich people — to meet their energy demands, which adds to the urgency of the situation.

Richard Douthwaite suggests that “a Community Energy Agency should be established to provide advisory and management services to communities wishing to develop their local renewable energy resources. The Agency would also guarantee the bonds issued by communities to raise the necessary finance for as long as it was providing management services.” In his article he describes in more detail how the relationship between energy and money could play out in such a scenario.

Douthwaite also thinks that “each country should strive to become renewable energy self-reliant as rapidly as possible because the cost in terms of the share of national output that will need to be given up to make the switch later on will be much higher.” In this regard it’s important to take energy returns on investments into account. Tom Konrad, in his article, points out that demand-side technologies such as smart electric meters and well-designed public transport have a very high energy return on investment, and their adoption could therefore help us to overcome the difficulties caused by moving away from fossil-fuel use.

Corinna Byrne makes a number of specific recommendations for addressing climate change. She believes we need to “refocus the value of peatlands from energy to carbon storage and sequestration and utilise alternative renewable technologies such as wind and bio-refining to provide for energy needs.”

She also describes a mechanism for dealing with livestock numbers in different countries: “Ireland, working through the EU, should seek to have global livestock numbers capped at their current level and to have the animal units allowed under the cap allocated to governments according to the number of animals kept in each country at present.”

These recommendations would obviously apply on an international level as well. Let’s move on to that now.

International action

Patrick Andrews writes: “Internationally, support “treeshaverightstoo” and push for the voice of the environment to be heard at the highest level of international decision-making”.

One of the reasons why the environment has so quiet a voice at present is that it is not recognised as a legal entity. To some readers, it may seem absurd to suggest that something that is not human, and not even a discrete object, could have legal rights. However, there is a precedent for this, albeit a rather notorious one: the corporation.

The treeshaverightstoo website was set up by Polly Higgins, an international environmental lawyer who addressed the UN in late 2008 on her proposal for a Universal Declaration of Planetary Rights. As she points out on her website, there has been a gradual evolution in the recognition of legal rights. Initially, they applied only to educated males with property, but over the centuries they were gradually extended to include all humans. The most recent extension was to include children.

Children can be represented legally by an advocate if they are not old enough to represent themselves, and Higgins believes that the same approach could be taken to represent the rights of species other than humans, and the planet as a whole. In late 2008, Ecuador became the first country to adopt a constitution that includes enforceable Rights of Nature. Many of the ideas described in this book, such as Cap and Share, land value tax, the Carbon Maintenance Fee and changes in the nature of legal tender, will need legal enforcement, and their cases would probably be considerably strengthened by such a measure.

However, other changes are necessary too. Another reason that the environment has such a quiet voice is that it can’t afford a big loudspeaker, unlike the CEOs of large companies and the politicians whose campaigns they fund. So many economists argue that environmental resources need to be priced more accurately. With the correct price signals, they believe consumers would make spending decisions that are much more in line with reality. Laurence Matthews uses this reasoning in his suggestions for global action on climate change:

“- we must get a price put on carbon — most of the other policies and technologies needed will then take care of themselves;

– this price must rise quickly until it curtails emissions and promotes ‘sinks’, enough to start reducing [carbon dioxide] concentrations;

– such a price will only be politically sustainable if it is not seen as a ‘tax’ and if it is seen to be equitable;

– Cap and Share is one of the simplest schemes to do all this, bypassing much of the Kyoto-style deadlocks and rendering superfluous much of the time-consuming and distracting Clean Development Mechanism/carbon-trading complexities.”

While the price of the carbon dioxide emissions under Cap and Share would certainly give people pause about spending money on fossil fuels, Matthews makes it clear in his article that Cap and Share would also set an absolute limit on emissions — the cap — which would remain in place regardless of their price. The fossil-fuel producers would have to buy emissions permits in order to sell their product, and there would only be a certain number of these permits available.

Thus, even if there was a recession that caused a slump in demand for fossil fuels, and the price of fossil fuels then went down accordingly, we couldn’t have a repeat performance of what has tended to happen in the past with such recessions — namely, the low prices of fossil fuels triggering a resurgence in demand for them which then undermines renewable energy development. The cap would remain in place no matter what the economic circumstances were, and so there would always be a constraint on the absolute quantity of emissions that could be produced. As the cap was tightened year by year, fewer and fewer permits would be issued and the amount of overall emissions would decrease accordingly. This would enable policymakers and developers of renewable energy to make realistic long-term plans and investments.

So, while price would play an important role in Cap and Share, it wouldn’t have to handle the task of reducing emissions all by itself. This approach seems sound because it reflects the general role that price plays in the economy: pricing things accurately can be useful but it can’t solve all our environmental and social problems, and you have to be careful with it.

Another shortcoming of pricing is that in the absence of additional measures it can’t reduce the instability of an economy that is dependent on debt. Richard Douthwaite writes in this regard: “The scarcity rents which fossil energy and other commodity producers enjoy must be limited to the amount they can spend with their customers on consumption goods and services. A system needs to be put in place to prevent this level being exceeded. With fossil fuels, this could be by Cap and Share, which would capture the rents and spread them as income around the world. Alternatively, the consuming countries could set up an energy-buyers’ cartel which would serve the same purpose.”

As Douthwaite says, the introduction either of an energy-buyers’ cartel or of Cap and Share would help to stabilise the world’s financial system by preventing capital from surging around the world, and by relieving debt. Cap and Share has other advantages as well: it would reduce greenhouse gas emissions, as we’ve already seen, and it could significantly reduce global poverty and income inequality, at least in the short term while the price of emissions was high.

Dan Sullivan would probably disagree with this analysis, though. He writes: “The poor nations of the world do not merely happen to be poor. Rather, they are poor because they are plundered by international financiers and by absentee landlords. End the plunder, and you end the poverty. Even the people of resource-poor nations need to establish systems of freedom and justice before compensation [for resource use] will do them any good. Otherwise, compensation will follow the pattern that US foreign aid has always followed, taxing poor people in rich countries to subsidize rich people in poor countries”.

Indeed, at present much foreign aid also has the effect of subsidizing the companies in rich countries that provide the aid. However, the commons-based philosophy behind the per-capita distribution of emissions permits dovetails rather neatly with current development theory, which emphasises individual agency, and there does seem to be good evidence that cash transfer programmes are an effective way to reduce poverty. [4] Moreover, the equitable nature of Cap and Share is a point in its favour in ethical terms as well as practical ones.

A scheme such as Cap and Share isn’t without risks, though. Douthwaite goes on to describe one of them: the possibility that “the higher prices for fossil fuels [triggered by a cap on emissions] will lead to increased deforestation and the release of carbon from soils as land is converted to bioenergy production.” He suggests a solution: “The introduction of a Carbon Maintenance Fee [would] preserve and increase the stock of carbon held in soils and the biomass growing on them.”

Corinna Byrne, similarly, emphasises the need to preserve current carbon stocks: she writes that we should “push for tropical deforestation to be reduced and for the global forest cover loss to be halted”, and she, too, suggests that “governments could introduce the Carbon Maintenance Fee as a reward for holding and sequestering carbon in soils and biomass and to penalise for carbon releases.”

In order for such a scheme to be effective it would be necessary to measure carbon stocks accurately, so she thinks we need to “advocate the development of remote sensing techniques to map carbon stocks with the aim of improving estimates of the standing stock of carbon in biomass and changes in those stocks through time.”

Byrne also draws our attention to the fact that carbon dioxide is not the only greenhouse gas. There are other gases whose emissions need to be curtailed:

“Nitrous oxide [emissions reduction] needs to be prioritised because an increased nitrous oxide concentration is likely to lead to an increased methane concentration and thus a greater total warming effect than from the nitrous oxide alone (as nitrous oxide destroys ozone which destroys methane). Policy should be focused on reducing nitrous oxide releases, taking in reductions in methane emissions whenever these are compatible, such as in the use of anaerobic digesters.” Such digesters could be used to produced energy for communities.

Along with several of the other contributors, she also believes that biochar production has important potential: “The use of biochar is one of the few strategies that gives any basis for optimism that the excess CO2 in the atmosphere can actually be removed.” If the claims that have been made for the benefits of biochar have any foundation, it could prove to be an enormous help in addressing climate change, and also as a fuel source. As Emer O’Siochru mentions in her chapter, it could help to revive local economies as well.

Byrne has some specific suggestions about REDD, the international system for offsetting emissions by allowing countries which emit beyond their allowances to compensate for this by paying for other countries to emit less. This system has significant flaws, which Byrne describes in her article. She recommends that we “reject offsetting via REDD altogether or tighten the limits on how much can be done with a view to phasing it out completely by 2020. Funding for whole-country REDD schemes should come from the proceeds of auctioning EU emissions trading system permits (EUAs) after 2012 until a global system can be put in place.”

Dan Sullivan writes that “it is not necessary to support elaborate international schemes to make resource-consuming nations compensate nations from which the resources have been taken. It is only necessary for resource-exporting nations to levy substantial royalty charges on their own land and resources, to tax pollution, to untax labor, and to get control of their own money.” REDD would probably qualify as one of the “elaborate international schemes” that he criticises.

A new international currency

As mentioned above, Richard Douthwaite believes that the scarcity rents for commodities should not be allowed to expand infinitely, but rather should be curtailed and then recycled back to the people and countries who are buying the commodities, preferably by means of trade rather than as loans. A system such as Cap and Share would not only guarantee this recycling of rents, but it would also divide them among the whole population.

However, this measure would not be sufficient for achieving greater financial stability, as we would still be using debt-based money for all of our transactions, and, as we have seen in the many articles in this book that discuss the financial system, that type of money is highly volatile and dependent on unsustainable economic growth.

So Douthwaite also believes that “a new international trading currency should be established to replace currencies like the dollar, the euro and sterling. It would be given into circulation according to the amount of trading a country was doing and its first use should be to discharge foreign debt. In times of disaster such as the Pakistan floods, additional money could be created to finance the relief effort, thus spreading the cost fairly around the world.” A change of this kind is not as radical as you might think. The world already has a non-debt quasi-currency which is given into circulation by the IMF. It is called Special Drawing Rights (SDRs) or more popularly “paper gold”. The IMF insists that SDRs are not a currency but an “international reserve asset” which can be sold for currencies such as the dollar and the euro. They were first issued in 1969 to supplement IMF member countries’ official foreign exchange reserves. Only two issues have been made since, the most recent on August 28, 2009 in response to the global financial crisis. This was because, after the previous distribution in 1979-81, the United States vetoed futher issues so that its dollars were used as reserves instead. Unfortunately, SDRs are not shared out on the basis of population but according the maximum amount of financial resources that each member state is obliged to contribute to the IMF. This means that the bigger, richer countries get most.

A new life in old places? – a personal comment

There’s been much discussion in this book of the possibility of sudden collapses in civilisations, with whole ways of life being brought to an abrupt end. However, it’s also true that in certain circumstances, ways of life can fizzle away slowly rather than going out with a bang.

That’s been the case in the area where I live, in southern Burgundy in central France. The interesting thing about this area is that, like Pompeii, you can get an unusually clear idea of what life was like in the past. Hereabouts, the high point was the Middle Ages, specifically the eleventh and twelfth centuries, when the great Benedictine abbey at Cluny was enormously wealthy and politically influential. At that time, the villages of the area almost all rebuilt their churches with the help of Italian masons who used hand tools and knotted ropes to measure the stones they worked with, and who left behind a rich legacy of intricate carvings. Such carvings appear not only on the churches but on people’s houses, and frequently depict scenes from everyday life.

The historian Edwin Mullins speculates that the reason for this sudden flowering of artistic expression was that everyone was relieved that the world hadn’t come to an end in 1000 AD, contrary to much dire prediction at the time.[5] But whatever the cause, the artistic frenzy wasn’t to be repeated. The power of Cluny began to wane from the thirteenth century on, and there were no more audacious building projects.

Village life continued, however, and the area remained modestly prosperous until well into the twentieth century. Recently I took a stroll around the village where my husband and I live with a neighbour who is in his seventies and who still lives in the house that he was born in. He pointed out various buildings in the centre of the village and told me “that was a café, that was a grocery, that was a smithy, that was another café, that was a carpenter’s workshop”.

Even though they’re eerily quiet now, the buildings left behind from the businesses are mostly in rather good shape. In fact, the villages as a whole have a bit of an unreal, fairytale look to them, almost too picture-perfect.

The cause of the businesses’ disappearance will probably be obvious to most readers. But just for the sake of thoroughness, I asked my neighbour why they had closed. He smiled wryly at me and said “the supermarkets” — which was of course a shorthand way of saying “the fossil-fuel-based economy”. Just as in many parts of rural Ireland, the arrival of private cars and the economies of scale used by supermarkets had undercut small local enterprises.

However, the dreamy quality of the villages remained unexplained. Eventually though it occurred to me that just as the volcanic ash which flooded Pompeii had a preservative effect on its buildings, these villages too had been flooded and preserved. But in their case it’s capital from elsewhere — money conjured up by the use of fossil pixie dust, to use Nate Hagens’ phrase — which has done the flooding. People from Paris and Lyon, and foreigners from Switzerland, Belgium, Germany, Britain, the United States and even New Zealand, have bought second homes here, most of them medieval dwellings that they’ve lovingly restored. They generally fly into Paris or Lyon or drive down and spend a few weeks of the year here, usually during the summer as the winters are fairly intense.

I don’t mean to vilify those people who have second homes in the area — they’ve helped to support the local economy by hiring local masons and roofers to work on their restorations. Their interest in the local culture and history is genuine, and some of them are our friends.

But the uncomfortable fact remains that, as with all communities that don’t have much year-round occupancy, it’s not possible to keep services such as shops going. Additionally, locals have been priced out of many of the more comfortable homes. And of course, there’s also the niggling matter of the whole setup being wildly unsustainable.

I asked my neighbour how long ago all of those small businesses closed down and, much to my surprise, he told me that some of them — even the blacksmith — lasted into the 1980s. He also explained that the land around our house had been a farm which served some of the villagers. He himself had worked with draught horses on farms in the area until the mid-1960s. The communally owned woods on the hillside above were, and still are, a source of game for hunters. In the not-so-distant past, the hunters would hike over the hills to Tournus, a town on the easily navigable river Saone, to sell furs.

All of this conjures up an image of a kind of rural paradise, overflowing with abundance, which I’m sure wasn’t entirely the case. But then again, it’s important not to over-romanticise the modern industrial system either.

Aptly enough, the other day I was in a local supermarket with my toddler daughter. It was busy and there were long queues at the checkouts. We’d been waiting for a few minutes in a queue that had barely moved when my daughter told me that nature was calling.

The aisles were completely blocked with loaded shopping trolleys, so I pushed our trolley aside and went to ask a couple of the staff, who were stacking shelves, if she could use the toilet in the back of the supermarket. They told me that I’d have to get a key from the welcome desk, so we made our way over to it. But there was nobody there; everyone was helping at the checkouts. It occurred to me then that we could just go out the automatic entrance door, which was nearby, and my daughter could fertilize a tree outside, but when we went over to the door it wouldn’t open.

There was an electronics stand laden with gleaming gadgets right next to the door, and I asked the young woman who was behind it if she could open the door for us. She looked up distractedly from her mobile phone and told me that she was sorry, but it wasn’t possible. I assumed she meant that it was against some kind of shop rule to open the door, so I explained why we needed to go out. She apologized again and told me that if she had been able to, she would have opened the door, but it only opened from the outside and the staff had no control over it.

Thankfully my daughter and I did manage to get out eventually by running the gauntlet of the shopping trollies in a checkout aisle. But the whole little episode got me thinking about escape routes, and unnecessarily complex labyrinths designed to suck people so that they consume more resources, and the relative powerlessness of the people working in the labyrinth.

This was just a minor incident, of course, but the contrast between our experience at the supermarket and at our local farmer’s market, which takes place once a week, could hardly be greater. There, many of the vendors know my daughter by name, and if you end up waiting a long time in a queue it’s likely to be because the vendor is having a chat with someone, rather than because some unfortunate customer didn’t have quite enough cash on them to pay for everything in their trolley and the cashier is having to call up the supermarket manager in order to get permission to cancel part of the sale transaction.

The emptiness of material abundance without enough human connection is made very clear when we consider the things that small children really need, as opposed to the things that advertisers say they need. And there’s another group besides children that is particularly badly served at present. Those houses in the villages around here that aren’t second homes are generally occupied by people like my neighbour — people in their seventies and eighties who have witnessed the slow death of their communities. It would be wonderful if they could see life in the villages again; children playing, adults working and socialising.

Of course I don’t mean to imply that I think everything should revert to the way it was before the era of fossil fuels. There’s plenty of room for anaerobic digestors and solar water heaters here and elsewhere, and even if there wasn’t, we’ve seen in this book that going back to the past is not an option. But there are a great many rural places in the world waiting to be occupied again, in a somewhat different manner from before, and there’s still time — just about — to learn valuable skills from the older generation.

It’s interesting to note that most of the inhabitants of Pompeii did realise in time that they were experiencing a true emergency. They managed to flee to safety, escaping the volcano’s ashes. So let’s hope that this parallel with our present situation also holds.

Endnotes

  1. In the course of preparing this conclusion I asked the person who administers the transactions in our local currency, Mathilde Béguier, if it’s overly time-consuming, and she said that she doesn’t find it a problem. I asked what she would do if there was a big increase in transactions. She said that she would divide the work up with others, but that if membership increased as well, the best solution would be to start up more local currencies in order to deal with the overflow.
  2. A History of Money from Ancient Times to the Present Day, Glyn Davies, University of Wales Press, 2002, p 642.
  3. The Ascent of Money, Niall Ferguson, Penguin, 2008, p 358.
  4. See for example “The Social Protection Floor :A joint Crisis Initiative of the UN Chief Executives Board for Co-ordination on the Social Protection Floor”, UNDP/ILO, 2009 and Just Give Money to the Poor: The Development Revolution from the South, Joseph Hanlon, Armando Barrientos and David Hulme, Kumerian Press, 2010.
  5. In Search of Cluny: God’s Lost Empire, Edwin Mullins, Signal, 2006

Featured image: Cluny Rue Desbois fenetre. Author: Jan Sokol. Source: http://en.wikipedia.org/wiki/File:Cluny_R_Desbois_fenetre_DSCN1954.JPG

Liquidity Networks: local trading systems using a debt-free electronic currency

Graham Barnes

No currency will work unless people accept it from each other so this novel money will be put into circulation as a way of rewarding those who are accepting and spending it most.

Around the world, conventional currencies such as the euro, the dollar and the pound are in short supply because of the current economic crisis. A liquidity network (LQN) is designed to ease this shortage by creating and distributing a supplementary debt-free currency so that businesses and individuals can trade locally without needing the conventional sort.

Money essentially performs three functions: it acts as a means of exchange, as a store of value and as a unit of account. A liquidity network aims to fulfil only the first of these. It would enable people to buy and sell goods and services in a specific geographic area. The generic name for an LQN’s electronic currency is the quid but each local system will probably give a special name to its own version. For example, the emerging Kilkenny LQN group has named their unit the Katz after a very successful local hurling team, the Cats.

As quid can be spent only inside the local area, a healthy quid supply will boost local trade. If euros become scarcer and scarcer, the relative importance of an LQN will increase. Quid will free up euros for ‘out-of-area’ transactions and places with an LQN will become more competitive than those without.

Imagine if a million euros went into circulation in your town overnight but they were super-euros — euros that could be spent only in your area and which spawned extra super-euros in your account if you spent them quickly. A much higher level of trading would take place as the new currency passed rapidly from person to person and from business to business. This super-euro is the quid.

Liquidity Network structures and design

Each LQN will be run by a local organisation within a framework and guidelines set down by a national support organisation to which they all belong.
An important function of both the local and the national organisations is that they recognise and reward Positive Behaviour — behaviour considered to be beneficial to the specific LQN or to the acceptance and success of the LQN movement in general.

The key aspects of the LQN design are:

  • Accounts are not allowed to go into the red. Transactions are processed instantly and because there is no debt, there is no need for credit checks nor a legal process for debt recovery.
  • Quid are given rather than lent into circulation, the only condition being an expectation of (defined) Positive Behaviour by the recipient.
  • Some Positive Behaviours — for example, spending one’s quid quickly after one gets them or dealing with an increasing number of people — are rewarded after the event.
  • If someone fails to maintain a trading level for which they have been rewarded, the quid they were given can be gradually withdrawn. This is to ensure that the supply of quid can be reduced to maintain its value if the overall level of trading falls.
  • All trading is carried out electronically by mobile phone or over the Internet. This enables the LQN to calculate rewards or account reductions. There is no paper currency.

The LQN design team also have strong preferences:

  1. for Open Source software development and Open Hardware
  2. for organisational structures recognising the advantages of the Viable Systems Model and sociocratic approaches
  3. for the development of publicly visible Trading Reputations based on Positive Behaviours, as a means of building mutual trust among LQN users

The detailed design of each LQN will be developed with local LQN partners and local circumstances may dictate specific tactical decisions. The team’s preferences above should be seen in that context.

Wherever the LQN concept is discussed, people are excited by it. The challenge now is to design and implement strategies that will create the critical mass of earning and spending required for a successful LQN. The Feasta group is concentrating on two particular approaches:

  1. A local authority–backed LQN: The LQN would give the local authority a specific amount of currency, for example 1 million quid, to spend into circulation by paying a portion of its staff salaries with them. In return, the council would agree to carry on accepting quid, at par with the euro, in payment of local rates, rents and service charges until it had either earned-out its advance in performance rewards or had returned any unearned advance to the LQN. We are currently discussing this arrangement with councils in Dundalk, Kilkenny and Ennis.
  2. The ‘TradeTrust’ route: A trade exchange network using euros is set up with the support of the local Chamber of Commerce. This network has all the features of an LQN, i.e. instant electronic transactions and no credit, except that the transactions are in euros, so users have to provide (or be provided with) a euro float. Once the exchange is running, the trading levels provide a good guide to the amount of quid that each account needs to provide the liquidity for the amount of trading it is doing. The appropriate quid amounts can then be issued and the euros withdrawn. A group in Cork intends to follow this route.

The drawbacks of free money

The fact that in both of the above cases quid are given into circulation is one of the obstacles facing an LQN, as the idea that money can be ‘given away’ encourages the thought that quid are of no value. In addition, there is an initial worry that there is no way to sanction participants who retire from the scheme immediately after spending the quid they have been given. But then the penny drops and the worriers realise that all the quid already spent are in other accounts and will be spent again and again and again around the local network.

Once an LQN is operating on a reasonable scale, fear of losing trade to rivals will be a key factor in encouraging traders to stay in the network and others to join. Getting people to join in the start-up phase may be more difficult. It is becoming more obvious that we need to appeal to both intrinsic and extrinsic motivations. We have been somewhat surprised recently to notice that while our own motivations for developing LQN are largely intrinsic, we have assumed that we needed exclusively extrinsic (economic) motivations to encourage participation. But does an LQN project grounded squarely in a distrust and dissatisfaction with mainstream economics really need to couch its propositions solely in terms of economic benefit?

For traders the advantages of joining — their extrinsic motivations — are administrative efficiencies:

  • instant transactions with no credit. If insufficient funds are in place the transaction doesn’t happen.
  • simplified electronic transactions with well-designed User Interfaces.
  • low transaction costs (compared to banks) and maintenance fees.
  • and being on the inside track of a new growing local marketplace, such as that offered by the members’ directory section of the LQN website.

However, we are beginning to suspect that intrinsic motivations — support for one’s local community, local activism vs. national “sitting on hands,” building trust via transparent transaction behaviour — may be as or more important than extrinsic ones and that LQNs should harness these feelings in their marketing messages.

Rewarding positive behaviour

A progressive and proactive local council will want to be seen as a driving force at the heart of an LQN initiative that embodies the social cohesion needed for competitive modern localities. To earn their advances, councils will be required to pay a portion of their employees’ wages in quid. The advantage of this is that it enables the council to avoid redundancies and reduce short-time working. Other positive LQN messages should also be adopted and communicated by the council, such as the extra quid given when users spend quickly.

Individuals and traders are rewarded when they accept quid for the first time, quickly spend the quid they have earned, increase their monthly quid turnover and have more quid dealings with more people. They will also be aware that although some of the quid they are given as a reward may be taken away if they fail to maintain the performance for which it was given, quid that they have actually earned through their wages or trading will never be taken except to pay the normal monthly account maintenance fee.

Limitations of the quid

I noted at the start of this article that the quid is not a store of value. It is designed to incentivise local spending. Of course, individuals and businesses need to save — for retirement, to even out good and bad years and for capital purchases — but they will need to use currencies (or goods) other than the quid for these functions.

Nor is the quid suitable as a unit of account except within an individual LQN. Quid are not ‘backed’ by the euro or by any other source of value. LQNs will not offer formal quid-exchange services between LQNs, although we expect to see such services being offered by LQN participants and would see their emergence as evidence of success.

Over time, quid will almost certainly lose their value against the euro. If the euro gets scarcer, its value in terms of quid will rise and the one-for-one parity maintained by a council will need to be broken. The quids used by different LQNs will acquire different exchange rates with the euro and thus with each other.

The urgent need to get the first LQN running

The Feasta group has already completed much of the groundwork to enable communities to get started on developing their own LQNs. We have written the basic software, demonstrated the transfer of quid from mobile phone to mobile phone, defined and modelled the reward algorithms and drafted the legal documents under which a local LQN and the national support organisation would be set up. We also have an opinion from a senior counsel that an LQN would comply with Irish and EU law. All we need now is a sound, broadly based invitation from a community.

So far, though, community leaders seem not to regard their situations as desperate enough yet to overcome their reluctance to try novel solutions and risk failure. In fact, that was exactly what we were told at a meeting with officials from a Regional Development Authority. In any case, the officials said, the unions would reject the idea of their members being part-paid in quid even if they knew that all the major local shops would accept them.

Nevertheless, the group believes that the liquidity crisis will worsen and that communities will increasingly want to respond locally rather than wait passively for national interventions that may or may not arrive.

Sometime soon, then, we expect the first visionary community leader from among the councils and communities where LQN dialogues are taking place to ask for help. He or she will realise that the risk to their personal credibility is unimportant compared to the potential beneficial impact of an LQN to their friends and neighbours. They will see that ‘business as usual’ is not an option. When they do, the LQN team will use all the energy, commitment and creativity at its disposal to make sure that these pioneer adopters gain the maximum benefit for the places from which they come.

The supply of money in an energy-scarce world

Richard Douthwaite

Money has no value unless it can be exchanged for goods and services but these cannot be supplied without the use of some form of energy. Consequently, if less energy is available in future, the existing stock of money can either lose its value gradually through inflation or, if inflation is resisted, be drastically reduced by the collapse of the banking system that created it. Many over-indebted countries face this choice at present — they cannot preserve both their banking systems and their currency’s value. To prevent this conflict in future, money needs to be issued in new, non-debt ways.

The crux of our present economic problems is that the relationship between energy and money has broken down. In the past, supplies of money and energy were closely linked. For example, I believe that a gold currency was essentially an energy currency because the amount of gold produced in a year was determined by the cost of the energy it took to extract it. If energy (perhaps in the form of slaves or horses rather than fossil fuel) was cheap and abundant, gold mining would prove profitable and, coined or not, more gold would go into circulation enabling more trading to be done. If the increased level of activity then drove the price of slaves or steam coal up, the flow of gold would decline, slowing the rate at which the economy grew. It was a neat, natural balancing mechanism between the money supply and the amount of trading which worked rather well.

In fact, the only time it broke down seriously was when the Spanish conquistadors got gold for very little energy — by stealing it from the Aztecs and the Incas. That damaged the Spanish economy for many years because it meant that wealthy Spaniards could afford to buy from abroad rather than using the skills of their own people, which consequently did not develop. It was an early example of “the curse of oil” or the “paradox of plenty,” the paradox being that that countries with an abundance of non-renewable resources tend to develop less than countries with fewer natural resources. Britain suffered from this curse when North Sea oil began to come ashore, distorting the exchange rate and putting many previously sound firms out of business.

19th-century gold rushes were all about the conversion of human energy into money as the thousands of ordinary 21st-century people now mining alluvial deposits in the Amazon basin show. Obviously, if supplies of food, clothing and shelter were precarious, a society would never devote its energies to finding something that its members could neither eat, nor live in, and which would not keep them warm. In other words, gold supplies swelled in the past whenever a culture had the energy to produce a surplus. Once there was more gold available, its use as money made more trading possible, enabling a society’s resources to be converted more easily into buildings, clothes and other needs.

Other ways of converting human energy into money have been used besides mining gold and silver. For example, the inhabitants of Yap, a cluster of ten small islands in the Pacific Ocean, converted theirs into carved stones to use as money. They quarried the stones on Palau, some 260 miles away and ferried them back on rafts pulled by canoes, but once on Yap, the heavy stones were rarely moved, just as no gold has apparently left Fort Knox for many years. According to Glyn Davies’ mammoth study, The History of Money, the Yap used their stone money until the 1960s.

Wampum, the belts made from black and white shells by several Native American tribes on the New England coast, is a 17th-century example of human-energy money. Originally, the supply of belts was limited by the enormous amount of time required to collect the shells and assemble them, particularly as holes had to be made in the shells with Stone Age technology – drills tipped with quartz. The currency was devalued when steel drill bits enabled less time to be used and the last workshop drilling the shells and putting them on strings for use as money closed in 1860.

The last fixed, formal link between money and gold was broken on August 15, 1971, when President Nixon ordered the US Treasury to abandon the gold exchange standard and stop delivering one ounce of gold for every $35 that other countries paid in return. This link between the dollar and energy was replaced by an agreement that the US then made with OPEC through the US-Saudi Arabian Joint Commission on Economic Cooperation that “backed” the dollar with oil. [1] OPEC agreed to quote the global oil price in dollars and, in return, the US promised to protect the oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coups. This arrangement is currently breaking down.

The most important link between energy and money today is the consumer price index. The central banks of every country in the world keep a close eye on how much their currency is worth in terms of the prices of the things the users of that currency purchase. Energy bills, interest payments and labour costs are key components of those prices. If a currency shows signs of losing its purchasing power, the central bank responsible for managing it will reduce the amount in circulation by restricting the lending the commercial banks are able to do. This means that, if energy prices are going up because energy is getting scarcer, the amount of money in circulation needs to become scarcer too if it is to maintain its energy-purchasing power.

A scarcer money supply is a serious matter because the money we use was created by someone somewhere going into debt, and if there is less money about, interest payments make those debts harder to repay. Money and debt are co-created in the following way. If a bank approves a loan to buy a car, the moment the purchaser’s cheque is deposited in the car dealer’s account, more money — the price of the car — comes into existence, an amount balanced by the extra debt in the purchaser’s bank account. Consequently, in the current monetary system, the amount of money and the amount of debt are almost equal and opposite. I say “almost” as borrowers have more debt imposed on them every year because of the interest they have to pay. If any of that interest is not spent back into the economy by the banks but is retained by them to boost their capital reserves, there will be more debt than money.

Until recently, if the banks approved more loans and the amount of money in circulation increased, more energy could be produced from fossil-fuel sources to give value to that money. Between 1949 and 1969 — the heyday of the gold exchange standard under which the dollar was linked to gold and other currencies had exchange rates with the dollar — the price of oil was remarkably stable in dollar terms. But when the energy supply was suddenly restricted by OPEC in 1973, two years after the US broke the gold-dollar link, and again in 1979, the price of energy went up. There was just too much money in circulation for it to retain its value in relation to the reduced supply of oil.

The current “credit crunch” came about because of a huge increase in the price of energy. World oil output was almost flat between September 2004 and July 2008 for the simple reason that the output from major oil fields was declining as fast the production from new, smaller fields was growing. Consequently, as more money was lent into circulation, oil’s price went up and up, taking the prices of gas, coal, food and other commodities with it. The rich world’s central bankers were blasé about these price increases because the overall cost of living was stable. In part, this was because lots of cheap manufactured imports were pouring into rich-country economies from China and elsewhere, but the main reason was that a lot of the money being created by the commercial banks’ lending was being spent on assets such as property and shares that did not feature in the consumer price indices they were watching. As a result, they allowed the bank lending to go on and the money supply — and debt — to increase and increase. The only inflation to result was in the price of assets and most people felt good about that as it seemed they were getting richer, on paper at least. The commercial banks liked it too because their lending was being backed by increasingly valuable collateral. What the central banks did not realise, however, was that their failure to rein in their lending meant that they had broken the crucial link between the supply of energy and that of money.

This break damaged the economic system severely. The rapid increase in energy and commodity prices that resulted from the unrestricted money supply meant that more and more money had to leave the consumer-countries to pay for them. The problem with this was that a lot of the money being spent was not returned to the countries that spent it in the form in which it left. It went out as income and came back as capital. I’ll explain. If I buy petrol for my car and part of the price goes to Saudi Arabia, I can only buy petrol again year after year if that money is returned year after year to the economy from which my income comes. This can happen in two ways, one of which is sustainable, the other not. The sustainable way is that the Saudis spend it back by buying goods and services from Ireland, or from countries from which Ireland does not import more than it exports. If they do, the money returns to Ireland as income. The unsustainable way is that the Saudis lend it back, returning it as capital. This enables Ireland to continue buying oil but only by getting deeper and deeper into debt.

As commodity prices rose, the flow of money to the energy and mineral producers increased so rapidly that there was no way that the countries concerned could spend it all back. Nor did they wish to do so. They knew that their exports were being taken from declining resources and that they should invest as much of their income as possible in order to provide an income for future generations when the resources were gone. So they set up sovereign wealth funds to invest their money, very often in their customers’ countries. Or they simply put their funds on deposit in rich-country banks.

The net result was that a lot of the massive increase in the flow of income from the customers’ economies became capital and was lent or invested in the commodity consumers’ economies rather than being spent back in them. This was exactly what had happened after the oil price increases in 1973 and 1979. The loans meant that, before the money became available again for people to spend on petrol or other commodities, at least one person had to borrow it and spend it in a way that converted it back to income.

This applied even if a sovereign wealth fund invested its money in buying assets in a consumer economy. Suppose, for example, the fund bought a company’s outstanding shares rather than a new issue. The sellers of the shares would certainly not spend the entire amount they received as income. They would place most of their money on deposit in a bank, at least for a little while before they bought other assets, and people other than the vendors would have to borrow that money if it was going to be spent as income. As a result, it often took quite a lot of borrowing transactions before the total sum arrived back in people’s pockets.

For example, loans to buy existing houses are not particularly good at creating incomes whereas loans to build new houses are. This is because most of the loan for an existing house will go to the person selling it, although a little will go as income to the estate agent and to the lawyers. The vendor may put the money on deposit in a bank and it will have to be lent out again for more of it to become income. Or it may be invested in another existing property, so someone else gets the capital sum and gives it to a bank to lend. A loan for a new house, by contrast, finances all the wages paid during its construction so a lot of it turns into income. The building boom in Ireland was therefore a very effective way of getting the money the country was over-spending overseas and then borrowing back converted into incomes in people’s pockets. Direct foreign borrowing by governments to spend on public sector salaries is an even more effective way of converting a capital inflow into income.

We can conclude from this that a country that runs a deficit on its trade in goods and services for several years, as Ireland did, will find that its firms and people get heavily in debt because a dense web of debt has to be created within that country to get the purchasing power, lost as a result of the deficit, back into everyone’s hands. This is exactly why the UK and United States are experiencing debt crises too. The US has only had a trade surplus for one year — and that was a tiny one — since 1982 and the UK has not had one at all since 1983.

Table 1: The worst external debtors per $1,000 of GDP in 2006

1

Ireland

$6,251.97

2

United Kingdom

$3,530.89

3

Netherlands

$2,887.82

4

Switzerland

$2,836.01

5

Belgium

$2,686.21

6

Austria

$1,843.11

7

Sweden

$1,554.06

8

France

$1,551.52

9

Denmark

$1,471.46

10  

Portugal

$1,413.50

DEFINITION: Total public and private debt owed to non-residents repayable in foreign currency, goods, or services. Per $ GDP figures expressed per 1,000 $ gross domestic product.
Source: CIA World Factbooks 18 December 2003 to 18 December 2008

Table 2: Ireland’s gross external debt triples over five years

CSO data for the final quarter of each year (m)

2002

521,792

2003

636,925

2004

814,446

2005

1,132,650

2006

1,338,747

2007

1,540,240

2008

1,692,634

2009

1,611,396

Table 3: The world’s biggest balance of payments deficits at the height of the boom in 2007

Deficit, millions

Ranking of absolute size of deficit

Population, millions

Deficit per head

Greece

-$44,400

6

11.0

$4,036

Spain

-$145,300  

2

41.1

$3,535

Ireland

-$14,120  

13

4.0

$3,530

Australia

-$56,780  

4

19.7

$2,882

United States

-$731,200

1

294

$2,486

Portugal

-$21,750

10  

10.1

$2,153

United Kingdom

-$119,200

3

59.3

$2,010

Romania

-$23,020

9

22.3

$1,032

Italy

-$51,030  

5

57.4

889

Turkey

-$37,580  

7

71.3

$527

France

-$31,250  

8

60.1

$520

South Africa

-$20,630  

11

45.0

$458

Poland

-$15,910  

2

38.6

$412

It is notable that all the eurozone countries experiencing a debt crisis — the “PIIGS” Portugal, Ireland, Italy, Greece and Spain — appear in this table and that the three worst deficits on a per capita basis are those of Greece, Spain and Ireland. The countries in italics have their own currencies and are thus better able to correct their situations.

Source: CIA World Factbook, 18 December 2008, with calculations by the author.

The debts incurred by the current account–deficit countries were of two types: the original ones owed abroad and the much greater value of successor ones owed at home as loans based on the foreign debt were converted to income. Internal debt — that is, debt owed by the state or the private sector to residents of the same country — is much less of a burden than foreign debt but it still harms a country by damaging its competitiveness. It does this despite the fact that paying interest on the debt involves a much smaller real cost to the country since most of the payment is merely a transfer from one resident to another. (The remainder of the payment is taken in fees by the financial services sector and the increase in indebtedness has underwritten a lot of its recent growth.)

Internal debt is damaging because a country with a higher level of internal debt in relation to its GDP than a competing country will have higher costs. This is because, if the rate of interest is the same in both countries, businesses in the more heavily indebted one will have to allow for higher interest charges per unit of output than the other when calculating their operating costs and prices. These additional costs affect its national competitiveness in exactly the same way as higher wages. Indeed, they are the wages of what a Marxist would call the rentier class, a class to which belongs anyone who, directly or indirectly, has interest-bearing savings. A country’s central bank should therefore issue annual figures for the internal-debt to national income ratio.

While internal debt slows a country up, external debt can cause it to default. In their book This Time Is Different, Carmen Reinhart and Ken Rogoff consider external debt in two ways — in relation to a country’s GNP and in relation to the value of its annual exports.

Table 4: How oil imports commandeered an increased share of Ireland’s foreign earnings.


Mineral fuel imports

GNP

Fuel cost as % of GNP

Exports

Fuel cost as % of export earnings

2001

2,219

98,014

2.26

92,690

2.39

2002

1,932

106,494

1.81

93,675

2.06

2003

1,969

117,717

1.67

82,076

2.40

2004

2,814

126,096

2.23

84,409

3.33

2005

4,020

137,265

2.93

86,732

4.63

2006

4,719

152,456

3.10

88,772

5.32

2007

5,728

161,210

3.55

88,571

6.47

2008

6,595

158,343

4.17

86,618

7.61

Source: CSO data with calculations by the author.

The second ratio is the more revealing because exports are ultimately the only means by which the country can earn the money it needs to pay the interest on its overseas borrowings. (A country’s external debt need never be repaid. As its loans become due to be repaid they can be replaced with new ones if its creditors are confident that it can continue to afford to pay the interest.) The book examines 36 sovereign defaults by 30 middle-income countries and finds that, on average, a country was forced to default when its total public and private external debt reached 69.3% of GNP and 230% of its exports.

Poorer countries lend to the world’s richest ones

Graph 2: Rich countries have borrowed massively from “developing” and “transition” countries over the past ten years. This graph shows the net flow of capital. The funds borrowed came predominantly from energy and commodity export earnings. Source: World Situation and Prospects, 2010, published by the UN.

Table 5: The most over-indebted countries at the height of the boom in 2007

 

Total state & private external debt, billions

Export

earnings billions

Ratio

total

external debt to exports

GDP

billions

Ratio

total

external debt to GDP

1

United Kingdom

$10,450  

$442.2

2360%

2,674

391%

2

Ireland

$1,841  

$115.5

1590%

268

687%

3

United States

$12,250  

$1,148

1070%

14,093

87%

4

France

$4,396  

$546

810%

2,857

154%

5

Switzerland

$1,340  

$200.1

670%

492

272%

6

Australia

$824.9  

$142.1

580%

1,015

81%

7

Netherlands

$2,277  

$456.8

500%

871

261%

8

Italy

$2,345  

$502.4

470%</span>

2.303

102%

9

Spain

$1,084  

$256.7

420%

1,604

68%

10

Belgium

$1,313  

$322.2

410%

504

261%

11

Germany

$4,489  

$1,354

330%

3,649

123%

12

Japan

$1,492  

$678.1

220%

4,911

30%

Countries that exceed the average level at which countries in the Reinhart and Rogoff study defaulted are marked in a darker shade.

As Table 5 shows, almost a dozen rich countries are in danger of default by the Reinhart-Rogoff criteria. The total amount of debt in the world in 2010 is roughly 2.5 times what it was ten years ago in large part as a result of the spend-and-borrow-back process. This means that there is 2.5 times as much money about, but not, of course, 2.5 times as much energy. If much of that new money was ever used to buy energy, the price of energy would soar. In other words, money would be devalued massively as the money-energy balance was restored. The central banks are determined to prevent this happening, as we will discuss in a little while.

World debt more than doubles in ten years

Graph 3: Rich-country debt has grown remarkably in the past ten years because of the amount of lending generated by capital flows from fossil energy– and commodity-producing nations was used to inflate asset bubbles. The emerging economies, by contrast, invested borrowed money in increasing production. As a result, their debt/GDP ratio declined. Source: The Economist.

Most of the world’s increased debt is concentrated in richer countries. Their debt-to-GDP ratio has more than doubled whereas in the so-called “emerging economies” the debt-to-GDP ratio has declined. This difference can be explained by adapting an example given by Peter Warburton in his 1999 book, Debt and Delusion. Suppose I draw 1,000 on my overdraft facility at my bank to buy a dining table and chairs. The furniture store uses most of its margin on the sale to pay its staff, rent, light and heat. Say 250 goes this way. It uses most of the rest of my payment to buy new stock, say, 700. The factory from which it orders it then purchases wood and pays its costs and wages. Perhaps 650 goes this way, but since the wood is from overseas, 100 of the 650 leaks out of my country’s economy. And so I could go on, following each payment back and looking at how it was spent and re-spent until all the euros I paid finally go overseas. The payments which were made to Irish resident firms and people as a result of my 1,000 loan contribute to Irish national income. If we add up only those I’ve mentioned here — 1,000 + 250 + 700 + 550 — we can see that Irish GDP has increased by 2,500 as a result of the 1,000 debt that I took on. In other words, the debt-to-GDP ratio was 40%.

As debt increases, US economy grows by less and less

Graph 4: Because borrowings have been invested predominantly in purchasing assets rather than in production capacity, each increase in borrowing in the US has raised national income by less and less. The most recent bout of borrowing — to rescue the banking system — actually achieved negative returns because it failed to stop the economy contracting. Graph prepared by Christopher Rupe and Nathan Martin with US Treasury figures dated 11 March 2010. Source: http://economicedge.blogspot.com/2010/04/guest-post-and-more-on-most-important.html

Now suppose that rather than buying furniture, I invest my borrowed money in buying shares from someone who holds them already, rather than a new issue. Of the 1,000 I pay, only the broker’s commission and the taxes end up as anyone’s income. Let’s say those amount to 100. If so, the debt-to-GDP ratio is 1000%.

So one reason why the debt burden has grown in “rich” countries and fallen in “emerging” ones is the way the debt was used. A very much higher proportion of the money borrowed in some richer countries went to buying up assets, and thus bidding up their prices, than it did in the poorer ones. After a certain point in the asset-buying countries, it was the rising price of assets that made their purchase attractive, rather than the income that could be earned from them. Rents became inadequate to pay the interest on a property’s notional market value, while in the stock market, the price-earnings ratio rose higher and higher.

Only a small proportion of the money created when the banks lent money to buy assets was spent in what we might call the real economy, the one in which everyday needs are produced and sold. The rest stayed as what the money reform activist David J. Weston called “stratospheric money” in his contribution to the New Economics Foundation’s 1986 book The Living Economy; in other words, money that moves from bank account to bank account in payment for assets, with very little of it coming down to earth. The fraction that does flow down to the real economy each year is normally balanced — and sometimes exceeded — by flows in the other direction such as pension contributions and other forms of asset-based saving. The flows in the two directions are highly unstable, however, not least because those who own stratospheric assets know that they can only convert them to real-world spending power at anything like their current paper value if other people want to buy them. If they see trouble coming, they need to sell their assets before everyone else sees the trouble too and refuses to buy. This creates nervousness and an incentive to dump and run.

If all asset holders lost all faith in the future and wanted to sell, prices would fall to zero and the loans that the banks had secured on their value would never be repaid. The banks would become insolvent, unable to pay their depositors, so the huge amounts of money that were created when the asset-backed loans were approved would disappear, along with the deposits created by loans given out to finance activities in the real economy. In such a situation, the deposit guarantees given by governments would be of no avail. The sums they would need to borrow to honour their obligations would be beyond their capacity to secure, particularly as all banks everywhere would be in the same situation.

No-one wants such a situation so, since a decline in asset values could easily spiral downwards out of control, the only safe course is to keep the flow of money going into the stratosphere greater than that coming out. This keeps asset prices going up and removes any reason for investors to panic and sell. The problem is, however, that maintaining a positive flow of money into the stratosphere depends on having a growing economy. If the economy shrinks, or a greater proportion of income has to be spent on buying fuel and food because their prices go up, then less money can go up into the stratosphere in investments, rents and mortgage repayments. This causes asset values to fall and could possibly precipitate an investors’ stampede to get into cash.

In effect, the money circulating in the stratosphere is another currency — one that has only an indirect relationship with energy availability and which people use for saving rather than to buy and sell. Because there is a fixed one-to-one exchange rate between the atmospheric currency and the real-world one, the price of assets has to change for inflows and outflows to be kept in balance. As we’ve just discussed, the banking system will collapse if asset values fall too far, so governments are making heroic efforts to ensure that they do not. As 20% of the assets involved are owned by 1% of the population in Britain and Ireland (the figure is 38% in the US), this means that governments are cutting the services they deliver to all their citizens in order to keep the debt-money system going in an effort to preserve the wealth of the better-off.

In 2007, the burden imposed on the real economy by the need to support the stratospheric economy became too great. The richer countries that had been running balance of payments deficits on their current accounts found that paying the high energy and commodity prices, plus the interest on their increased amount of external debt, plus the transfer payments required on their internal ones, was just too much. The weakest borrowers — those with sub-prime mortgages in the US — found themselves unable to pay the higher energy charges and service their loans. And, since many of these loans had been securitised and sold off to banks around the world, their value as assets was called into question. Banks feared that payments that they were due from other banks might not come through as the other banks might suddenly be declared insolvent because of their losses on these doubtful assets. This made inter-bank payments difficult and the international money-transfer system almost broke down.

All asset values plunged in the panic that followed. Figures from the world’s stock markets show that the FTSE-100 lost 43% between October 2007 and February 2009 and that the Nikkei and the S&P 500 lost 56% and 52% respectively between May-June 2007 and their bottom, which was also in February 2009. All three indices have since recovered some of their previous value but this is only because investors feel that incomes are about to recover and increase the flow of funds into the stratosphere to support higher levels. They would be much less optimistic about future prices if they recognised that, in the medium term at least, a growing shortage of energy means that incomes are going to fall rather than rise.

This analysis of the origins of the current crisis leads to four thoughts that are relevant to planning the flight from Vesuvius:

  1. It is dangerous and destabilising for any country, firm or individual to borrow from abroad, even if they are borrowing their own national currency. Net capital movements between countries should be prohibited.
  2. An inflation is the best way of relieving the current debt crisis. An attempt to return the debt-GNP ratio to a supportable level by restricting lending would be a serious mistake. Instead, money incomes should be increased.
  3. A debt-based method of creating money cannot work if less and less energy is going to be available. New ways of issuing money will therefore need to be found.
  4. New ways of borrowing and financing are going to be required too, since, as incomes shrink because less energy can be used, fixed interest rates will impose an increasing burden.

We will discuss these in turn.

1. Borrowing from abroad

We have already discussed the problems that servicing foreign debt can create and, in view of these, it is hard to see why any country should ever borrow abroad at all. Foreign capital creates problems when it enters a country and further problems when it leaves. When it comes in, it boosts the country’s exchange rate, thus hurting firms producing for the home market by making imports cheaper than they would otherwise be. It also hurts exporters, reducing their overseas earnings when they convert them into their national currency. As a result, when the loan has to be repaid, the country is in a weaker position to do so than it was when it took the loan on — its imports are higher and its exports reduced. Foreign borrowing is so damaging that it has even been claimed that the Chinese policy of pegging its currency to the dollar at a rate which makes its exports very attractive and keeping that rate by lending a lot of the dollars it earns back was designed by military strategists to destroy America’s manufacturing base. [2] The strategists are said to have argued that no superpower can maintain its position without a strong industrial sector, so lending back the dollars China earned was a handy way to destroy the US ability to fight a major war.

For a country with its own currency, the alternative to borrowing abroad is to allow the value of its currency to float so that its exports and imports are always in balance and it never need worry about its competitiveness again. As eurozone countries no longer have this option, they have very few tools to keep exports and imports in balance. Indeed, it’s hard to know what they should do to deter foreign borrowing because, while the state may not borrow abroad itself, its private sector may be doing so. In Ireland, for example, the net indebtedness of Irish banks to the rest of the world jumped from 10% of GDP in 2003 to over 60% four years later, despite the fact that some of the state’s own borrowings were repaid during these years. All the state could have done to stop this borrowing would have been to restrict lending that was based on the overseas money. For example, it could have placed a limit on the proportion of its loans that a bank could make to the property sector, or stipulated that mortgages should not exceed, say, 90% of the purchase price and three times the borrower’s income. This would have dampened down the construction boom and limited the growth of incomes and thus import demand. But such indirect methods of control are not nearly as potent as allowing the market to achieve balance automatically. Their weakness is a very powerful argument for breaking up the eurozone.

Although one might accept that borrowing abroad for income purposes comes at the cost of undermining its domestic economy, it could be argued that capital inflows for use as capital will allow a country develop faster than would otherwise be the case. Let’s see if this argument stands up.

The danger with bringing capital into a country with its own currency is that part of it will become income in the ways we discussed and thus boost the exchange rate and undermine the domestic economy. So, if we restrict the capital inflow to the actual cost of the goods that the project will need to import, is that all right? Well, yes, it might be. It depends on the terms on which the capital is obtained, and whether the project will be able to earn (or save) the foreign exchange required to pay the investors. If the world economy shrinks as we expect, it is going to be harder to sell the product and its price may fall. This might mean that interest payments took a greater share of the project’s revenue than was expected, causing hardship for everyone else. So, as we will discuss later, the only safe approach is for the foreign investor to agree to take a fixed portion of the project’s foreign revenue, whatever that is, rather than a fixed sum of money based on the interest rate. This would ensure that the project never imposed a foreign exchange burden on the country as a whole. The foreign capital would be closer to share capital than a loan. This should be the only basis that any country should allow foreign capital in.

At present, however, so much foreign capital is moving around that its flow might need to be limited to prevent destabilising speculation. As Reinhart and Rogoff point out, “Periods of high international capital mobility have repeatedly produced international banking crises, not only famously as they did in the 1990s, but historically.” One solution to this, again for countries with their own currencies, is to have two exchange rates; one for capital flows, the other for current (i.e. trading) flows. This would mean that people could only move their capital out of a country if others wanted to move theirs in. Rapid, speculative flows would therefore be impossible. Ireland had this system when it was part of the Sterling Area after World War 2 until Britain abandoned it around 1979. It was known as the dollar premium. South Africa had a capital currency, “the financial rand,” which gave it financial stability throughout the apartheid period. It dropped it in 1995.

Keeping capital and current flows apart would greatly reduce the power of the financial sector. After they were divided, no-one would ever say as James Carville, President Clinton’s adviser, did about the bond markets in the early 1990s when he realised the power they had over the government, that they “can intimidate everybody.”

Of course, the threat to its power will mean that the financial sector opposes capital-flow currencies tooth and nail. Yet its power, and income, must be reduced, especially if incomes in other sectors of the economy are going fall. According to the OECD, the share of GDP taken by the financial sector (defined as “financial intermediation, real-estate, renting and business activities”) in the United States increased from 23% to 31% between 1990 to 2006. The increase in the UK was over 10% to about 32% and around 6% in both France and Germany.

The rise in the sector’s share of corporate profits was even more striking. In the United States, for example, it was around 10% in the early 1980s but peaked at 40% in 2007. Mentioning these figures, Már Gudmundsson, the deputy head of the Monetary and Economic Department of the Bank for International Settlements, told a conference in the US in 2008 that the financial sector needed to become smaller and less leveraged: “That is the only way the sector can be returned to soundness and profitability in the environment that is likely to prevail in the post-crisis period.” I would put it much more strongly. The British sector’s income is bigger than those of agriculture, mining, manufacturing, electricity generation, construction and transport put together, and the sector’s dominance in other economies is similar. It is a monstrous global parasite that needs to be cut down to size.

The financial tail wags the societal dog

Graph 5: The financial sector in five rich-country economies, the US, Japan, the UK, France and Germany, has been taking an increasing share of national income over the past twenty years, in part because of the increasing debt burden. The sector is now bigger in each country than all the productive sectors put together. Source OECD.

2. Allowing inflation to correct the debt-income imbalance

As the amount of energy in a litre of petrol is equivalent to three weeks’ hard manual work, having power at one’s disposal can make one much more productive. A country’s income is consequently largely determined by its direct and indirect energy use. So, whenever less energy is available, incomes fall and debt becomes harder to service unless an inflation is allowed to increase money incomes and reduce the real burden imposed by the debt.

This has been demonstrated by two real-world experiments. After OPEC’s first oil-supply restriction in 1973, the world’s central banks allowed the inflation created by the higher oil prices to go ahead. By reducing the burden of existing debt, this made room for the commercial banks to lend out the money that the oil producers were unable to spend. The US came out of the recession quickly and Britain did not have one at all. Developing countries did well too even though they were paying more for their oil, because the prices of their commodity-exports increased more rapidly than the rate of interest they were being charged on their external debts and, although they borrowed from abroad, their debt-export ratio stayed constant.

After the 1979 restriction, however, the story was different. This time, the central banks resolved to maintain the purchasing power of their monies in relation to energy and they did all they could to fight the inflation. In Britain, an ultra-tight fiscal and monetary policy was adopted. Interest rates were set at 17% and government spending cuts of £3.5bn were announced for the following year. The result was the “Winter of Discontent” with 29m working days lost through strikes, the largest annual total since the General Strike in 1926. In the US, the prime rate reached 20% in January 1981. Unemployment, which had dropped steadily from 1975 to 1979, began to rise sharply as the deflationary measures were put into effect.

The OPEC countries themselves moved from a small balance of payments deficit of $700 million in 1978 to a surplus of $100 billion in 1980. They put most of this money on deposit in US and British banks. But what were the banks to do with it, since none of their rich-country customers wished to borrow at the prevailing interest rates, especially as their domestic economies had been thrown into recession by the central banks’ policies? The answer was to lend it to the developing countries, since the loans made to these countries after 1973 had worked out well.

The result was the Third World Debt Crisis. In 1970, before it began, the 15 countries which it would affect most severely — Algeria, Argentina, Bolivia, Brazil, Bulgaria, Congo, Cote d’Ivoire, Ecuador, Mexico, Morocco, Nicaragua, Peru, Poland, Syria and Venezuela — had a manageable collective external public debt. It amounted to 9.8% of their collective GNP and took 12.4% of their export income to service. [3] By 1987, these same nations’ external public debt was 47.5% of their GNP and servicing it took 24.9% of their export earnings. This doubling had come about because they had borrowed abroad to avoid inflicting drastic spending cuts on their people like those made in the US and the UK. They could, of course, have avoided borrowing and tried to manage on their reduced overseas earnings but this would have forced them to devalue, which would have itself increased their foreign debt-to-GDP ratio. They really had very few options.

Just how deep the commodity-producing countries devaluations would have had to have been is indicated by the decline in net farm incomes in the US. In 1973, these reached a record high of $92.1 billion but by 1980 they had dropped back to $22.8 billion, largely because of a decline in overseas demand, and by 1983 they were only $8.2 billion. Not surprisingly in view of the high interest rates, many US farmers went bankrupt. In 1985, 62 agricultural banks failed, accounting for over half of the nation’s bank failures that year. The high interest rates were also a factor a few years later when 747 US mortgage lenders, the savings and loans or “thrifts” had to be bailed out. The cost was around $160 billion, of which about $125 billion was paid by the US government.

Money’s exchange rate with energy fell in both 1973 and 1979 because there was too much of it in circulation in relation to the amount of oil available. In 1973, the inflation removed the surplus money by requiring more of it to be used for every purchase. The results were generally satisfactory. In 1979, by contrast, an attempt was made to pull back the price of oil by jacking up interest rates to reduce the amount of money going into circulation and thus, over a period of years, bring down the “excessive” money stock. The higher rates caused immense hardship because they ignored the other side of the money=debt equation, the debt that was already there. So, by setting their faces against allowing money to be devalued in relation to energy, the central banks’ policies meant that a lot of the debt had to be written off. Their policy hurt them as well as everyone else. Yet the same policy is being used again today.

So which policy should be adopted instead to remove the current surplus stratospheric money? Incomes in the real economy need to be increased so that they can support current asset values in the stratosphere and, since there is insufficient energy to allow growth to increase them, inflation has to be used instead. Attempts to use 1979-type methods such as those being promoted by the Germans for use in the eurozone will only depress incomes, thus making the debt load heavier. A lot of the debt would then have to be written off, causing the banking system to implode. Even if this could be avoided, such a policy can never work because the money is being taken from the real economy rather than the stratospheric one.

The choice is therefore between allowing inflation to reduce the debt burden gradually, or trying to stop it and having the banking system collapse, overwhelmed by bad debts and slashed asset values. In such a situation, account holders’ money would not lose its value gradually. It could all disappear overnight.

The inflation we need cannot be generated with debt-based money as it was in 1973 because in today’s circumstances that would increase debts more rapidly than it raised incomes. As Graph 4 shows, each $100 borrowed in 2006-7 in the US only increased incomes by around $30 whereas in 1973, the return was higher and the level of debt the country was carrying in relation to its income was about half what it is today. The same applies to most other OECD countries; their public and private sectors are already struggling with too much debt and do not wish to take on more.

The solution is to have central banks create money out of nothing and to give it to their governments either to spend into use, or to pay off their debts, or give to their people to spend. In the eurozone, this would mean that the European Central Bank would give governments debt-free euros according to the size of their populations. The governments would decide what to do with these funds. If they were borrowing to make up a budget deficit — and all 16 of them were in mid-2010, the smallest deficit being Luxembourg’s at 4.2% — they would use part of the ECB money to stop having to borrow.

They would give the balance to their people on an equal-per-capita basis so that they could reduce their debts, or not incur new ones, because private indebtedness needs to be reduced too. If someone was not in debt, they would get their money anyway as compensation for the loss they were likely to suffer in the real value of their money-denominated savings. Without this, the scheme would be very unpopular. The ECB could issue new money in this way each quarter until the overall, public and private, debt in the eurozone had been brought sufficiently down for employment to be restored to a satisfactory level.

The former Irish Green Party senator, Deirdre de Burca, has improved on this idea. She points out that (1) we don’t want to restore the economy that has just crashed and (2) that politicians don’t like giving away money for nothing. Her suggestion is that the money being given to ordinary citizens should not just be lodged in their bank accounts but should be sent to them as special credits which could only be used either to pay off debt or, if all their debts were cleared, to be invested in projects linked to the achievement of an ultra-low-carbon Europe. These could range from improving the energy-efficiency of one’s house to investing in an offshore wind farm or a community district heating system.

Creating money to induce an inflation may seem rather odd to those who advocate buying gold because they fear that all the debt-based money that has been created recently by quantitative easing will prove inflationary by itself. What they have failed to recognise is that most of the money they are worried about is in the stratosphere and has very few ways of leaking down. It is in the accounts of financial institutions and provides the liquidity for their trading. The only way it can reach people who will actually spend it rather than investing it again is if it is given out as loans but, as we saw, that is not happening. Even paying it out to an institution’s staff as wages and bonuses won’t work too well as most are already spending as much as they can and would use any extra to buy more assets, thus keeping it stratospheric.

A common argument against using inflation to reduce debts is bound to be trotted out in response to this idea. It is that, if an inflation is expected, lenders simply increase their interest rates by the amount they expect their money to fall in value during the period of the loan, thus preventing the inflation reducing the debt burden. However, the argument assumes that new loans would still be needed to the same extent once the debt-free money creation process had started. I think that is incorrect. Less lending would be needed, the investors’ bargaining position would be very weak and interest rates should stay down. Incomes, on the other hand, would rise. As a result, if the debtors continued to devote the same proportion of their incomes to paying off any new or remaining loans, they would be free of debt much more quickly.

3. The end of debt-based money

Output in today’s economy gets a massive boost from the high level of energy use. If less and less energy is going to be available in future, the average amount each person will be able to produce will decline and real incomes will fall. These shrinking incomes will make debts progressively harder to repay, creating a reluctance both to lend and to borrow. For a few years into the energy decline, the money supply will contract as previous years’ debts are paid off more rapidly than new ones are taken on, destroying the money the old debts created when they were issued. This will make it increasingly difficult for businesses to trade and to pay employees. Firms will also have more problems paying taxes and servicing their debts. Bad debts and bankruptcies will abound and the money economy will break down.

Governments will try to head the breakdown off with the tool they used during the current credit crunch — producing money out of nothing by quantitative easing. So far, the QE money they have released, which could have been distributed debt-free, has been lent to the banks at very low interest rates in the hope that they will resume lending to the real economy. This is not happening on any scale because of the high degree of uncertainty — is there any part of that economy in which people can invest borrowed money and be sure of being able to pay it back?

Some better way of getting non-debt money into the real economy is going to have to be found. In designing such a system, the first question that needs to be asked is “Are governments the right people to create it?” The value of any currency, even those backed by gold or some other commodity, is created by its users. This is because I will only agree to accept money from you if I know that someone else will accept it from me. The more people who will accept that money and the wider range of goods and services they will provide in return, the more useful and acceptable it is. If a government and its agencies accept it, that increases its value a lot.

As the users give a money its value, it follows that it should be issued to them and the money system run on their behalf. The government would be an important user but the currency should not be run entirely in its interest, even though it will naturally claim to be acting on behalf of society, and thus the users, as a whole. Past experience with government-issued currencies is not encouraging because money-creation-and-spend has always seemed politically preferable to tax-and-spend and some spectacular inflations that have undermined a currency’s usefulness have been the result. At the very least, an independent currency authority would need to be set up to determine how much money a government should be allowed to create and spend into circulation from month to month and, in that case, the commission’s terms of reference could easily include a clause to the effect that it had to consider the interests of all the users in taking its decisions.

This raises two more design questions. The first is “Should the government benefit from all the seignorage, the gain that comes from putting additional money into circulation, or should it be shared on some basis amongst all the users?” and the second is “Should the new money circulate throughout the whole national territory or would it be better to have a number of regional systems?” I am agnostic about the seignorage gains. My answer depends on the circumstances. If the new money is being issued to run in parallel with an existing currency, giving some of the gains to reward users who have helped to develop the system by increasing their turnover could be an important tool during the set-up process. On the other hand, if the new money was being issued to replace a collapsed debt-based system, giving units to users on the basis of their previous debt-money turnover would just bolster the position of the better off. It would be better to allow the state to have all the new units to spend into use in a more socially targeted way.

A more definite answer can be given to the second question. Different parts of every country are going to fare quite differently as energy use declines. Some will be able to use their local energy resources to maintain a level of prosperity while others will find they have few energy sources of their own and that the cost of buying their energy in from outside leaves them impoverished. If both types of region are harnessed to the same money, the poorer ones will find themselves unable to devalue to improve their exports and lower their imports. Their poverty will persist, just as it has done in Eastern Germany where the problems created by the political decision to scrap the ostmark and deny the East Germans the flexibility they needed to align their economy with the western one has left scars to this day.

If regional currencies had been in operation in Britain in the 1980s when London boomed while the North of England’s economy suffered after the closure of its coal mines and most of its heavy industries, then the North-South gap which developed might have been prevented. The North of England pound could have been allowed to fall in value compared with the London one, saving many of the businesses that were forced to close. Similarly, had Ireland introduced regional currencies during the brief period it had monetary sovereignty, a Connacht punt would have created more business opportunities west of the Shannon if it had had a lower value than its Leinster counterpart.

Non-debt currencies should not therefore be planned on a national basis or, worse, a multinational one like the euro. The EU recognises 271 regions, each with a population of between 800,000 and 3 million, in its 27 member states. If all these had their own currency, the island of Ireland would have three and Britain 36, each of which could have a floating exchange rate with a common European reference currency and thus with each other. If it was thought desirable for the euro to continue so that it could act as a reference currency for all the regional ones, its independent currency authority could be the ECB. In this case, the euro would cease to be the single currency. It would simply be a shared one instead.

The advantages from the regional currencies would be huge:

  1. As each currency would be created by its users rather than having to be earned or borrowed in from outside, there should always be sufficient liquidity for a high level of trading to go on within that region. This would dilute the effects of monetary problems elsewhere.
  2. Regional trade would be favoured because the money required for it would be easier to obtain. A strong, integrated regional economy would develop, thus building the region’s resilience to shocks from outside.
  3. As the amount of regional trade grew, seignorage would provide the regional authority with additional spending power. Ideally, this would be used for capital projects.
  4. The debt levels in the region would be lower, giving it a lower cost structure, as much of the money it used would be created debt free.

In addition to the regional currencies, we can also expect user-created currencies to be set up more locally to provide a way for people to exchange their time, human energy, skills and other resources without having to earn their regional currency first. One of the best-known and most successful models is Ithaca Hours, a pioneering money system set up by Paul Glover in Ithaca, New York, in 1991 in response to the recession at that time. Ithaca Hours is mainly a non-debt currency since most of its paper money is given or earned into circulation but some small zero-interest business loans are also made. A committee controls the amount of money going into use. At present, new entrants pay $10 to join and have an advertisement appear in the system’s directory. They are also given two one-Hour notes – each Hour is normally accepted as being equivalent to $10 – and are paid more when they renew their membership each year as a reward for their continued support. The system has about 900 members and about 100,000 Hours in circulation, a far cry from the days when thousands of individuals and over 500 businesses participated. Its decline dates from Glover’s departure for Philadelphia in 2005, a move which cost the system its full-time development worker.

Hours has no mechanism for taking money out of use should the volume of trading fall, nor can it reward its most active members for helping to build the system up. It would have to track all transactions for that to be possible and that would require it to abandon its paper notes and go electronic. The result would be something very similar to the Liquidity Network system that Graham Barnes describes in the next article.

New variants of another type of user-created currency, the Local Exchange and Trading System (LETS) started by Michael Linton in the Comox Valley in British Columbia in the early 1990s, are likely to be launched. Hundreds of LETS were set up around the world because of the recession at that time but unfortunately, most of the start-ups collapsed after about two years. This was because of a defect in their design: they were based on debt but, unlike the present money system, had no mechanism for controlling the amount of debt members took on or for ensuring that debts were repaid within an agreed time. Any new LETS-type systems that emerge are likely to be web based and thus better able to control the debts their members take on. As these debts will be for very short periods, they should not be incompatible with a shrinking national economy.

Complementary currencies have been used to good effect in times of economic turmoil in the past. Some worked so well in the US in the 1930s that Professor Russell Sprague of Harvard University advised President Roosevelt to close them down because the American monetary system was being “democratized out of [the government’s] hands.” The same thing happened to currencies spent into circulation by provincial governments in Argentina in 2001 when the peso got very scarce because a lot of money was being taken out of the country. These monies made up around 20% of the money supply at their peak and prevented a great deal of hardship but they were withdrawn in mid-2003 for two main reasons. One was pressure from the IMF, which felt that Argentina would be unable to control its money supply and hence its exchange rate and rate of inflation if the provinces continued to issue their own monies. The other, more powerful, reason was that the federal government felt that the currencies gave the provinces too much autonomy and might even lead to the break-up of the country.

4. New ways to borrow and finance

The regional monies mentioned above will not be backed by anything since a promise to pay something specific in exchange for them implies a debt. Moreover, if promises are given, someone has to stand over them and that means that whoever does so not only has to control the currency’s issue but also has to have the resources to make good the promise should that be required. In other words, the promiser would have to play the role that the banks currently perform with debt-based money. Such backed monies would not therefore spread financial power. Instead, they could lead to its concentration.

Even so, some future types of currency will be backed by promises. Some may promise to deliver real things, like kilowatt hours of electricity, just as the pound sterling and the US dollar were once backed by promises to deliver gold. Others may be bonds backed by entitlements to a share an income stream, rather than a share of profits, as Chris Cook describes in his article in this book. Both these types of money will be used for saving rather than buying and selling. People will buy them with their regional currency and either hold them until maturity if they are bonds, or sell them for regional money at whatever the exchange rate happens to be when they need to spend.

These savings currencies could work like this. Suppose a community wanted to set up an energy supply company (ESCo) to install and run a combined heat and power plant supplying hot water for central heating and electricity to its local area. The regional currency required to purchase the equipment could be raised by selling energy “bonds” which promise to pay the bearer the price of a specific number of kWh on the day they mature. For example, someone could buy a bond worth whatever the price of 10,000 kWh was when that bond matured in five years. The money to redeem that bond would come from the payments made by people buying energy from the plant in its fifth year. The ESCo would also offer other bonds with different maturity dates and, as they were gradually redeemed, those buying power from the ESCo would, in fact, be taking ownership of the ESCo themselves.

These energy bonds will probably be issued in large denominations for sale to purchasers both inside and outside the community and will not circulate as money. However, once the ESCo is supplying power, the managing committee could turn it into a bank. It could issue notes for, say, 50 and 100 kWh which locals could use for buying and selling, secure in the knowledge that the note had real value as it could always be used to pay their energy bills. Then, once its notes had gained acceptance, the ESCo could open accounts for people so that the full range of money-moving services was available to those using the energy-backed units. An ESCo would be unlikely to do this, though, if people were happy with the way their regional currency was being run. Only if the regional unit was rapidly losing its value in energy terms would its users migrate to one which was not.

Conclusion

Up to now, those who allocated a society’s money supply by determining who could borrow, for what and how much determined what got done. In the future, that role will pass to those who supply its energy. Only this group will have, quite literally, the power to do anything. Money once bought energy. Now energy, or at least an entitlement to it, will actually be money and energy firms may become the new banks in the way I outlined. This makes it particularly important that communities develop their own energy supplies, and that if banks issuing energy-backed money do develop, they are community owned.

As energy gets scarcer, its cost in terms of the length of time we have to work to buy a kilowatt-hour, or its equivalent, is going to increase. Looked at the other way round, energy is cheaper today than it is ever likely to be again in terms of what we have to give up to get it. We must therefore ensure that, in our communities and elsewhere, the energy-intensive projects required to provide the essentials of life in an energy-scarce world are carried out now. If they are not, their real cost will go up and they may never be done.

Working examples of both backed and unbacked forms of modern regional and community monies are needed urgently. Until there is at least one example of a non-debt currency other than gold working well somewhere in the world, governments will cling to the hope that increasingly unstable national and multinational debt-based currencies will retain their value and their efforts to ensure that they do will blight millions of lives.

Moreover, without equitable, locally and regionally controllable monetary alternatives to provide flexibility, the inevitable transition to a lower-energy economy will be extraordinarily painful for thousands of ordinary communities, and millions of ordinary people. Indeed, their transitions will almost certainly come about as a result of a chaotic collapse rather than a managed descent and the levels of energy use that they are able to sustain afterwards will be greatly reduced. Their output will therefore be low and may be insufficient to allow everyone to survive. A total reconstruction of our money-issuing and financing systems is therefore a sine qua non if we are to escape Vesuvius’ flames.

Endnotes:

  1. Petrodollar Warfare: Oil, Iraq and the Future of the Dollar, William R. Clark, New Society Publishers, British Columbia, 2005. p31. See http://books.google.com
  2. Qiao Liang and Wang Xiangsui, both colonels in the Chinese army, wrote a book, Unrestricted Warfare, which appeared on the Internet in English 1999 about strategies China could use to defeat a technologically superior opponent such as the United States through a variety of means including currency manipulation. Extracts from the book can be found at http://www.cryptome.org/cuw.htm
  3. Debt Crisis in the Third World, by Yanhui Zhang, 2003.
    See http://www.grin.com/e-book/39036/debt-crisis-in-the-third-world

Featured image: Stone money of Uap, Western Caroline Islands Source: Wikimedia Commons