Two recent, utterly unrelated, events draw attention to one of the most complex puzzles of our times—can money work differently, both as a token of exchange and a store of value?
One is Facebook Inc.’s—so far abortive—plan to launch a digital currency called Libra. The other is the Indian government’s plan to launch a “social stock exchange”, announced in the recent Union budget. Facebook’s Libra is deeply embedded in the dominant paradigm of our times—where convenience and ease of participation at the front end are accompanied by unprecedented concentration of power and control at the back end.
The social stock exchange idea acknowledges that “normal” capital’s dharma of multiplying money/wealth is inadequate for the society as a whole. Therefore, a parallel track for “impact investment” is proposed to deliver social and environmental good along with profits—but money as we know it is left unchanged.
So far, much of the commentary in response to both these developments is about the mechanics and how rapidly technology threatens to alter the equation between private enterprise and governments. What is being overlooked is the gargantuan question—can capitalism be transformed from within in ways that dissolve gross concentration of power and actually keep this planet in a liveable state for the estimated nine billion people who will inhabit earth in 2050?
A meaningful exploration of this question has some preconditions. One, that commerce is not treated as synonymous with capitalism. Two, there is a willingness to acknowledge that community or Samaj is as important a factor as state and markets.
To illustrate the importance of these two points and how crucial they are to the future—there is merit in first having a grasp on the history of money, both as a token of exchange and a store of value.
Birth of money
While the “market” as we know it today is barely three centuries old, some form of bazaar-based exchange has been around for about 5,500 years. Metal coins emerged around the sixth century BC and multiple tokens of exchange, including silk and tobacco, were operational at different levels of economic activity across the world till modern times.
The disruption that shaped our present was not merely the adoption of paper money, but the practice of banks creating money by lending it into existence. This practice, originating in late-17th century Britain, along with the proliferation of joint stock companies and then stock exchanges was essential to the unstoppable power of capitalism. The creation of a single national currency simultaneously consolidated the power of nation states and the modern market.
Additionally, governments worked hard to facilitate the “market” as a mechanism driven almost exclusively by the money profit motive. This was done by actively undermining existing community-based bazaar mechanisms in which “value” was often defined in non-monetary ways and generated through relationships where reciprocity, cooperation, and competition were intricately intermingled.
By the early 20th century, there were challenges to the power of the state and banks to create money as a token of exchange. For instance, the economic philosopher Friedrich Hayek, a passionate champion of free markets, supported the idea of non-governmental complementary currencies as part of his shrink-the-state agenda.
Then, there were those who challenged the state’s monopoly over money as a token of exchange in order to energize local economy. This is why during the Great Depression of the 1930s, community currencies sprang up as a survival mechanism on both sides of the Atlantic. These town-level or regional currencies were created either by a local governance body or a private entity and managed to infuse dynamism within the otherwise moribund local economy. However, as soon as any community currency became notable in scale, spread, and efficiency, it was outlawed because it was perceived as a challenge to both the state and banks.
After a lull of about four decades local currencies resurfaced in the 1980s—primarily in the US, Canada and to a smaller extent in Europe. Their objective was to foster a sense of community through a complementary token of exchange that helped those who were short of the official currency. Among the most notable of these complementary currencies are Time Dollars and Local Exchange Trading Systems (LETS).
Innovated by Edgar Cahn, an American lawyer, Time Dollars are a way of recording, storing, and rewarding transactions within a neighbourhood or group of people. As members in a Time Dollars community perform services for each other, they earn time credits which they can then use to buy other services within their group.
The core objective of “Time Banking” is to foster a community in which everyone feels like an asset and where some kinds of work is deliberately not given a monetary “price” in order to encourage reciprocity and mutual respect. According to one estimate, Time Dollar groups are currently operating in 34 countries including Argentina, Israel, Greece, Japan, South Korea, New Zealand, Taiwan, Senegal, Spain, UK and the US.
LETS are also a mutual credit system that is able to facilitate a much wider range of transactions in both goods and services. For example, a bakery participating in a LETS may price its bread partly in LETS points and partly in the national currency, to cover costs of raw materials. The emergence of digital technology has removed most of the logistical difficulties that complementary currencies faced earlier.
An internet-based global trading network, known as Community Exchange System (CES), claims to enable participants in 99 countries to buy and sell goods and services without using a national currency. This mobilizes “the real wealth of a community, fostering self-reliance and self-esteem, fostering social justice and equality, keeping wealth where it is created and fostering a sense of community”.
The development of blockchain technology, with its open ledger transparency, is potentially a boon that should support this core impulse behind community currencies. Instead it has, so far, largely been used for the spread of cryptocurrencies which are about pure accumulation, not building community and local economy. Bitcoin, the most famous of the cryptocurrencies, pegs its value on the US dollar and its swings resemble the conventional market’s ups and downs.
But the game is far from over. The communitarian impulse behind currencies like Time Dollars and LETS is being expressed in new forms. For example, Holochain is a rapidly growing non-profit that is using blockchain to “liberate our online lives from corporate control over our choices and information”. According to its website, Holochain aims to do this by building a decentralized, peer-to-peer network which enables participants to build applications for a wide range of collaborative endeavours including vendor relationship management, cooperatives, sharing economy apps, community resource management.
Siddharth Sthalekar, the founder of a Singapore based startup called Sacred Capital, is among those young people who believe that the digital age can give birth to a new economy whose primary currency will be reputation. Take for example Holo Fuel, the cryptocurrency attached to Holochain. This works as “a system of agreement between users not associated with a monetary value, but rather a proof of service value. It is a post-monetary system of community engagement, not a system of gambling or profit”.
Compared to this vision, Facebook’s promise that Libra would be more inclusive and serve unbanked people is laughable since “community”, in this case, is an illusory front for enormous concentration of power at the back end. Facebook’s reach includes seven million advertisers, 90 million small businesses, and 2.38 billion active monthly users—roughly a third of the world’s population.
An inter-ministerial committee on virtual currencies, headed by former finance secretary Subhash Chandra Garg, has recommended that all cryptocurrencies be made illegal in India because they pose a threat to the sovereign power of the state. But its suggestion that the government issue a sovereign cryptocurrency misses the point—namely, that with appropriate regulation people-generated complementary currencies can potentially promote more egalitarian participation and thus revitalize village and regional economy.
However, this potential cannot be fully explored in isolation without also asking if money as a store-of-value can be reconfigured. This is the context in which the promise and peril of a social stock exchange needs to be assessed.
Economy of permanence
The word “capital” has its origins in the Latin word for head because, till modern times, wealth was largely equated with the head count of cattle and horses a person or group could command.
French historian Fernand Braudel’s sweeping three volume study titled Civilization and Capitalism 15th to 18th Century records many ways in which material value was earlier defined and stored in organic things of actual use to humans. In India, some of these systems survived till the late 20th century in the form of community-protected forests as well as collective forms of water and soil management, which were ascribed greater value than either precious metals or paper wealth.
J. C. Kumarappa, best known as Mahatma Gandhi’s economist, went far beyond these existing traditions when he wrote Economy of Permanence in 1945. This seminal text made a strong case for anchoring material value not merely in organic life but in those products and processes which ensure a balance that serves both humans and the rest of nature.
Though Kumarappa’s work inspired E. F. Schumacher’s more famous text, Small Is Beautiful: A Study of Economics as if People Mattered, his core insight was entirely ignored. Thus, the global economy shaped by the Bretton Woods agreement after World War II came to be ruled by a measure of success, the gross domestic product, which equates all value with monetary transactions and makes no distinction between renewable and non-renewable resources or processes.
Consequently, use of non-renewable natural-capital, such as fossil fuels and other mined minerals, is counted as value creation when it is actually depletion of assets. Over the last two decades, both the corporate sector and international agencies have created some metrics for mapping social and ecological value—but this has in no way reduced the primacy of monetary value.
In the social sphere, the saddest example of this is microcredit which began as a self-help, local economy and community empowering phenomenon based on the social glue of cooperation. But injection of global capital caused all these qualities to evaporate and value came to be defined entirely in monetary terms.
Similarly, social venture capital does in some cases generate value in triple bottom line terms. But the scale of benefits and nature of power accruing to those who wield the venture capital remains vastly disproportionate to those actually generating the social and ecological value.
In the ecological sphere, the situation is still more grim. In 2010, The Economics of Ecosystems and Bio-diversity (TEEB) study done by the UN Environment Programme highlighted ways of measuring the economic value of ecosystems in the hope that if the functions of a wetland or a standing forest had a monetary value, the market would be incentivised to save them. This approach has yielded limited micro successes.
But on the whole, it is still the case if you cut down a forest, sell the wood, and park the profits in a bank, you will earn more annually as interest than the monetary income that would have accrued from harvesting the standing forest. This is because the standing forest, by itself, is still not considered “wealth”.
If India’s proposed social stock exchange is to be profoundly relevant, it must address and attempt to solve this conundrum. Otherwise, it is very likely that “impact investing” funds will provide essential services to a few million people not by truly empowering them but instead delivering them much more firmly into the grip of global capital.
For such an exchange to be a global path-breaker, it must be based on stores of value that are independent of or superior to monetary value—and, therefore, defy the power-concentrating tendency of 21st century capital. The “how to” does appear daunting. But the real danger lies in failures of imagination that threaten to keep policymakers and private innovators locked in an outdated mindset, which equates value with money. The future belongs to those who can convert the digital age into an epochal shift that makes social, cultural, and ecological capital more powerful than the promise-to-pay on a currency note or bank draft.