CREATINGWEALTH

GROWING LOCAL ECONOMIESWITH LOCAL CURRENCIES

Gwendolyn HallsinitLi & Bernard Lietaer

AdvancePraisefor

CREATINGWEALTH

Weveseenthelocalfoodmovementgrowandspread,andthelocalenergymovementtoo.Butthelocalmoneyideaisjustasimportant;heressomecommonsenseexplanationofwhyandhow!

BillMcKibben,authorDeepEconomy

CreatingWealthisthemostpracticalandcomprehensiveguideforcreatingcommunitywealth.Ithelpscitiesenvisionandmodelricheralternatives;healthier,moreequitable,sustainablefutures.Thistimelybookdeservesawideaudience.

HazelHenderson,authorEthicalMarkets:GrowingTheGreenEconomyandtheGreenTransitionScoreboard

Twomastershavecometogethertocreateaninstantclassic.FewcanholdacandletoGwendolynHallsmithwhenitcomestoasystemsapproachthatenablescommunitiestovisionadifferentfuture.BernardLietaerasanoriginatoroftheEuroiswithoutpeerwhenitcomestoboththetheoryandpracticeofexpandingthepossiblebycreatingnewcurrencies.Together,theyshareacommitmenttorenewingcitiesandcreatingasustainableworldforallendangeredspeciesincludingourown.Thisisabookthatprovidesframework,theory,examplesgaloreandtools.Getit.Useit.ForusatTimeBankingandforourlawschoolcourseinSystemChange,thisisrequiredreading.

EdgarS.Cahn,PhD,JD,AshokaFellow,DistinguishedProfessorofLaw,

originator,TimeBanking,Washington,DC

IdareconsiderthisisthesinglemostimportantreflectionineconomicssinceAdamSmith.Dr.SamirGhabbour,UniversityofCairo,Chairman,

EgyptianNationalCommitteefortheUNESCOManandBiosphereProgramme(MAB)

Clearlydescribestheever-greaterroleforcommunitycredits,asnationalcurrenciesevaporate.PaulGlover,founderofIthacaHOURS

andauthorofHometownMoney

NotsinceNaturalCapitalismhasabookofferednewwaysforwealthtobecreated;itsamustread

forcitycounselors,localpoliticians,businesspeopleandeveryonewhowantsavibranteconomywithoutdestroyingtheplanetintheprocess.

HarryBlutstein,Founder,TheLighthouseBureau,Northcote,Australia

CREATINGWEALTH

GROWINGLOCALECONOMIESWITHLOCALCURRENCIES

GwendolynHallsmith&BernardLietaer

PrefacebyDennisMeadowsForewordbyHunterLovins

Asthisbookgoestoprint,westandatthedawnofaneweraonEarth.WehopethatthisworkwillhelpinsomesmallwaytobuildthebridgetoabrighterfutureforallofEarthschildren.

Contents

PrefacebyDennisMeadowsForewordbyHunterLovins

AcknowledgmentsIntroduction:CitiesAndEconomies

PARTI:LOCALECONOMICS1.WhatIsWealth?

2.CrashandBurnEconomics3.CommunityCapitalism

4.ThePossibilityofSufficiencyandAbundance

PARTII:EXAMPLESOFCOMPLEMENTARYCURRENCIES5.BuildingEquity

6.GrowingIntelligence7.TheCreativeEconomy8.ExchangingEcologies

9.MindingtheCommunitysBusiness10.PuttingtheCareBackInHealthcare

11.HonoringOurElders,CaringForChildren12.EatingMoney

PARTIII:MAKINGITHAPPEN13.IntentionalCities

14.ATaleofThreeCities

Conclusion:TowardAMonetaryDemocracy

Appendix:TheCommunityCurrencyHow-ToManualEndnotesResources

AbouttheAuthors

Preface

byDennisMeadows

Acenturyfromnowsocialanalystswilllookbackwithangryastonishmentattheextentourgenerationacceptedtheeconomistsfantasyhappinessrequiresperpetualeconomicgrowth.Thismayhavebeentrueonce;definitelynowitisfalse.Indeed,theexponentiallyexpandinguseofenergyandresourcesbroughtbypursuitofgrowthnowerodesthefoundationsforthehappiness,eventhreatensthesurvival,ofourspecies.Thegrowingnumbersofpeoplewhorecognizethistendtoseektechnologicalchangesfactor

fourimprovementsinresourceuse,shiftstorenewableenergysources,sequestrationofcarbondioxide,geneticmodificationsofplantstrains,andothers.Thesearehelpful.However,noneoftheseeffortswillsucceedwithoutafundamentalchangeinourunderstandingofhumanwealth.Andthatwillrequireprofoundchangesinoursystemsofmoney.Thosewhogainprofitfromthecurrentglobalsystemobviouslywillvigorouslyresistanyefforts

tochangeit.Andtheywillprevailuntilindustrialsocietycollapses.Currentpolicieswillbedesperatelypursueduntiltheymustbechangedinresponsetocrisis.Butindividuals,families,communities,perhapsevenregions,canbeginnowproactivelytomakethenecessarychangesthatwillleadtotruehappinessandsustainablewealth.IknowofnootherpairbetterqualifiedthanBernardLietaerandGwendolynHallsmithtoofferthe

theoreticalunderstandingandthepracticalexperiencerequiredforusefulinsightsontheseissues.Thisbookisanextremelyimportantandveryuniqueresource.Itofferstheoreticalinsightsandpracticalactionsforthosewhowanttorespondnowtothemostimportantglobalissueofourtime.

DENNISMEADOWSisco-authorofLimitstoGrowthandBeyondtheLimits.

FOREWORD

NaturalCapitalismPlusbyHunterLovins

CreatingWealthisabookthattheworldhasneededforaverylongtime.Arguably,iftheeconomistsandaccountantswhohaveruntheworldsfinancialsystemoffacliff

hadreadthisbook,wedallhaveagreatdealmorewealthnow,andtheworldwouldnotbeintheparlousstraitsinwhichweallnowfindourselves.Itsauthorsknowwhereoftheyspeakandhavepracticedwealthcreationincommunitiesaroundthe

world.Bernard,GwenandIfirstworkedtogetheronaprojectcalledLASERLocalActionforSustainableEconomicRenewal.GwenandIcameupwiththenamefortheprojectonaverylong(andscary)drivetoBelgrade,YugoslaviafromaworkshopweddeliveredinNoviSad,Serbia.ThewarinKosovohadjustended,andSerbiawasrebuildingtheireconomyfromtheruins.AmericasDevelopmentFoundation(ADF)hadinvitedustoNoviSadbecausethelocalcommunityresourcepeopleneededtrainingonhowtofosterlocaleconomicdevelopmentinhardtimes.GwenbroughttheexpertisesheddevelopedinsuchchallengingeconomiesasKazakhstanandthetownshipsofSouthAfrica.IbroughteconomicdevelopmentlessonsfromAfghanistan,JamaicaandthehollowsofAppalachia.Werealizedduringtheworkshopthatpeoplearoundtheworldneededtheideasweweregivingthe

Serbians.Whenpeopleinacommunityworktogetheroneconomicdevelopment,theyneedtounderstandandproductivelyuseseveralformsofcapital.NaturalcapitaltheenvironmentalservicesprovidedbyMotherEarthiscritical,butsoaretheformsofhumanandsocialcapital,historicandculturalcapital,builtcapital.Andthemeansweusetomakeexchangesarealsoveryimportant.ADFfundedthedevelopmentofaninternationalworkbookandresourceguidesothatpeopletryingtojump-starttheireconomywouldknowhowtobegin,andLASERwasborn.NaturalCapitalismoffersthewayforbusinessestoprofitbyworkingwithnatureinsteadof

againstit.CreatingWealthlikewiseprovidesthebasisforcommunitiestogrowtheirlocaleconomiesbyinvestinginalltheformsofcapitalthatleadtosustainablewealth.Communitycapitalismbuildscommunityassetssothatenterprises,organizationsandindividualscanprosper.NaturalCapitalismisthebusinessmodelofthe21stcenturyeconomy,andCreatingWealthisthecommunityeconomicdevelopmentmodelthatbusinessandcitizensneedtobesuccessful.Thetwogohandinhandbusinessescantsucceedwithoutcommunityinvestmentininfrastructure,education,healthandtheruleoflaw.Communitiescantsucceedwithouttheentrepreneurialinitiativesthatprovideuswiththeproductsandservicesweneed.Usingthestrategiesdescribedhere,businessescanfurtherexpandtheirprofitabilityasthey

implementenvironmentalstewardshipandemployeewell-beingevenintoughtimesbyfindingalternativemeansofexchange.TheexampleoftheWIRsysteminSwitzerlandshowsusthatcomplementarycurrenciesmaketheeconomymoreresilientandsignificantlyreducethebuilt-ingrowthimperativethatdrivesenvironmentaldestructionandeconomicdislocation.Growthandprofitarekeyelementsoftheeconomy.Withthisbook,BernardandGwen

demonstratethatfarfrombeinganeutralmeansofexchange,thefinancialsystemservesasanalmost

invisibledriverofunnecessaryandunhealthygrowththeideologyofthecancercell.Byexpandingthediversityofexchanges,wecanachievethegrowthweneedgrowthinintelligence,health,naturalbeauty,thearts,spiritualdevelopment,recreationandpeaceandeliminatetheunproductivewasteanddestructionthatnowthreatenslifeonearth.Welcometothefuture.Youregoingtolikelivingthere.

L.HUNTERLOVINSisPresidentoftheNaturalCapitalismInc.(www.natcapinc.com).Ms.Lovinshaslecturedextensivelyinover15countries,includingattheWorldEconomicForumatDavos,TheInternationalSymposiumonSustainableDevelopmentinShanghai,theGlobalEconomicForum,andtheWorldSummitonSustainableDevelopment.Shehasconsultedforindustriesandgovernmentsworldwide,andhasco-authoredninebooks,includingthe1999bookNaturalCapitalism.

Acknowledgments

Everybookcomesintobeingwithmanyhandsshapingitsbirth.Beyondthecreativework,therearealsoallthetreesthatprovidethepaper,themineralsthatprovidetheink,andtheenergyneededtogiveitlifeandshape.Wearegratefultoallthebrightmindsthatinfluencedourwork,andallofEarthsabundanceformakingitpossible.GwendolynisparticularlygratefultoBernard,whohastaughthermuchabouttheworldofmoney,

andwhosepatiencewithherlearningprocesshasshapedherthinkingandhelpedherfindnewwaystoinitiatenewcurrencyprojects.ThreenewcurrenciesarecurrentlybeingcreatedandusedinVermont,wheresheliveswithherfamily.GeorgeHallsmith,Gwendolynshusband,isatirelesseditorandprovidessomuchsupportforallherwork,itishardtofindwordstoexpresshowmuchanintegralpartofthisworkheis.Herson,DylanHallsmith,isnowstudyingInternationalPoliticsatGeorgeMasonUniversity,buthissupportandtoleranceofamotherwholeavesforweeksatatimetogetthebookwrittenisdeeplyappreciated.Perhapsmorethananyone,Gwendolynsparentsandfamilyarealsoworthmentioning.Wesley

andJoanHallsetamazingexamplesofprincipled,intelligentpeoplewhoworkedhardforwhattheybelieve.Joandiedin2007,butWesleycontinuestobeveryinterestedinandsupportiveofGwendolynswork(evenifhedoesrefertoallthesecomplementarycurrenciesasfunnymoney).Hersisters,GaylynnandGretchen,arebothartistsandcreatebeautifulnewideasandrealitieseveryday.Theyareaninspiration.ThestaffatNewSocietyPublishershavebeengreattoworkwithChrisandJudithhavebeen

faithfultothisratherunusualbookproject,whichstartedoutwiththepremisethatitwouldtakeoverthreeyearstowrite,simplybecausewewantedtobringsomeoftheprojectsweweredevelopingtofruition.Theykeptthefaiththatitwouldgetwritten,anditdid.Inthemeantime,severalnewcurrencieshavebeendevelopedinboththeUnitedStatesandEuropeasaresultofourcollaboration,sothisisabookthathasshownrealresultsevenbeforeitwenttoprint.BetsyNuse,theeditor,hasworkedhardtogetalltheeditingdonequicklyandpainlessly.Her

assistancewithallthevagariesofstyleandclarityhavebeenenormouslyhelpful.ThemarketingteamatNewSocietyarealsoamazingIwasneversosurprisedtofindthatpeoplecouldpurchaseadvancecopiesonAmazon.combeforewehadevenfinishedtheediting.OthereditingassistancefromGinaOttobonicameatacriticaltimewhenmyschedulewasvery

demandingandIneededhelppullingthelastpiecestogether.Finally,ImgratefultotheBalatonGroupandDennisMeadows,whosawtheimportanceofwhatweweretalkingaboutandscheduledthe2010meetinginIceland.Thatgaveusareasontotravelthereandmeetwithalltheactivistswhoweretryingtoputthatcountrybackonitsfeet.Theyalsowereaninspiration,andwewishthemthebestasthecountrystruggleswithrealeconomicchallenges.

INTRODUCTION

CitiesandEconomies

Creatingwealththeideacatchespeoplebysurprise.Oursystemtendstoinstilltheideathatourcollectivewealthaddsuptoafinitebottomlineoffinancialassets,andthequestionismainlyoneofdistribution,notofcreation.Thecallforlowertaxes,theresistancetohigherminimumwages,theideathatwealthheldatthehighestlevelstricklesdownallcontainthishiddenassumptionthereisonlysomuchwealthoutthere,andweallneedtostruggletogetourpieceofafinite,limitedpie.Yethistoryandeverydayrealitytelladifferentstory:weliveinaworldofexpandingpies,andwhilesomethingsontheplanetarefinite(thelandareaavailable,thefertilesoils,thefreshwaterandfossilfuels,tonameafew)thereisnolimittohumaningenuity,creativityandimagination.Ouringenuityandinnovationhaveexpandedthewealthofthehumanspeciesbyordersof

magnitude,especiallyoverthelastcentury.Wehavecollectivelybuiltaremarkablewealthcreationmachine,andyetitsconstructionovertimehasmademostofuseventhepeoplewhoturnitswheelsandkeepitinworkingorderblindtohowitworks.Thisnewmarvelhasresultedinamiddle-classlifestyleinthedevelopedpartsoftheworldthatmakessomeoftheroyaltyandaristocracyofyesterdaylookhardscrabblebycomparison.Iftimetravelwerepossibleandwemanagedtogobackbeforetheindustrialeratotalkabout

computers,iPods,theInternet,cellphones,automobilesandairplanes,thepeopletherewouldthinkwewerewizardsandwitches,andtheywouldprobablyburnusatthestake.Centralheatandrunningwaterwerenotcommonuntilthemid1900s.ToursoftheancientmanorialhousesandcastlesofEuroperevealthattheirrelativelevelsofcreaturecomfortswereonparwiththemodernmiddleclassinEurope,Asia,NorthandSouthAmerica.Wecreatewealth.Wedoitasasociety,notasindividuals,despitewhatthedominantmythof

ruggedindividualisminNorthAmericawouldhaveyoubelieve.Farmershaveahardtimebringingtheirproducetomarketwithoutdecentroads.Merchantsdependonareliablecurrencytoselltheirgoodsandservices.Evensomeoftheiconiccapitalistsoftheearly20thcenturytheRockefellers,CarnegiesandMellonsdependedontaxpayer-fundedinfrastructuretoamassthevastfortunesthatstillformthefoundationofcompanieslikeExxon/Mobil,USSteelandAlcan.Eventoday,BillGateswouldbejustanotherhackerwithoutthelawsourgovernmentshavepassedprotectingintellectualproperty.

WealthsFoundationOneoftheprimarymechanismsforthecreationofwealthisourbankingandmonetarysystem.Weallputourmoneyintothebankstheblackboxoftheeconomyandweassumethemoneywillbetherewhenwegotowithdrawit.Atleastpartofourmindprobablybelievesthatthemoneyisthere.Wereceivestatementseverymonththatsayitsthere,andweearninterestonthedeposits.Yetlikethemythoftheself-mademillionaire,thepresenceofourmoneyinthebankisanillusion.

Banksusethedepositstheyhavetoloanmoneyouttoindividualsandbusinessesthisishowtheyearntheinteresttheypayonourdeposits,afterall.Thefractionalreservesystem,thelegalstructure

governinghowbanksoperate,requiresthatbanksonlymaintainintheorderof10%ofthemoneywehaveplacedondepositasareserve.Inotherwords,foreverydollarwedeposit,thebankcancreateanadditional$9inloanstobusinesses.Theyhavethepowertocreatefinancialwealthbyissuingnewmoney.So,howisrealwealthcreated?Itisnottheslipsofpaperwecallcash.Historyhasshowntimeand

againthatpaper(andnowelectronic)representationsofwealthareonlyasgoodasourcollectiveconfidenceintheirvalue.Inthisbook,wewillshowhowtherootsofrealwealthlieinoursharedvalues,understandingandinstitutionalstructures,butalsointhedifferentformsofcapitalwegenerateandregenerateasacommunity.Thewordcapitalcarriesanimplicitmeaningthatspeakstoaregenerativecapacityitis,aswewillexplaininChapter3,anassetthatcanproduceotherassets.Ofcourse,thefoundationofallourwealthistheecologicalintegrityoftheplanetwecallhome...itisthesourceofalltheregenerativecapacitiesweneedthemostland,air,water,food,materialsandenergy.Thesingularformofmoneywehavecreatedthroughourlawsandinstitutionalarrangementshas

beenacornerstoneoffinancialwealththroughthe19thand20thcenturies.Butthedemandsofthe21stcenturyandtheimperativesoftheglobalchallengesofclimatechange,resourcescarcityandunprecedentedgrowthinhumanpopulationscallustoamorecomprehensiveunderstandingofwealthandmoredemocraticandresilientwealthcreationprocessesandmechanisms.Mostofthesealternativescanbeinitiatedatthelocallevelbycitiesandotherorganizations.Cityleaderscanplayaroleintheeducation,fundingandstructuresrequiredtogiveusallavoiceinthecreationofsustainablewealth.

OverviewoftheBookTheoriginaltitleofthisbookwasIntentionalCities,IntentionalEconomiestoemphasizethelinkbetweentheactionscitiestakeandthehealthoftheirlocaleconomies.Citiesdontoftenrecognizethislinkorrealizethattheyhavethecapacitytoimprovetheireconomies.Theycandothisbybringingthecommunitytogetheraroundasharedvision,settinggoalsandidentifyingstrategiestomaketheirlocaleconomymoreself-reliant,morevibrant.Theycanhelptheircitizensachieverealandlastingwealth.Inthisway,citiesbecomemoreintentional,meaningthattheyaremovinginadirectiontheychooseratherthanbeingbuffetedbythewindsofchange.Whentheyfocusonthewaystheycreatewealth,theyalsochoosethefocus,theintention,theywanttogivetotheireconomies.PartIofthebookdescribestheprocessbywhichwealthiscreatedandexplainstheroleofthe

existingfinancialsysteminthisprocess.PartIIdescribesavarietyofdifferentformsoflocalcurrencies,circulatinginparallelwiththeofficialcurrency,thataddressspecificproblemsthatcitiesandcommunitiesface.PartIIIisdesignedasacasestudyandhowtomanualitdescribeshowseveralcitieshavemanagedtoengagetheirpopulationsinlong-termsustainabilityplanningandhowtheseeffortshaveeithersupportedlocalcurrenciesorhelpedcreatethem,aswellassomelessonslearnedaboutwhenitmightnotbepossibletosucceed.Wehopeyoufindthebookinspiringandthatitgivesyouenoughinformationtomoveforward.

Ourcompendiumofcommunitylevelcurrenciesisnotexhaustivetherearemanyhundredswehavenotdescribed.Butthestructuresandmechanismsweincludeareallreplicableinotherdomainstheyareonlylimitedbyyourimaginationandthecourageyouwanttotakeasaleader.Introducingnewideasisnevereasy,andwewillseethatintroducingnewideasaboutmoneyhasitsownuniquechallenges.Moreonthisinthebooksconclusionuntilthen,enjoy!

GwendolynandBernardReykjavik,Iceland

PARTI

LOCALECONOMICS

CHAPTER1

WhatisWealth?

Wealthconsistsnotinhavinggreatpossessions,butinhavingfewwants.

EPICTETUS

Theappealofbigprizelotteryticketscomesinpartfromthefantasytheticketsallow.Weimagineallthethingswecoulddo,charities,projects,realchangethatwecouldhelpmakehappen.Thereisnodenyingtheappealofvastsumsofmoney.Inourdreams,moneysolvesallourproblems,givesusresourcestomeetneedsweneverknewwehad.Butisitwealth?Youmighthavepickedupthisbookbecauseyouthoughtitwouldtellyousomethingabouthow

youcanincreaseyourownpersonalwealthanditwill.ButCreatingWealthisnotanotherget-rich-quickschemethisbookwillhelpyoufindandcreatewealthinplacesyoumightnotexpect.Italsomightshowyouhowwealthyyoualreadyare.

RedefiningWealthWealth.Itssomethingweallwant.Wealthyisrich,afterallbutrichinwhat?Inpossessions,money,income?Thisdependsonhowyoudefinetheword.Itsoriginalmeaning,fromtheOldEnglishweal(asincommonweal),wassimplyprosperityorwell-being.1Whatanotion!Howfarfromthemeaningmanyofushavecometoassociatewiththeword.Wealthismorethantheaccumulationofmoneyandresources,anditcanbegeneratedinwaysotherthanthroughconventionalfinancialmeans.Inordertotrulycapturethewealthofoursocieties,ourculturesandourenvironments,wehavetopayheedtothatoldernotionofwealthaswell-being.Wemightthinkthatwinningthelotterywillmakeuswealthyandthatwealthwillmakeushappy,butwealsoknowthatitdoesntalwaysworkthatway.Whileitstruethatpovertydoesmakeforunhappiness,lotsofmoneydoesntnecessarilybuyhappiness.Wemayhaveseencaseswheresomeonewhohashadverylowincomewinsthelotteryorobtainsa

bigcourtsettlementandyetthemoneyoftendoesntmanagetoimprovetheirlivesverymuch.Inmanysuchcases,thingsgetworseasthestressofpossessingmoneyandallitsnewdemandstaketheirtollhowtokeepit,suddenlymeetingrelativesandfriendsyouneverknewyouhad,conartistsandanarmyofinvestmentadvisors.Howdoweobtainwell-being,ifacquiringmoremoneydoesntdoit?Whenarewehappy?We

knowtheanswertothisquestionwehaveasenseofwell-beingwhenallofourneedsaremet.Notjustthebasicneedsoffood,clothingandshelter.Butalsotheneedtobeacreativeparticipantinourcommunity,tohaveavoiceinourowndestiny,topursueourownspiritualdevelopmentunhinderedbysocialsanction,tohavetimetorest,playandjustbewithourfamilies.Ourneedsaremulti-

faceted,andyetwiththedominantemphasisontheconsumereconomy,themajoreconomicactorsbusinessesandcorporationsarealwaysadvertisingtoconvinceustobuyourwaytofulfillment.

Wedontneedmoney.Weneedthethingsthatmoneycanbuy.

Overweight?Buyadietplanandanexercisemachine.Unhappy?Therearelotsofself-

improvementprogramsyoucanbuy.Spirituallylost?Buyabook,avideotape,joinasuccessfulmegachurchortakeavacationataresort.Ourneedforself-expressionisincreasinglymetthroughtheclotheswewear,thecarswedrive.Artsandmusicarelefttotheprofessionalswhohavetheirowngoodsandservicesavailableforsale.Andyetafterallthiswefindthattheconsumersolutionsdontworkthetemporarygratificationwegetfromnewproductsonlydeepenstheunderlyingneed.Butifwecantbuyourwaytohappiness,therehastobeanotherway.Weneedtoredefinewealthasthefirststepinchartingacoursetowardssustainablewealth.Sowhat

ismeantbythat?Rememberthenotionofcommonweal(publicwell-being)?Developingrealwealthimpliesmakingchoicesthatenableallmembersofthecommunitytoattainwell-being.Sustainablewealthmeansprojectingthatnotionintothefuture,muchastheWorldCommissiononEnvironmentandDevelopmentdidwhenitdefinedsustainabledevelopmentasmeetingtheneedsofthepresentwithoutcompromisingtheabilityoffuturegenerationstomeettheirownneeds.2Ifwehadsustainablewealth,wewouldhaveacommunitywithwell-beingacommunitywhoseneedsweremetwithoutborrowingitswealthfromfuturegenerations.

ASystemsPerspectiveWhatareourneeds,andhowaretheysatisfied?Itispossibletodoanempiricalevaluationsimplybylookingaroundatthedifferentinstitutions,programs,goodsandservicesthatareofferedinsociety.Notthatallofthemmeetrealneedssomeareobviouslytherebecauseawantoranartificialneedhasbeencreated,buttakinganinventoryoftheassetswehaveassetsbeingdefinedasneedsatisfiersgivesusagoodstartingpoint.

HumanandSocialDevelopmentneeds:healthandwell-being

Empowermentneeds:equity,conflictresolution,self-determination

Economicneeds:income,meaningfulwork

Materialneeds:housing,communicationsystems,transportation,energy,wastemanagement,food

Environmentalneeds:air,water,biodiversity,pollination,stableclimate

FIGURE1.1.HumanNeedsandCommunitySystems

Beforewecanbeacontributingpartofanycommunity,wehaveaneedforhumandevelopment.Weneededucation,healthcare,self-esteem,skills,recreationalopportunities.Thereareassetsinourcommunitiesthatmeettheseneedsschools,universities,childcareprograms,wellnessandmedicalservices,hospitals,recreationprogramsandfacilities.Whenthesystemsareinplacetohelpusallbehealthy,productiveandhappypeople,wecanalsosaythatourcommunityhassufficienthumancapital.Humancapitalcanbedefinedasthecapacitycommunitieshavetofurtherourdevelopmentashumanbeings,alongwiththeaggregateskills,knowledgeandabilitiespeopleinthecommunityhaveandcancontinuetomaintain.Wealsohavesocialneedstheneedsthatcanonlybefulfilledbybeingpartofacommunity.We

needtohaveasenseofconnectedness,asenseofcommunity.Weneedtofeelsafe,toexpressourselvesandenjoythebeautyofoursurroundings.Weneedasenseofmeaningandpurpose,andmeaningisinvariablygeneratedonlythroughrelationships(relationshipstoourchildren,ourfamily,ourcountry,ortoourideaofthedivine).Thesehumanandsocialneedshavegivenriseoverthecenturiestomanyofthereligionsandspiritualtraditions.Weneedsupportiverelationships,networksoffriendsandasensethatwerecontributingtothecommunity.Whentheseneedsaresatisfied,wecansaythatwehavemanysocialassets.Whenwehavesystemsinplacethatinsurewecancontinuetomeetoursocialandculturalneedsasacommunity,wecansaythatwehavesufficientsocialandculturalcapital.Tomakedecisions,resolveconflictandtoinsurethatweallhavealevelofequity,weallhavea

needforempowerment.Theinstitutionswehaveestablishedtogovernourselves,theprogramsinthecommunitythathelppeopleresolvedisputesandthelawsandregulationswehavetoprovideajustandpeacefulsocietyaretheassetswehaveinthisarea.Theinstitutionalcapitalinourcommunityisthelegalframeworkandthetraditions,structuresandotherfoundationsthatenableoursocietiestocontinuetorecreatetheinstitutionstheyneed.Whenpeoplethinkofneeds,thefirstthingsthatoftencometomindarethebasicneedsoffood,

clothingandshelter.Thesematerialneedsareobviouslyimportant,andthebuildings,manufacturedproducts,technologyandinfrastructurewedevelopinourcommunitiesaretheassetswehavetosatisfytheseneeds.Whenwehavegoodaffordablehousing,safeandhealthydrinkingwater,effectivesystemsforrecyclingandreusingwaste,renewableenergysystems,healthylocalfoodproduction,communicationsystemsthatlinkusupwitheachotherandtherestoftheworld,wehavethebuiltandtechnologicalcapitalweneedtoprosper.Ourmaterialneedsgobeyondwhatwemakeourselves,obviously,andsowecanalsospeakofthe

environmentalneedswehave.Weneedcleanairtobreathe,diverseecosystemsthatsupportawidevarietyofplantandanimallife,astableclimate,assimilativecapacityforourwasteproducts,watertosupportotherformsoflifeaswellasforustowash,drinkandenjoy.Weneedhealthysoils,pollinators;allofthesethingsaretheenvironmentalassetsthatserveasourbasiclife-supportsystem.Whentheecosystemishealthyandproductive,thecoreregenerativecapacityoftheecosystemisthenaturalcapitalthatweneedforsustainablecommunities.Wevedescribedseveralkindsofassetsandcapitalthatsatisfytheneedswehave,andstilltherehas

beennomentionyetofthefinancialassetsandcapitalwetypicallyassociatewiththewordsmoneyandinvestment.Thatspartlybecausemoneyisreallymoreofameanstoanendthananeedinitself.Wedontreallyneedmoney.Weneedthethingsthatmoneycanbuy.Wedontneedfinancialcapitalforitsownsakeifwecanobtainthethingsitbuys.Theexchangecapacityofmoneyisnow,andhopefullyinthefuture,oneofthekeyreasonsweneedit.Moneyhelpsusexchangethingsthatareofvaluetouslikeourtimeandlaborforthingsthatareofvaluetosomeoneelse.Money,however,isnottheonlymediumofexchange.Afterall,peoplehavebeenexchanging

goodsandserviceswitheachotherformillenniawithoutusingmoney.Youhelpyourneighborput

onanewroof.Hefillsyourcavitiesandgivesyouanewcrown.Youdriveyourfriendskidstoschool.Shebaby-sitsyourkids.Inboththeseexamples,nomoneychangeshands,butgoodsandservicesdo.Thevalueofthistypeofexchangeisanotherassetandaformofcapitalpotentialexchangecapital.Ourcommunitysystemshavedevelopedovercenturies,drivenbyourneedsandthenecessityof

satisfyingthem.Whenwespeakofawealthycommunity,wemeanonethathasthecapacitytomeetawidevarietyofhumanneeds,onethathadinvestedinalltheseformsofcapital:social,cultural,human,institutional,built,technological,natural,financialandpotentialexchange.Creatingandmaintainingthesediverseformsofcapitalovertimeisthesustainabilitychallenge.

FIGURE1.2.HowNeeds,AssetsandCapitalRelatetoEachOtherMorethanhalfofhumanitynowlivesincities,andthistrendisexpectedtocontinueforatleast

anotherdecade.Soourcommunitywealthisoftenthewealththatcanbefoundinourcities.Citiesaremonumentstocollectivehumanendeavoroverthousandsofyears.Theyformthephysical,spatialandeventhecognitivestructuresthatmeetsomanyofourneeds.Realizingthis,thebulkoftheconcreteexamplesofwealthcreationwediscusswillfocusoncities.

TheWealthofCitiesTounderstandalternativepathstoindividual,communityandeconomicwell-beinginanurbancontext,weneedtolookathowcitieswork,andweneedcityleadershiptoaddressthecriticalissuesofasustainableeconomy.InCitiesandtheWealthofNations,JaneJacobsidentifiedurbanregionsasthemostimportantdriverofeconomicgrowththroughouthistory.Shedocumentedbothhowcitiesandregionshadtheeconomicclouttoimportgoodsfromotherareasandalsohowtheydevisednewwaystoreplacetheseimportswithlocallyproducedgoodsandservices.Thisimportreplacementwasthekeysourceofurbaneconomicexpansion.3SincetheEarthSummitinRiodeJaneiroin1992,citiesallovertheworldhaveplayedaleading

roleintheeffortstostabilizeglobalclimateandaddressenvironmentaldestruction.Therehavebeenseveraldifferentmovementssustainablecities,healthycities,ecocities,resilientcitiesandmostrecentlytransitiontownsandseveraldifferentneworganizationsorganizedtosupportcitiesefforts.ICLEIwasoneofthefirst;itwasoriginallytheInternationalCouncilforLocalEnvironmentalInitiatives,buthasbeenrenamedICLEI:LocalGovernmentsforSustainability.4Thescopeanddepthofthismovementisconfirmedbytheproliferationofotherorganizationsthat

haveemergedoverthepasttwodecades.Thisincludes,forinstance,theInstituteforSustainableCommunities,theWorldHealthOrganizationsHealthyCitiesprogram,HealthyCitiesInternational,EcocitiesInternational,theCenterforResilientCities,theCitiesPLUSNetwork,GlobalCommunityInitiativesandthelargestoneofallUnitedCitiesandLocalGovernments(UCLG)anew

internationalcongressofcitiesestablishedin2004whenseveralglobalcoalitionsofcities(TheInternationalUnionofLocalAuthorities,MetropolisandtheWorldFederationofUnitedCities)mergedintooneorganization.5UCLGsMillenniumCitiesCampaignembracestheUnitedNationsMillenniumDevelopmentGoals,whichputasustainableenvironmentandasustainablelocaleconomyonthesamepage.Citiesareincreasinglyawarethatthesolutionstoclimatechangeandenvironmentalproblemsareembeddedintheeconomieswehavecreated.Thesecitiesarepositionedtobekeycatalystsforlarge-scalechange.Citiestakeactiononseverallevels,rangingfrombroadpolicychangeslikerezoninganareaof

thecityfromcommercialtoindustrialtoevensmallactionslikebuyingpapertowelsforpublicrestrooms.Thepoliciestakedifferentformslong-termplanningdocumentswithavisionstatement,goals,targetsandstrategies,operatingbudgetsandcapitalplans,ordinancesandregulations,annualgoalsandpoliciestoguideoperationssuchaspersonnelandpurchasingpolicies.Thelong-termplansguideordinancechangesandbudgets,andinturn,thebudgets,capitalplansandannualgoalsshapetheimplementationactivitiesthatoccureveryyear.Otherpoliciesprovidedirectionfordaytodayoperations.So,forexample,anewcitycounciloriselectedwhopromisedduringhercampaigntoreducethe

carbonemissionsandfossilfueluseofthecity.Duringherfirstdayinoffice,sheispresentedwithavehiclepurchasebythepolicedepartmentofagas-guzzlingcarforthenewfleet.Ifshetriestostopthepurchase,shemightimmediatelybefrustratedbyresistancefromthepolicechiefandcitymanagerdescribingthefactthatthevehiclewasinthecapitalplanandpartofalong-termreplacementpolicy,possiblywithcontractswithlocalcardealersthatcantbebroken.Thenewcitycouncilor sobjectionswillprobablybeoverruledbythecouncilorswhohavebeenservingformanyyears,andthevehiclepurchasewillgoforward.Thenewestcouncilmembermightprotest...butcitizensshowedinthiselectiontheywantedtoreducecarbonemissionsandfossilfueluse.Patientsmilesandknowinglooksexchangedbetweentheveteransonstaffandthecouncilwilltellherthatidealismwillbetoleratedbutthatchangeatthisleveldailyimplementationisnotthateasy.Campaignpromises,regularlocalelections,referendaandbondvotesformasteadypulseofnew

informationandcitizeninputintocitygovernment,butsignificantchangesindirectiontakemoreofaconcertedeffort.Freshlymintedcitycouncilorsareoftenblindtotheprocessesthatguidelarge-scaleimplementation,anditsalltooeasytogetpulledintothebusinessasusualpatternofbehavior,especiallywhenyouconsiderallthesystemicforcesthatworktokeepthingsthewaytheyare.Citiesarecomplexenginespoweredbyunioncontracts,standingpurchasecontractswithsuppliers,

experiencedprofessionalstaffandmaterialandenergyflowswhichhavetheirownvisibleandinvisibleinfrastructure.Majoralterationstotheinfrastructuretakecarefulplanningyouwouldnotcutsewerpipestostoptheflowofwastetothetreatmentplantifyouwantedtoreduceacityswasteimpact,regardlessofhoweasyitmightseematthetime.Inthatcase,itsobviousthattheunintendedconsequencesofactionwouldfaroutweightheshort-termresults.Itslessobvious,butnolesstrue,inotherareas(even,forexample,withagas-guzzlingvehiclethatthepolicedepartmentwants).Along-termvisionguidedbypeoplesvalueswhattheycaredeeplyaboutisaprerequisite

formobilizingcollectiveaction.Onceacityhasalong-termvision,however,thingsdonotmagicallychange.Itstillwillbehardtoredirectthepurchaseofavehicleforthefleetunlessthelong-termvisionistranslatedintotheshort-termpoliciesandprogramswhichguideimplementation.Alargervisionforawalkablecitywithfriendlyneighborhoodsandlesssuburbansprawlstillrequireschangesinthelanduseordinancesbeforetherewillbeanymeasurablechangeindensity.Alargervisionforcleanairandreducedclimateimpactswillhavetobetranslatedintoanumberofpoliciesrangingfromapurchasingpolicythatrequiresalternativestoenergy-intensiveitemstocapitalplanningforrenewableenergyproduction.

Today,veryfewcitieshavetheintegratedlong-termplansandpoliciesnecessarytopursuethetypesofimplementationactivitiesthatwillmoveacommunityinamoresustainabledirection.Oftenthepolicycontextisfragmented,short-termandinternallycontradictory.Thecitymighthaveamasterplanoracomprehensiveplanthataddressesinfrastructure,landuseandeconomicdevelopmentoverthenextthreetofiveyears.Ifcitystaffand/orthecitycouncilareorientedtowardintegration,thecapitalplanmightactuallyreflectthegoalsofthemasterplan,butalltoooftenacityscapitalplanisalonglistofprojectsthatreflectdepartmentalorcouncilimperativesinisolationfromeachother,withoutasenseofhowtheyrelatetooverarchinglong-termgoalssuchasclimatestabilizationandpovertyeradication.Citiesalmostneveraddresssomeoftheimportantunderlyingdriversforthepolicycontextasenseofsharedvalues,socialandhumandevelopmentissuesandgovernancestructures.Theactionneededtoachievelong-termsustainabilitygoesbeyondactionstakenbycity

government,andcitygovernmentactionscanbeineffectiveiftherearentconcurrentandcommensuratechangestakingplaceinthelargercommunity.Amulti-stakeholderprocessgivesindividuals,organizationsandothermajorinstitutionsinthecityaroleandavoiceinthepreparationoftheplansothatlatertheywillalsoworkwithintheirowncontexttofindwaystoimplementit.Inthisway,thecityandallitsindependentmovingpartswillstarttoworktowardthesameends.Hereagain,however,thissynchronizedactiondoesnthappenonitsownittakesdirectionandorganizationfromthecityandthestakeholders.Integrationandlong-termtimehorizonsdefinesustainabilityplanning,andaremoreimportantfor

achievingacitysgoalsthanattentiontosingleissuessuchasclimatechange,healthorlocaleconomicdevelopment.Whiletheseissuesareimportant,actiontoaddressthemcannotbesuccessfulifitoccursinasilo.Anintegratedapproachmakesconnectionsacrossissueareas,acrosssocio-economicboundariesandacrosscitydepartments.Italsohelpsinsurethatthepursuitofoneobjectivewontbeattheexpenseofanother.

Environmentalpoliciesthatmarginalizeorimpoverishagroupofpeopleorareainthecity(orinanotherpartoftheworld)wontsucceedinthelongrun.Housingplansthatignoretheirimpactonimportantopenspace,wetlandsandagriculturallandwillhurtthecityoverthelongterm.Economicdevelopmentpracticesthatrelyonanunsustainableexploitationofnaturalresourcesorhumanpotentialwillalsoultimatelyhavetheoppositeeffecttheywillfurtherimpoverishthecommunityratherthancreatingrealwealth.Ifyouasksomelocalmayorsorcitycouncilors,however,whatinfluencetheyhaveonthe

economy,theyarelikelytogiveyouablanklook.Somemayhavegoneasfarastobuildindustrialinfrastructureinthehopesofattractingmanufacturingfirms,withtheir19thand20thcenturyhighlypaidjobs,ignoringglobaltrendsthathavemovedmostmanufacturingtootherpartsoftheworld.OthersplacetheirhopeinthemarketingeffortsofthelocalChamberofCommercethatdiligentlyattendstradeshowsandplacesadstomarketthelocalityasbusiness-friendly.Someofthemoreprogressivecitygovernmentshaveinstitutedrevolvingloanfundstoserveasa

lenderoflastresorttolocalbusinesseswithcashfloworgrowthissues.Theybuildincubatorspace,offerbusinessplanningservices,maybeevenidentifysourcesofventurecapitalforstart-ups.Manygovernmentsareawareoftheimportanceoflocallyownedbusinesses,butarestillfrightenedawayfromtakingastandwhenlargefirmsthreatentocomeinandoutcompetesmallerlocalventures.Mostlocalgovernmentthinkthatalljobsareequalandthatanyandallnewtaxbasesaresacrosanct.Theeconomyisthemaster,andlocalcommunitiesaretheservantswhobendoverbackwardstoaccommodateinvestors,eveninthefaceofquestionablebusinesspractices.Redefiningwealthandrefocusinglocalinitiativesonmeetinghumanneedscanhelplocalleaders

seetheeconomyasbeingattheserviceoftheircommunity,nottheotherwayaround.Thereare

manyformsofcapitalthatdemandinvestmentforalocalcommunitytothrive,notjustfinancialcapital.Socialcapital,humancapital,naturalcapital,institutionalcapital,technologicalcapital,potentialexchangecapital,builtcapitalandculturalcapitalallneedtobeunderstoodandstrengthenedandthismultidimensionaleffortisabsolutelythedomainoflocalcommunities.

TheMyth(andPotential)ofIndividualWealthSofar,wevetouchedonthreethingsthatdefinewhatwemeanbywealth:

1.Theobviousideaofpossessingalotofmoney2.Thepresenceofwell-beingthroughthesatisfactionofabroadspectrumofhumanneeds3.Thecommunitysystemswehavedevelopedtoprovideformanyofourneeds

Truewealthmightbedefinedasasumofallthreeofthese.Yetitispossibletofeelwealthywithonlythelattertwo,anditispossibletobeimpoverishedifallyouhaveisalotofmoney,butnowaytomeetanyofyourcriticalneedsandnocommunitysystemstosupportit.TheNorthAmericanmythologyofruggedindividualismtendstomakeusblindtothefactthatreal

wealthcanonlyexistincommunity.Self-mademillionairessometimeshappilyforgetthefactthatthecontextfortheirenrichmentcomesoutofpublicinfrastructure,institutionalarrangementsandparticipationbymanyotherpeopleintheirenterprise.TheyarethefirstonestocallforlowertaxestheUSChamberofCommercespendsmoreonlobbyingthananyotherlobbyinggroupinWashington.Theyoftendontseemtorecognizethatwithouttheruleoflaw,withoutwaterandsewerservicestoindustrialareas,withoutpoliciesthatenabletheirbusinessestooperate,theywouldnotsurvive,letalonemakeaprofit.Ifmostpeopleareblindtothestructuresofcitiesandcommunitiesthatenablebusinessesand

organizationstooperatesuccessfully,wearealsoblindtothestructureoftheotherimportantingredientofindividualwealthmoney.Mostpeopledonotunderstandthecurrentmonetarysystem,hiddenasitisfrompublicview.Iftheydid,theymighthavesecondthoughtsaboutwhetherornottoblindlytrusttheirfinancialsecurity,orinsecurity,exclusivelytothisparticularsystem.Wehopeinthisbooktoopenyoureyesaboutboththeroleofcommunityinwealthcreationand

alsotheroleofmoneyandothermeansofexchange.Todothis,weneedtohelpyouremovetheblindfoldyouvebeenwearing(throughnofaultofyourown)themonetarysystemhasbeenobscuredbytheforcesthatprofitfromit.Afterall,beforeyoucancreatewealthandbuildsustainable,localeconomies,youneedtounderstandwealthwhatitisandwhatitisbasedon.Thegoodnewsisthatyoutoohavethepowertocreatewealth,realwealth,foryourself,yourchildrenandyourcommunity.Butbeforeyoubuymorelotterytickets,readontoseehoweffectivelocalactioncanaccomplishthetaskwithalotlessrisk.

CHAPTER2

CrashandBurnEconomics

Almostallsystemsofeconomicthoughtarepremisedontheideaofcontinuedeconomicgrowth,whichwouldbefineanddandyifwelivedonaninfiniteplanet,buttheresthissmall,niggling,inconvenientfactthattheplanetis,infact,finite,and

that,unlikeeconomictheory,itisgovernedbyphysicalandbiologicalreality.

GEORGEMONBIOT

TheRollerCoasterEconomyWeallknowthepositivesideofoureconomichistory.Ourcurrentfinancialsystemhasenabledanindustrialagewhichhasprovedtobethemostimpressivewealthcreationmachineinhumanhistory,atleastforthosecountriesthatadoptedindustrializationearlyon.However,thefinancialmarketsalsohaveanunfortunatetendencytohurtleforwardlikearunaway

train,careeningintovalleysofunpredictablerecession,thenchugginguphillsofnewopportunity,onlytoderailattheslightestbendinthetrackanAsianmarketblowsup,theRussianrublecrashes,subprimemortgagestriggeraglobalbankingmeltdown,etc.TheWorldBankhasidentifiednolessthan96majorbankingcrisesand178monetarycrisesoverthepast25years.1USdollars,EuropeaneurosandJapaneseyenstokethetrainsengines,shoveledintosupport

financialinterestsineverycorneroftheglobe.Tokeepthesystemgoing,wesubsidizeravenousconsumerconsumptionthatdevoursrainforests,guzzlesfossilfuelsandtopsitoffwithmeltedicecapsfordessert.Finally,intheshadowsideofoureconomywefindalsoalltheshadowsofhumanityitself:theoperationcloaksinternationalsyndicatestradinginviolence,weapons,war,terror,illegaldrugs,slavesandprostitution.Inshort,forbetterandforworse,theflawedsystemwehavehasdriventheevolutionofthehuman

speciesonthisplanettothestatewehaveachievedtoday.Ourfinancialsysteminfluenceseveryoneontheplanetfromparents,farmers,shopkeepersand

students,toallthecorporateandpoliticalleadersaroundtheworld.Mostpeopleacceptitonfaith,andyetsomeinconvenientquestionsneedtobeasked:Whydotheavowedprinciplesofmostnationalandstateconstitutionslikepeace,democracy,ahealthyenvironmentandhealthypeopledivergesofarfrompracticesweacceptasbusinessasusual?Whydoesthesystembreakdownasoftenasitdoes?HowdorationalpeoplewithnoillintenttohumanityortoEarthsenvironmentperpetuateasystemthatproducesviolence,pollutionandcorruptionasitsbyproduct?Despitethecentralityoffinancialsystemstoourdailylives,mostofusdontunderstandthe

fundamentalsofthatsystem.Andhowcouldwe?Itisashiddenandcomplexastheworkingsofasecretsociety.WehavebeentoldthattheprincipiaeconomicabehavelikeNewtonsnaturallaws,ratherthanbeingcontrolledbythedecisionswemake.Thisfaithinthescienceofeconomicshasbeenchallengedrepeatedlybyunforeseencrises.Arentsciencessupposedtobeabletopredictthe

future?Faultyeconomicassumptionscanhavesignificantramifications.Forexample,manylead

economistsdismissenvironmentalpollutionasanexternality,afactornotadequatelypricedorotherwiseaccountedforintheexistingsystem.Inotherwords,whenthetheoreticalsystemdoesnotaccountforit,theproblemitselfisabitofananomaly.Iftheverybasisforalleconomicactivitythenaturalresourcesandecosystemserviceswedependonforlifeisbeingirreparablyharmed,andyetthisisdescribedasifitwereaminoraccountingmistake,thereisaseriousproblemwiththeunderlyingtheory,notwiththefacts.Ifwecouldbringthehiddendriversofthesystemthatareembeddedinthesetheoriesintotheopenandredesignthemforhealthandrealprosperity,itmighthelpturntheshiparound.Whydoestheeconomyappeartobesoerratic?Evenif90%ofthetimesomeeconomicmodels

havepredictivevalue,theyturnouttobeoflittlehelpduringthe10%ofthecaseswhenstructuralchangeisinvolved,whichisunfortunatelythesituationwefindourselvesintoday.Afterallourhistory,whydontwehaveabetterideaabouthowtomanagethingssotherearentwildfluctuationsandsuddenchangeswheresomeareimpoverishedwhileothersreaphugeprofits?Evenbankers,CEOsandCFOswhomaketherealdecisionsareoftenblindtotheunderlyingsystemicforcesthatpresentthemwithanincreasinglynarrowrangeofchoices.Whataretheassumptions,frameworks,socialdecisionsandprojectionsdrivingtheeconomic

juggernaut?Iftheyarefaulty,thenaretherealternatives?Whatstepscanwetaketobringalloftheseinvisibleforcesintotheopensothatpeopleineverycommunitycanmakeconsciousdecisionsabouttheirowndestiny,ratherthanblindlyacceptingaculturethatseemstoleadtoitsowndestruction?Now,pleaseholdontoyourhatssomeoftheseideashavethepotentialtochangethewayyouseetheworld.YoumayevendiscoverwhyHenryFord,oneofthefathersofmodernmanufacturing,said:Thepeoplemustbehelpedtothinknaturallyaboutmoney.Theymustbetoldwhatitis,andwhatmakesitmoney,andwhatarethepossibletricksofthepresentsystemwhichputnationsandpeoplesundercontrolofthefew.2

FalseAssumption#1:TheEconomyisBeyondOurControl

Inacountrythathastakensomuchprideinitsdemocratictraditions,thewholesalecapitulationofbasicrightstothedoctrineoflaissezfaire,survivalofthefittest,freemarketideologyishardtoexplain.Yetwevelivedthroughanerawherethegapbetweentherichandthepoorhaswidenedbyordersofmagnitude.Thesocialcontracthaschangeddramaticallyinourlifetime;therewasatimewhenthegovernmentwasseenashavingalegitimateroleinreducinginequalityandpromotingsocialjustice.Thelast20yearshaveseenawidespreadchallengetothelegitimacyofgovernmentactionofanysort.Butthereishope,eveninthisshift.Ifitwaschangedonce,itcanbechangedagain.Whynotmakeitbetterthanithaseverbeen?TherehavebeenseveraltimesinUShistorywherelargeeconomicchangeshavehappenedasa

resultofdemocraticinterventiontheantitrustlawsoftheearly1900s,laborunionlaws,theNewDealunderRoosevelt.Weneedtoconsiderwhatinstitutionalchangesareneededtoeradicatepovertyifwereallywanttocreateamoresustainableworld.

FalseAssumption#2:MoneyisaNeutralMeansofExchange

Mostpeopledonotknowanymoreaboutmoneythanwhattheyneedtocountwhatsintheirpocket,balancetheircheckbooksandpaytheirtaxes.Theyknowthereisneverenoughofitforeverythingtheywantandneed,buttheyneverstoptoaskwhy.Dotheyworkhardenough?Sometimespeople

withtwoandthreejobscantmakeendsmeetfortheirfamilies.Didnttheystudyhardenoughinschool?Ifintelligenceisaprerequisiteforhighpay,thenwhydosomanyofourteachersqualifyforsubsidizedhousinginthecommunitieswheretheylive?Moneyisnotneutralwithrespecttoaffluenceandpoverty.Ournationalmonetarysystemisbased

ondebteverydollarthatiscreatedissomeonesdebt,beitthegovernments,corporationsorindividuals.Everydollarcomesthereforewithabuilt-inexpectationthatitwillearninterest.Theinterestitearnsgoestothebankandthepeoplewhobuythebonds.Thisautomaticallyconcentrateswealthinthesystem.Atthesametime,thedebtbasisformoneyalsoexertscontinuouspressureonindividualsandcorporationstogrowforeveratanycost,tostayaheadoftheinterestpaymentsonthebasicunitofexchange.Moneyisnotneutralwithrespecttocommunityeconomicdevelopment.Theexistenceofanational

monetarysysteminacountrywithregionaleconomiesasdiverseastheMidwestindustrialbelt,theprairiebreadbasketandtheHollywoodcreativeeconomyisguaranteedtounderminetheeconomichealthofatleastsomeindividualcommunities.IfMexicoisdoingbetterthanCostaRica,thevalueoftheircurrencywillreflectthis,andMexicancitizenswillbeabletobuymoreCostaRicanproductswiththeirpesos.Whenthishappens,moreproductsinCostaRicaaresold,andtheireconomywillimprove.IfHollywoodisdoingbetterthanDetroit,however,theyareboundtoacurrencywiththesamevalue,sonosimilarbalancingacttakesplace.JaneJacobs,theauthorofCitiesandtheWealthofNations,comparedthistoeveryoneatasoccergametheplayers,spectatorsandrefereesusingthesamesetoflungs.Moneyisnotneutralwithrespecttocompetitionandcooperation.Ourcurrentmoneycreation

process,withinterestbuiltin,systematicallypromotescompetitionamongitsusers,largelyduetotheneedtopayinterestonthebank-debtmoneythatdrivesthesystem.ThestoryoftheEleventhRoundbelow,takenfromTheFutureofMoney,3illustratesthisproblemasaparable.THEELEVENTHROUNDOnceuponatime,therewasasmallvillagewherepeopleknewnothingaboutmoneyorinterest.Eachmarketday,peoplewouldbringtheirchickens,eggs,hamsandbreadstothemarketplaceandenterintothetime-honoredritualofnegotiationsandexchangeforwhattheyneededwithoneanother.Atharvests,orwheneversomeonesbarnneededrepairsafterastorm,thevillagerssimplyexercisedanotherage-oldtraditionofhelpingoneanother,knowingthatiftheythemselveshadaproblemoneday,otherswouldsurelycometotheiraidinturn.

Onemarketday,astrangerwithshinyblackshoesandanelegantwhitehatcamebyandobservedthewholeprocesswithasardonicsmile.Whenhesawonefarmerrunningaroundtocorralsixchickenswantedinexchangeforabigham,thestrangercouldnotrefrainfromlaughing.Poorpeople,hesaid,soprimitive.

Overhearingthis,thefarmerswifechallengedhim.Doyouthinkyoucandoabetterjobhandlingchickens?Thestrangerresponded:Chickens,no.Butthereisamuchbetterwaytoeliminateallthehassles.Bringmeonelargecowhideand

gatherthefamilies.Illexplainthebetterway.Asrequested,thefamiliesgathered,andthestrangertookthecowhide,cutperfectleatherroundsinitandputanelaborateand

gracefullittlestamponeachround.Hethengavetenroundstoeachfamily,statingthateachroundrepresentedthevalueofonechicken.Nowyoucantradeandbargainwiththeroundsinsteadofthoseunwieldychickens.Itseemedtomakesenseandeverybodywasquiteimpressedwiththestranger.

Onemorething,thestrangeradded.Inoneyearstime,IwillreturnandIwanteachofyoutobringmebackanextraround,aneleventhround.ThateleventhroundisatokenofappreciationforthetechnologicalimprovementIjustmadepossibleinyourlives.

Butwherewillthatroundcomefrom?askedthewife.Youllsee,saidthestranger,withaknowinglook.Assumingthatthepopulationanditsannualproductionremainedexactlythesameduringthatnextyear,whatdoyouthinkhappened?

Remember,thateleventhroundtokenwasnevercreated,meaningthatitdidntmaterializeoutofthinair.Asthestrangerhadsuggested,itwasfarmoreconvenienttoexchangeroundsinsteadofthechickensonmarketdays.Butthisconveniencehadahiddencostbeyondthedemandedeleventhroundthatofgeneratingasystemicundertowofcompetitionamongalltheparticipants.Theequivalentofoneoutofeachelevenfamilieswouldhavetoloseallofitsrounds,evenifeverybodymanagedtheiraffairswell,inordertoprovidetheeleventhroundtothestranger.

Thefollowingyear,whenastormthreatenedsomeofthefarmers,therewasagreaterreluctancetoassistneighbors.Thefamilieswerenowinawrestlingmatchforthateleventhround,theroundthathadnotbeencreated,whichactivelydiscouragedthespontaneouscooperationthathadlongbeenthetraditioninthevillage.

Thisstoryisasimplifieddescriptionofhowourmoneysystempitseveryuseragainstallitsotherusers.Itissimplifiedmainlybecauseitassumesthatthereisnogrowthinthepopulation,intheproductionandthemoneyduringthisstory.Inreality,allthreeofthesevariablesgrowovertime,obscuringtheunderlyingprocess.However,itisneverthelesssystemicallycorrectthatanybodywhopaysinterestusessomeoneelsesprincipaltodoso.Evenwithinasinglefamily,moneyissuesarethemostfrequentreasonforafamilybreakdown.Wheneverythingbecomesmonetizedandfostersthesamecompetitiondrivingthecurrency,arentwelosingsomethingimportant?

TheBuildingBlocksoftheEconomy:HowAssumptionsCreateReality

Thereareplentyoftheoriesintheeconomicpantheonthatareworthyofcriticism;HermanDalyandJohnCobbcharacterizetheerroroffaultyeconomicassumptionsasthefallacyofmisplacedconcretenessintheirbookFortheCommonGood.4Theyarguethatmosteconomistsworkprimarilywithabstractionsandaresometimestemptedtoadjustrealitytotheirabstractionsratherthandevelopingmorerobustexplanationswhenrealityandtheoryareinconflict.Thisappliestoeconomicthinkingaboutprices,thefreemarket,theeconomicbehaviorofhumanbeings,resourcesandjustabouteverybasictenetofthescienceofeconomics.Assumptionshavealsoguidedtheconstructionofframeworksandinstitutionstofacilitatethe

economicactivitiesneededformodernhumancommerce.Theseinturnhaveshapedourlives,everythingfromtheproductsweusetotherapidurbanizationoftheplanet.Ifwecanidentifythesehiddenassumptionsandusethetoolsavailabletodaytoreshapethemonetaryinstitutions,weareontheroadtochangingourcitiesandthequalityofourlives.

TheBankingSystemMostpeoplearenotawareoftherolethatbankfinancingplaysinthecreationofmoney,orthefactthatthecreationofmoneyisdonebyprivatebanks,andthatthesystemisnotworkingwell.Afterall,thereareallsortsofgovernmentlogos,symbolsandstatementsonthedollarsweuse.Furthermore,thedollarprintingpressesarelocatedintheUnitedStatesMint,andtheUSDepartmentofTreasurystoresanddistributesthemforouruse.However,contrarytowhatallthissuggests,thatdoesntmeanthatthegovernmentcreatesmoney.Youcanhaveasmanydollarbillsthatyouwant,ontheconditionthatyourbankcandebityour

account(todayinelectronicform)forthesameamount.Yourbanksimilarlyrequestsdollarbillsasneeded,andgetsitsownaccountdebitedaswell.Dollarbillsrepresentonlyaverysmallpercentageoftheamountofdollarsincirculation.Thevastmajorityofthemoneythatchangeshandsintheworldisoncomputersandledgers,notinactualnotesandcoins.Evenonapersonallevel,veryfewofourtypicaltransactionsusecashweusechecks,creditcards,debitcardsanddirecttransfersfromourbankaccountstoothers.Sohowdoesthegovernmentobtainthemoneyitneeds?Likeyouandme,throughincome(inthe

governmentscasethroughtaxes)andbyborrowing.Moneyiscreatedforthegovernmentbythebankingsystemwhenitincursdebtbyissuingbondsatthestateandlocallevel,andtreasurysecuritiesatthefederallevelwhichareloansthataremadebythebankingsystemandthensoldontheinternationalmarket,withtheprincipalandinterestrepaymentguaranteedbyourtaxsystem.THEUSGOVERNMENTALDEBTMAZETheUSfederalgovernmentalsohasanarrayofwhatitcallsnon-marketablesecuritiesthatarenttradedonthemarketlikeUSSavingsBonds:intergovernmentaldebts(whenthefederalgovernmentborrowsfromsavingsaccountslikeSocialSecurity)andCertificatesofIndebtednesstheTreasuryissuesthatdontpayinterest.Allofthesestillrepresentgovernmentdebt.

Bondsarethelong-termdebtincurredbyalllevelsofgovernmentforlong-terminvestmentinthingslikeroads,wastewatertreatmentsystems,waterpipes,prisons,librariesandschools.Atthefederallevel,thelong-termdebttakesalsotheformoftreasurynotes(aonetotenyeardebt),treasurybonds(20to30yeardebts)andsomethingcalledaTreasuryInflation-ProtectedSecurity(or

TIPS)whichareissuedfor5,10and20yeardebt.Atthestateandlocallevelbondslegislaturesandcitycouncilsvoteonbonds,andthentheyareboughtbybanksandotherinvestors.Typicallythelowinterestpaidonthemunicipalbondsistax-exempt,soinvestorscanearnincomefromtheinterestpaid(withstateandlocaltaxes)withoutpayingtaxesonit.

Short-termdebtisalsoincurredbythegovernment,usuallytoaddresstheneedforcashflow,justasabusinessmighthaveacreditlinefortimeswhenincomeislessthanexpenses.Atthefederallevel,short-termdebtisloanedbythebanksintheformoftreasurybills,whichallmatureinlessthanoneyear.Atthestateandlocallevel,short-termdebtcomesintheformoftaxanticipationnotesandbondanticipationnotes,whichareloansfromthebanks,usuallyatalowratethatislinkedtotheratesonthetreasurybillsatthefederallevel.Sowhenacityissuesabondforaschoolbuttheydonthavethemoneyinhandyet(ittakestimetosellthebondstothebanks),theycangotoabankforabondanticipationnote.Whenacityneedstopayitsbillsbutallitstaxesarentcollectedyet,theygotothebankforataxanticipationnote.

Inshort,thegovernmenttriggersthecreationofthemoneyitneedsbygoingintodebt.Thedebtincurredbygovernmentisfirstandforemosttothebankingsystem.ThebanksdonotalwayshavetobeUSbanksforeignbanksandgovernmentsalsobuyUSgovernmentdebt.ButdespiteconcernsthatChina,theoilcountriesandotherforeigninterestsownalotofUSdebt,themajorityofthedebtisstillowedtoprivatebanksprivatebusinessesthataresetuptomakeaprofitontheprocessofmanagingmoney.Allofthisinterestpaidonthedebtistheequivalentofaninvisibletax,becausealltheinterestdoesultimatelycomefromthetaxeswepay,eventhoughwedontgettovoteontheinterestrates.Internationally,sixcentralbanksincludingtheFederalReserveintheUnitedStatesare

ownedbytheprivatebanksalthoughmostcountriesdohavepubliclyownedcentralbanks.5Itmakesnodifference,really,whetherthecentralbanksareownedbythepublicorbyprivatebanks;theirfunctionisstillthesame.Theirmainfunctionistokeepthesystemworking.Theywereestablishedtohelpavoidbankingpanicsandrunsonbanks,andtomaintainthestandingoftheUScurrencyintheworld.Theyalsoplaytheroleoflenderoflastresort:ifbanksandfinancialmarketsarentwillingtobuygovernmentbonds,theFederalReservewilldoso.Finally,mostcentralbankshaveexpandedtheirmissionovertheyearstoregulateprivatebanks.However,experiencehasproventhattheirinterventionsdontalwaysworkthewaytheyhopeitwill.Governmentisnottheonlyonetotriggerthecreationofmoneybythebankingsysteminthisway.

Individualsandbusinessesalsodothesamewhentheytakeloansfrombanksfortheirhomesandbusinesses.Sowhenwegotobankersforaloan,theyarenotopeningtheirvaultandtakingmoneyouttogiveus,theyarecreatingnewmoneybasedonthefractionalreservesystem.Whenwetakethatmoneyandputitintoanotherbankthatotherbankcountsthatmoneytowarditsreserves,onthebasisitcaninturncreatemorenewmoney.Itsnotabadbusinessmodel.ThesinglemostprofitablebusinessintheUSbySECcode,isthecentralbank,theFederalReserve.6ButmostpeoplesimplydontknowthattheFederalReserveisbarelymorefederalthanFederalExpress.Moneyisalotofthings:textbooksdescribeitasameansofexchange;itisaunitofaccount,a

storeofvalueandavehicleforinternationaltrade.Wehavecombinedallthesefunctionsintooneinstrument,andthisinstrumentiscontrolledbyprivatebanksthatneedtoearninterestontheissuanceofthemoneytomaketheirprofits.Becauseallofthemoneywecurrentlyusecomesfromthissystem,fortherestofthebook,wewillrefertothistypeofmoneyasbank-debtmoney.

TheFreeMarketSystemEvidenceofbothmarketsandmoneypredaterecordedhistory.Moneywasusedtofacilitatemarketexchanges,asprovenbythemanyformsofsmalltokens(whosemostlogicalusewouldbeasamediumofexchangetovalueanexchangeofgoods)thathaveturnedupinarchaeologicaldigsaroundtheworld.Arguably,marketsrepresentacharacteristicfeatureofhumanexistencewearepartlydefinedbythefactthatwesharegoodsandservices.Nopersonisindependentofsociety;thetradingandsharingwedoprovideforourneedsinawayapparentlyuniquetoourspecies.

Theproblemariseswhenwemovethemarkettothecenterofhumanexistence,insteadofitbeingamechanismwithitsappropriateplaceinamorediversesetofhumaninstitutions.AmoryLovinscapturedthecentralissuefacingoureconomicthinkingwhenhesaid...marketsmakeagoodservant,apoormasterandaworsereligion.7Thegiantglobalexperimentswithplannedvs.marketeconomieshavedemonstratedthatthemarketisaveryefficientandeffectivewaytoallocategoodsandservices,butwhenweignoreitsfailuresinotherareasanduseitasauniversalpanaceaforallourproblemsfromsavingendangeredspeciestofosteringsupportoftheartswearemakingitourmasterandourreligion.Evencontemporaryenvironmentaleconomistsarenotbuckingthistrend.Theirantidotetothe

warpedregulatorysystemistostarttoplacefinancialvaluesontheenvironmentalservicesofferedbytheplanet.Howmuchwoulditcosttoreplacethepollinationservicesbeesofferwhentheyareextinct?Howmuchwoulditcosttoreplicatetheglobalwatercycletoproducehealthywater?Canwebuyourwaytoclimatestability,andifnot,whatwoulditcosttorestoreourclimatetohealth?Theobjectivityofthemarketisstillseenasafinalarbiterfortheneedtomakerealvaluejudgmentsinapluralisticsociety.Butthemarketisnotobjectiveitisacontrivanceashumanandvalue-ladenasanyotherinstitution.Athree-dayintroductiontoEnvironmentalEconomicsconductedinBulgariain1993illustratesthe

valueshiddeninourmarketmechanisms.8Themethodologicalemphasiswasoncost-benefitandcost-effectivenessanalysistohelpregulatorsdeterminethemostappropriatetechnologiestointroducetoaddressproblems.Participantsalsolearnedsomethingaboutriskassessment,sogovernmentcouldbesurethattheissuestheyfacedwere,infact,thegreatestriskstohumanandenvironmentalhealth.Afterlearningthenewtoolsforenvironmentalmanagement,Bulgarianregulatorshadagestaltexperience:oneoftheirteamsdeterminedthatthebestwaytohandlethecasestudytheyweregiven,inwhichafactoryinacitywasbelchingwastethatkilledpeopleratherquickly,wastorelocateallthenativeBulgariansthatlivedtheretoacleanerpartofthecountryandmoveinVietnameseworkers,whohadaperceivedlowervalueintheirsociety.Needlesstosay,thegoaloftheworkshopwasnottoteachthislesson,yetitsnotsurprisingthatthefundamentalassumptionsbeingusedaboutthepriceoflifecouldleadtothisoutcome.WhentheUSBureauofLaborStatisticsfoundin2007thatcorporateCEOsearn885timeswhat

minimumwageemployeesearn(Dotheydo885timesmorework?Arethey885timesmoreclever?)and364timesmorethanthewagesofanaverageemployee,canwehearechoesofaristocratsandfeudalserfs,evenaswevebegunthe21stcentury?9Becauseoftheseinherentinequitiesinmajoreconomicinstitutions,themarketisnotaninvisiblehanddrivenbytherationaldecisionmakingofautonomousindividuals.Itpreventsthevastmajorityfromobtaininganythingthatresemblesthedecentlife,libertyorachanceathappinessthattheUSAsfounderspromised.Equityandself-determinationarebasichumanneeds.Anysocietywillbemorestablelesslikely

tobedisruptedbyunrest,revolutionorotherconflictifallofitsinstitutionsprovidepeopleavoiceintheirowndestinyandinsurealeveloffairnessinallrelationships.Thisisnolesstrueofeconomicinstitutionsthangovernanceinstitutions.

TheFinancialMarketasaSystemThetermfinancialsystemisusedsofrequentlythatweoftenlosesightofitsmeaning.Systemshavecertaincharacteristics,andbyunderstandingmoreabouthowsystemsworkwegainvaluableinsightsintohowtoimproveourlocalfinancialsystem.Eachlocaleconomyisabitlikeadifferentkindofcar.Eachmakeandmodelhasitsownuniquefeaturesaconvertibleroof,cruisecontrol,oneburnsdieselwhileanotheruseshightestgasoline;therearehybrids,electriccars,trucksandvans.Buttheyallhaveatransmission,wheels,asteeringsystem,gaugesthatgiveyouanideaofthefuellevel,

warninglights.Sobyunderstandingwhatallcarshaveincommon,youalsocanunderstandmoreaboutyourparticularvehicle.Tostartatthemostbasiclevel,thedefinitionofasystemis,accordingtotheMerriam-Webster

dictionary:aregularlyinteractingorinterdependentgroupofitemsformingaunifiedwhole.10Inacar,theseareallthecomponents,andtheunifiedwholethatisformedisgreaterthanthesumofindividualparts.Ifyoulinedupthewheels,theengine,theaxles,thesteeringwheel,thewindshield,theseats,thebody,themirrorsandthegaugesalongthefloorofyourgarage,itwouldjustbealargepileofstuff.Butonceallthepartsareworkingtogether,thecarcanrolloutofthedrivewayanddownthestreet.Asystemisaunifiedwholewithinteractingparts,andthepartshavecharacteristicsthatallsystems

share.Onepartisthatsystemsflowsomethingthatmovesthroughthesystemandinteractswithotherparts(likegasolinemovingthroughtheengineandmakingthepistonsmoveupanddown).Anotherpartisasystemstockaplaceinthesystemwheretheflowmighttendtoaccumulate(thegastank).Whenwedescribetheinteractingpartsofsystems,weassumethatonevariableinasystemhasaneffectonothervariables.Thewordforthiseffectisfeedback,andinteractionscanproduceeitherpositivefeedbackornegativefeedback.Positivefeedbackiswhenachangeinonevariableproducesachangeinanothervariableinthesamedirection(moregas,morespeed).Negativefeedbackiswhenachangeinonevariableproducesachangeinanothervariableintheoppositedirection(morebrake,lessspeed).Positiveandnegativefeedbackamongdifferentvariablesinasystemcanproduceanumberof

differentresults.Inourcarexample,thegoalofthesystemisequilibriumthedriverofthecarwantstotravelatthespeedlimit,sothereisacombinationofpositiveandnegativefeedbackthatproducesarelativelyconsistentresult.Thesameistrueinourbodies,whereourbodytemperatureismaintainedatarelativelyconstantlevelof98.6Fthroughthepositivefeedbackofmetabolismcombinedwiththenegativefeedbackofperspiration.Whenthereisonlypositivefeedbackinasystem,orwhenthesumofallthefeedbackinthesystem

ispositive(justlikebasicmath,wheretwonegativescanequalapositive),thesystemproducesareinforcingresult,wherethingsgetworseandworseorbetterandbetter,dependingonthevariables.Therearemanyexamplesofthis:compoundinginterestinabankaccount,populationgrowthorsomeimportantprocessesinclimatechangearejustafewoftheobviousones.Inthebank,moremoneymeansmoreinterestispaid,whichmeansthereismoremoney,andsoonpositivefeedbackplusmorepositivefeedback.Withpopulation,moreparentsproducemoreoffspring,whointurnbecomeparents.Withclimatechange,morewarmthmeanslesswhiteiceatthepolestoreflectthesunlight,which

makesthetemperaturestherewarmer,whichinturnleadstolessice.Inthisexample,moreCO2makesmorewarming(positivefeedback),morewarmingmeanslessice(negativefeedback),lessicemeansmorewarming(negativefeedback),andthenetresultispositive,creatingaviciouscycle.Thesetwopatternsacombinationofpositiveandnegativefeedbackthatresultsinequilibrium

orinreinforcingincreaseordecreasearecalledarchetypes,whichmeansapatternofbehaviorovertimethatcanbeseeninavarietyofdifferentsystems.Therearemanysystemarchetypes,andunderstandinghowpatternsofbehaviorinsystemscanbechangedisakeytounderstandingtheeconomyaswell.11Theeconomysbehaviorovertimeexhibitsthecharacteristicsofanarchetypalsystemwithcyclesofexpansionandcontractiondrivenbypositiveandnegativefeedbackfromdifferentvariables.Ataverysimplelevel,onekindofeconomytheboomandbustnaturalresourceeconomyofgoldrushesandfossilfuelscanbeseenasanarchetypecalledlimitstogrowth.Inthisarchetypalpatternofbehavior,positivefeedbackontherightsideofFigure1below

leadstoexponentialeconomicgrowth(theresultofreinforcingfeedback),whichfinallyhitsthewalloffiniteresourcesontheleft,whichthenleadstoexponentialdeclineasthepositivefeedbackoftherightreinforcingloopcollapsesinreverseonitself.

FIGURE2.1.TheLimitstoGrowthArchetypePleaseremember:positivefeedbackdoesnotmeanmore,oranincreaseitmeansthatboth

variablesmoveinthesamedirection.12Obviously,theglobaleconomyismorecomplexthanthisillustration,althoughonanaggregate

level,thisparticularpatternofreinforcingfeedbackandbalancingconstraintsistrue.Weliveinarelativelyfiniteworld,wheretheonlyexternalinputcomesfromthesun(ignoringmeteoritesandthecontributionstosciencefromthemoonrockscollected30yearsago),andyetwehavestructuredoureconomyasifwehadaccessto1020similarplanets.ThesubjectofthearchetypewasexploredextensivelyinthebookTheLimitstoGrowthbyDennisandDonellaMeadows,JorgenRandersandWilliamBehrensin1972andthenrevisitedbytheauthorsinanewbookcalledLimitstoGrowth:The30-YearUpdatepublishedin2004.13CreatingWealthfocusesmoreontheinvisiblestructuresoftheeconomy(thatdrivetheexponentialincreaseanddeclineontherightsideofthediagram)thantheveryvisiblelimitswehavebeenreachingontheleft.Toconsidertheeconomyasasystem,itisimportanttolookattheflowsthroughthesystem,the

stockswherethingsaccumulateinthesystem,aswellasthevariablesandfeedbackpatternsthatdrivechangeinthesystem.Moneyisacriticallyimportantflowthroughtheeconomicsystem,andthewaysinwhichitaccumulatesandprovidesfeedbacktoalloftheothervariablescanalsobeillustratedusingthelanguageofsystemdynamics.Whenabankissuesaloantoabusinessoramortgagetoahomeowner,theyrepaytheloanat

higherratesofinterestthanthebankoffersonitsdeposits,oneofthebasicequationsofthecurrentbankingbusinessmodel.Asystemdiagramofthisinteractionwouldbeasfollows:

FIGURE2.2.TheCurrentBankingBusinessModelInFigure2,themoredepositsabankhas,themoreloansitcanissue.Themoreloansitissues,the

moreinterestitearns.Themoreinterestitearns,themoreinterestitcanpayonthedeposits,whichinturnwillattractmoredepositsasimplereinforcingloopwithpositivefeedback.Onthisverysimplelevel,banksareendlessmoneymachines.Inmuchthesameway,ourindividualaccountsshouldmakeusincrediblywealthywithaccumulatedcompoundinginterestovertime.Thesamefactorsthatreduceourcompoundinginterestaccountslikethefactthattoliveweoftenneedtomakewithdrawalstopurchasegoodsandservicesalsomitigatethebanksprofits.Notallloansarerepaid.Thedemandforloansfluctuates.Thebanksthemselvesneedtobeattentivetotheinterest

ratesofthecentralbankandthebondmarkets.Theamountofmoneyondepositchangeswiththeeconomy,aspeopleareeithersavingorspendingmore.Theneteffectofthemoneymachineswehavecreatedwhenweauthorizedbankstohavea

monopolyonthecreationofmoneyisthatovertime,therealvalueofthisbank-debtmoneydeclines.Thereisabuilt-inexpectationthatmoneyneedstoearninterest.Wheneverydollarincirculationcameintoexistencewiththeissuanceofdebteitherprivatedebtfrommortgagesandbusinessloansorpubicdebtwithbondsandpublicborrowingthosedollarshadbetterbeworkingashardastheycantoproduceareturn.Thisreturncomesintheformofinterestpaymentsondepositsorreturnsoninvestmentsmadeinproductiveenterprises.Ifinsteadofputtingmymoneyinthebankorinvestingitinthestockandbondmarkets,Iputitina

canundermybedathome,themoneyinthatcanwillbeworthlessfiveyearsfromnowthanitisrightnow.Onalargerscale,thedecliningvalueofmoneyisfactoredintobusinessaccountingthroughtheuseofadiscountratewhichincludestheinterestrateusedtodiscountfuturecashflows.Nowlookatitfromthecompanyside.Thecompanygetsaloanfromthebankforitsbusiness,and

hastorepayitovertimewithinterest.Thecostoftheloanisoneofthecompanyscostsofproduction,alongwithresourcecosts,laborcostsandotheroperatingcosts.InFigure3,severalkeyfunctionswithinabusinessorganizationareidentified,withfinancebeingpivotaltoboththebeginningofabusinessanditsongoingprofitability.

FIGURE2.3.TheCorporateProcessThefinancingofabusinessisusuallyamixofdebtandinvestment.Themoreinvestmentthatis

available,thelessdebtneeded,butthereareoftenperverseincentivesbuiltintoourtaxandaccountingsystemsthatmakedebtmoredesirablethanitwouldbeotherwise.Soevenifitisntabsolutelynecessary,businesseswilloftenhavedebtontheirbooks.Debtcomeswithinterestpayments,sotheinterestthecostofthemoneyisdeductedpriortodeterminingwhetherornotthebusinessisprofitable.ThisisillustratedbysmallerblackfeedbackloopsinFigure4.Thetotalfinancingavailablewilldrivetheproductioncapacity,whichinturnisacombinationof

thenaturalresourcesneeded,thelaborcostsandotheroperatingcosts.Oncethereisaproduct,itissoldforaparticularprice,andtheincomefromsales(aftertaxesandothercostsofproduction)arededucted.Thisiswhatdeterminesthereturnoninvestment(ROIinthediagram).ROIistheprofitthatisdistributedtotheinvestorsinthebusiness,andthecyclestartsoveragainthemoreprofit,themorereinvestmentispossible,themoreproductioncapacityand(assumingthereisdemandfortheproduct)themoresales.Theexternalfactorsthatinfluencetheoutcomeofanybusinessventurearethedemandforthe

product,competitionforsalesofthesameorsimilarproducts,thecostsofproduction,taxratesandthecostofmoney.Mostofthesecostfactorsaredirectlyrelatedtotheproduct,andneedtobeconsideredintheoverallbusinessplanwhendeterminingiftheventurewillbeprofitable.Moneyistheonesystemiccostwhichinfluencesboththeprofitmarginonaparticularproductand

alsohowprofitiscalculatedandthetotalvalueofthereturns.Onasystemiclevel,thecostofmoneyisabigpartofthereasonthatitisnotsufficientmerelytomakeaprofit.Companiesneedtomakeaprofitthatcontinuestoincreaseatanincreasingratewhenthecostsofcapitalandthevalueofmoneythroughoutthesystemareinaconstantstateofinflationarydevaluation.Figure4illustratesthereinforcingnatureofthisdynamic.

FIGURE2.4.HowBankMoneyInteractswiththeCorporateProcessOfcourse,resourcesandlaborarenotunlimited,andsothisreinforcingsystemwilleventuallyhit

thewalldescribedearlierinFigure1.Peakoil,resourcedepletion,scarcefreshwater,climatechange,exponentialpopulationgrowth,thewideninggapbetweentherichandthepoorallofthesearesymptomsthatindicateweareapproachingtheseouterlimitstogrowth.Whentherearescarcitiesofkeyresourcesoil,water,pollination,foodcostsgoup.Whenpeopleshealthdeterioratesbecauseofpoornutrition,lackofsafewater,poorhealthservicescostsgoup.Theprofitderivedfromadepletionofhumanandnaturalcapitalisnecessarilyashort-termgainatthecostoflong-termwell-being.Itslikespendingtheprincipalinyourbankaccountitmightgetyouanothermealonahungryday,buttherewillbenomoremoneyinthebanktomorrow.Ifcostsgoupasthelimitstogrowtharereached,thenyetanotherdelayedloopwhichprovides

additionalreinforcingfeedbacktoacyclethatwasalreadygrowingexponentiallyisaddedin.Highercostsmeanthatprofitandreturnoninvestmentwillbelower.Thisinturnwilldrivetheneedformoredebt,moreinflationandmorepressureonalreadylimitedresources.

FIGURE2.5.AddingHigherCostsInourcurrentera,wherehighpricedoilandoverleveragedassetstriggeredaneconomiccollapse

whichforcedtheUSgovernmenttoprovidehugebailoutloanstobanks(createdwithgovernmentbondsanddebt)andthenotherhugestimulusgrantstostateandlocalgovernmentsandbusinesses(alsocreatedwithgovernmentbondsanddebt),thissystemdynamicshypothesisseemstoholdtrue.

Aslongasthefundamentalassumptionsandconditionsdontchange,thisisatrapasystemicspiralthatthreatensnotonlythehealthofourmoneysystem,butalsoourwell-beingandthelife-supportsystemsEarthprovides.ThishypothesisisntjusttheoreticalitisprovenbythegraphinFigure6.Anytimeyouobserve

anexponentialgrowthcurvelikethis,youknowthatthereisareinforcingsystemofpositivefeedbackbehindit.ThetotalUScreditmarket,i.e.,borrowingbygovernments,corporationsandindividuals,isas

closetoastatisticalfitofanexponentialcurveasisscientificallypossible.(Forthosewithaneconometricbackground,theR2valueof.9889meansthatitisalmostaperfectfit.)14

FIGURE2.6.TheExponentialCurveofMoneyCreationintheUS.Thelightlinerepresentsaperfectexponentialgrowthcurve.ThedarklinerepresentsthegrowthinTotalUSCreditMarketDebt.TheR2figurerepresentshowcloselythetrendtrackstoperfectexponentialpatterns98%.Source:FlowofFundAccountsoftheUnitedStates.FederalReserveStatisticalRelease#Z.1,September17,2010.[online].[citedOctober23,2010].federalreserve.gov/releases/z1/current/

Exponentialgrowthinmoneysupplycanonlyendupwithaninflationaryblowout.Weshouldrememberthewarningofoneoftheforemosteconomistsofthe20thcentury,JohnMaynardKeynes:Byacontinuingprocessofinflation,governmentcanconfiscate,secretlyandunobserved,animportantpartofthewealthoftheircitizens.15

SystemsChangeWhatarethefundamentalassumptionsandconditionsneededtointerveneinthisdestructivecycle?Wherearetheleveragepoints,thoseinterventionswherearelativelysmallamountofeffortcanachievemuchlargerresults?Often,asystemsdiagramcanhelpidentifypromisingpossibilities.Inthisviciouscycle,therearetwoimportantdriversthebank-debtsourceofourmonetarysystemandtheeconomicpolicieswehaveenactedtofacilitatetheprocessofhumanandnaturalcapitaldepletionforthesakeoftheeverhigherprofitsthatthesystemdemands.Thesearethetwovariableswherepolicyinterventionscouldhaveanimportantimpactonthedestructiveforceofthesystem.

EconomicPolicyChangeThelegalstructuresandpolicieswehaveenactedandthepublicinvestmentswehavemadetoenablecompaniestobeasprofitableaspossiblenumberinthethousands.Inmuchthesamewayascitiescannottransformthemonetarysystemontheirown,theydonothavetheabilitytochangethedominantpolicycontext.Thereareafewpoliciesworthmentioning,however,whichdeserveparticularattentionaswemoveintoanewera.Lookingbackoverthelongarchofhistory,thereareseveralimportantchangesweencounterin

the21stcenturywhicharesignificantlydifferentthanpriorcenturies.Upuntilthelate20thcentury,humanbeingslivedinaworldwherenaturewasabundantandhumanbeingswere,bycomparison,

scarce.Thenaturalworldwasawesomeandscarytherawpowerofstorms,earthquakes,floods,volcanoes,droughts,plaguesallkindsofnaturaldisastersgavehumansaclearsenseoftheirinferiorityonthescaleofthings.Itsnowonderthatconqueringnaturewasagoal(atleastforWesterncivilizationmoresuccessfulandlessviolentrelationshipswithnaturehadbeencultivatedintheEastandamongNorthAmericanFirstNations)whenwewereregularlydefeatedbytheseoverwhelmingforces.Butnaturewasalsoabundant.Therewerelotsoffishinthesea,andfreshwaterflowedinpristine

streamsdownmountainswheretheairwasclearandcrisp.Agriculturehaditsupsanddowns,butthe20thcenturydawnedintheUnitedStateswithover80%ofourpopulationlivingonfarmsandgrowingtheirownfood.ThewoodfromforestshadalreadygonetowarshipsinBritain,butintheUStreeswereplentiful,andthesteelindustryhadtakenthepressureoffthetreesthathadbeenusedforships.Today,inthe21stcentury,wearefacingadifferentworld.Natureisincreasinglyscarce,and

humansareincreasinglyabundant.Thepoliciesthatwereenactedinaneraofabundantnatureneedtobechanged.Inthatera,thepricesofnaturalresourceextractionwereatzerocosttoacompany,andwereoftenevensubsidizedbygovernment.Machinescreatedbytheseresourcesdidtheworkofmoreandmorepeople,andemissionsintotheair,waterandsoilwereallowedwithoutregulatorylimitsorfines.Arguably,eventhemathematicsofthebankingsystemitself,whichseemstorelyonaninfinitecapacityoftheworldtocontinuetogrowandproduceprofits,needstoberethoughtinaneweraofobviouslimits.Theparadigmofinfinitegrowthhasallowedandevenfosteredtheincreasingconcentrationandcentralizationofwealththroughthetacitassumptionthattheresmorethanenoughforeveryone:arisingtidefloatsallboats.Yetonthenaturalresourcesideoftheequation,thetideisnotrising,itsreceding,andsomeoversizedyachtsarecrushingthecanoesintheirwake.Theenablingpolicieswhichneedtobeaddressedtochangethesystemfallintotwomain

categories:Earthandcorporations.TheEarthpoliciesareallthosewhichformandregulateourrelationshiptothenaturalworld.Thecorporatepoliciesarethosewhichstructurethekeyinstitutionswehavecreatedtofostercollectiveactionandwealthcreation.Thisisatallorder,obviously,andfulldetailsarebeyondthescopeofthisbook.Buttheethicthatisneededtoshapethesepoliciesonanylevel(local,stateandnational)canbedescribedherebriefly.

EarthPoliciesThevaluesandethicsthatgovernourrelationshiptoEarthneedtoembodyadeepandabidingsenseofrespectandcareforalllife.Justasthe20thcenturysawtherealizationoftheHumanRightsmovementsdemandsforequality,the21stcenturyneedstorecognizethecriticalimportanceofbiodiversityandabandonthosepracticeswhicherodethewealthofspeciesweneedtosurviveintothe22ndcentury.Ourpoliciesneedtomakealldestructivepracticesprohibitivelyexpensiveandmorallyimpermissible.Theseinclude,butarenotlimitedto,monoculturecrops,geneticengineering,destructionofhabitat,emissionanddisposalofwastesbeyondEarthsassimilativecapacityandextractionofnonrenewableresourcesfromEarthscrust.Theprecautionaryprinciplehasbeenintroducedintoseverallegalsystemsasonewayofturning

backthetideandvaluingtheintegrityofEarthsecologicalsystemsabovenarrowcorporategoalsofproduction,consumptionandprofit.Mostlegalsystemsnowplacetheburdenofproofonpartieswhoobjecttoanewtechnology,developmentprojectorinnovationtodemonstratethatitdoesharm.Theintroductionoftheprecautionaryprincipleshiftstheburdenofprooftotheproponentofanewidea,sothattheywouldneedtodemonstratethatitwillnotharmimportantbiological,humanor

communitysystemsbeforeitwasintroduced.Otherpoliciesneedtobeintroducedthatrewardactivitieswhichenhancetheongoingcapacityof

ecosystems,humanandcommunitysystemstocontinuetoproducetheassetsthatmeetourneeds.Taxbreaksforecosystemrestoration,educationalprogramsandorganicfoodproductionarethreepossibleexamples,alongwithincentivesforloweringconsumption,reducingpopulation,payinglivablewagesandinvestinginrenewable,local,energygeneration.Insummary,thepoliciesweneedeliminateharmfulpractices,curbtheintroductionofnew

practicesthatwoulddomoreharmthangoodandencouragepracticesthatarelife-enhancingandpromotemoreharmonyamongallthedifferentinhabitantsoftheEarthcommunity.

CorporatePoliciesTofollowthemodelwevedescribedforEarthpolicychanges,weneedtoidentifyandeliminatepoliciesthataredestroyingtheecosystem,exploitinghumanbeingsorunderminingdemocraticgovernance.Wethenneedtocurtailtheintroductionofnewideasandpoliciesthatwouldhaveharmfuleffects.Mostimportantly,weneedtointroducepoliciesthatbringcorporatelifeintoharmonywiththelife-supportsystemsonEarth,sothatthesetwomostpowerfulprocessesdonotcontinuetoworkatcross-purposes.ThemoderncorporationemergedattheendofthefeudalperiodinWesternhistory,whenthe

Europeanpowerswereexploringotherpartsoftheworldandengaginginexpandedcolonizationandinternationaltrade.Theoriginalcorporatechartersenabledindividualstobandtogetherinacommonbodytoundertakeenterprisesthatwerebeyondthecapacityofeventhewealthyaristocracyofthetime.Theideaofacorporationbeingitsownentity,alegalpersonofsorts,goeshundredsofyearsbackintime.YetthiscorporatepersonhoodtookonnewdimensionsinindustrialAmerica,ascompaniesgrew

andpeoplestartedtochallengetherolesandresourcestheyclaimed.Courtshavenotalwaysaddressedtheissueofwhethercorporationsarepersonsinthesamewayasindividualsare,butalargeandgrowingbodyoflawdoesaffordcorporateplaintiffsanddefendantsmanyofthesamerightsandprivileges.Asrecentlyas2008,whenthemercenaryfirmBlackwatersuedtheCityofSanDiego,California,togetthecitytoissueacertificateofoccupancyfortheirtrainingcenterwhenthefirmhadnotfollowedthecorrectprocedureforobtaininglandusepermits,thejudgeruledinBlackwater sfavoronthebasisofthefirmsconstitutionalrighttodueprocess.16Anothermorerecentexampleofthisistherulingin2010ontherightsofcorporationstoaddalmostunlimitedmoneytotheelectoralprocessintheUS.ASupremeCourtcaseCitizensUnitedv.FederalElectionsCommissionupheldacorporatelyfundednonprofitorganizationsFirstAmendmentrighttoinvestinandpublicizeapoliticaldocumentarytargetingthen-presidentialcandidateHilaryClinton.Oneoftheimportantdifferencesbetweenlegalentitieslikecorporationsandrealpeopleisthatreal

peoplehaveaninnateability(barringsomekindofmentaldisorder)torecognizetheirinterdependencewithotherpeopleandwithnature.Legalentitieswhichareestablishedtomakeaprofitareorganizedinsteadaroundoverlynarrowgoalsandignoretheimperativesofaninterdependentweboflifeandsociety.Thebottomlineforfor-profitcorporationsintheUnitedStatesistheprofitthatisreturnedtoshareholders,aphenomenonalsoknownasshareholderprimacy,andthismandaterequiresthatcorporateleadersbehaveinsometimescompletelyinhumanandunnaturalwaysthatultimatelyunderminesocietys(andeventhecompanys)longer-terminterestsinreturnforshort-termgains.Further,ifpoliciesincorporatingtheprecautionaryprinciplewereimplementedinconcertwith

incentivesforinvestmentthatenhancedhuman,socialandecological,wewouldsucceedincurtailingfurtherinnovationsthatcauseharmandintroducingbeneficialpracticestorepairthedamagethatsbeendone.ImagineUSSugarunveilingalong-terminvestmentplanthatwouldrepairthedamagethatoverdevelopmenthascausedintheEvergladesbecauseitsintheircorporateinterest.OrifFreeport-McMoRanCopper&GoldInc.,theownersofClimaxMineinColorado,restoredthemountainsintheFreemontPassareatotheiroriginalpristinestate,itwouldbeamassivelong-terminvestmentforecologicalsystemsrestorationthatwoulddwarftheoriginalprofitsmadefromstripminingmolybdenuminthe1900s.Onanoperationallevel,policiessuchaslifecycleaccountingandemployeeownershipstock

optionswouldhelpthestructureofcorporatedecisionmakingchangesothatitissystematicallymoreaccountabletoallthesocialandecologicalsystemswhichsupportitandtotheemployeesthatmakeitwork.Thiswouldbeonewaytohelpchangethenarrow,short-termfocusthatunderminescommunitylifeinfavorofprofitfordistantinvestors.

MonetaryReformAttemptstochangethenationalmoneysystemintheUShavealonghistorydescribedinTheLostScienceofMoneybyStephenZarlenga,thefounderoftheAmericanMonetaryInstitute.17Inourtime,membersofCongresssuchasDennisKucinich,aformerpresidentialcandidate,arealsopushingformonetaryreformatthenationallevel.Thiswouldhaveanenormousimpactonthepublicspendingthatcanbedoneandonoureffectivetaxrates.Estimateshavebeenmadethattheinvisiblemoneytaxwepaytocovertheinterestcostsofthemoneyweuseaddsseveralthousanddollarstotheaveragetaxbilleachyear.Therearealternativestotheprivatemonopolyonmoneywhichbankshaveenjoyedsincethe

creationoftheFederalReserveSystemin1913.ApublicanddemocraticdebateonthealternativeswouldcertainlyilluminatewhatformostUSAcitizensisunknownterritory.TherehavebeentwotimesinUShistory,infact,whenthiskindofprivate,debt-basedmoneywasnotthemaincurrencyinuse.DuringColonialtimes,notesknownnowasColonialScripwereusedformosttransactions.ThesenoteswereissuedbytheColoniesbasedonthelevelofeconomicactivitytheyanticipated.Thesystemworkedsowell,infact,thatitunderminedtheprofitsandtaxescollectedbytheBritish,anditwasoutlawedin1764.ManyscholarsattributeboththeBostonTeaPartyandtheAmericanRevolutionmoretotheBritishprohibitionofColonialScripthantoanyofthefactorstaughtingradeschoolhistoryclass.DuringtheUSCivilWar,thecostsofthewaralsomadeitimperativeforthegovernmenttoissue

notesthatwerentborrowedfromprivatebanks.Thesewereknownasgreenbacks;theyweresubsequentlydiscreditedasthegovernmentreturnedtothegoldstandardandthebanksregainedcontrolofthemoneycreationprocess.AnotherattempttochangethemonetarysystemintheUS,theChicagoPlan,wasmadeinthewake

oftheGreatDepression.Thisplanwouldhavedivideddemanddepositsfromsavingsdepositsandrequireda100%reserveondemanddeposits.Bankbondswouldcoverthereserverequirement,andthefederalgovernmentwouldissuethecurrencyandallmoneysasneeded.ItwasintroducedintheHouseandSenatein1934,butitnevermadeitoutofcommittee.Peoplehaventforgottentheplan,andinourtimeeconomistssuchasMiltonFriedmanhavebeenitsadvocates.Anyplanformonetaryreformwouldneedtoconsiderthreebasicobjectives:1.Endingpracticesthathaveprovenharmfultothecommongood2.Curtailingfurtherinnovationsthatwouldaddtotheharmthatsalreadybeendone3.Addingnewpracticesthatbringourfinancialsystemintocongruencewiththehuman,social,

andecologicalsystemsthatsupportlife

Thepracticesthathavenowprovenharmfultothecommongoodaretheconstellationofforceswhichfosterandexacerbatetheendlessboomandbustbusinesscyclewherebywealthisconsolidatedintofewerandfewerhands.Monopolisticcontrolofmoneyisattherootofthissystem.Forthispracticetoend,weneedtorethinkourmoneysystem.Wearenot,however,recommendingasolutionthatwouldreproducetheflawsofamonopolisticmoneysystembysimplyreplacingabankmonopolywithagovernmentmonopoly.

Ifsupplyanddemanddrivetheinvisiblehandofthemarket,bank-debtmoneykeepstheinvisiblefootontheacceleratorofthegrowthimperative.

Aswithagriculture,amonoculturecrophastheeffectofmakingeverythingdependentonitshealth

andwell-being.Ifyougrowonlyonecrop,youaremoresusceptibletotheravagesofinsectsandblight.Thesameistrueofthemonetarysystemwehaveadopted.Textbooksstatethatthereareseveralfunctionsthatmoneyservesitisameansofexchange,astoreofvalue,aunitofaccount.Ashistoryandcurrentexperienceconclusivelyprove,allofthesefunctionsdonotneedtobecoveredbythesameinstrument.Oureconomywouldbemoreresilienttobigchangesandwouldhavefewerdisruptionsifthereweremorediversityinthewaysinwhichwemakeexchanges,storevalueandkeepouraccounts.

TheVortexofUrbanizationWhiletheeconomicrollercoasterappearstogoupanddownthebusinesscycles,thefluctuationsinthestockmarkettherollercoasteritselfisheadinginexorablyintoacentralizedandconcentratedvortex,likematterandenergybeingsuckedintoablackholeinspace.Thepatternsofbehaviorvisibleintheeconomyproducesimilarformsinotherhumanendeavors,mostnotablyinthecitiesaroundtheworld.Onthephysicallevel,therollercoasterisleadingtourbanizationonanunprecedentedglobal

scale.Asstatedearlier,theUnitedNationsclaimsthatforthefirsttimeinhistory,morethanhalftheworldspopulationlivesincities.Furthermore,manyofthesecitiesinturnarebecomingmegalopolisesataremarkablerate.Megacitiesofmorethan10millionpeoplewererare20yearsago(therewereonlyninein1985,mostofthemwithfamiliarnamesParis,London,NewYork,Beijing,Istanbul,Moscow);nowtheworldhas25ofthem.Karachi,Dhaka,Manila,Jakarta,Lagos,ShenzhenandCairoaresomeofthenewermembersofthemegacityclub.Somecitiesgrowbyover10,000peoplepermonthandarecompletelyincapableofprovidingthenecessaryinfrastructureandservicesfastenoughtoservethenewpopulations.18Thisexplosionofurbanpopulationhasleftmillionsofpeoplelivingindangerousandunhealthyslums.Citiesgrowingatextraordinaryrateshavenochoicebuttoabandonmostrationalideasabout

urbanplanningthereisnowaytodescribetheresultingurbanenvironmentsexceptasgiganticexperiments,accidentsofhumanmigration.Wholeneighborhoodsshareonefilthyportalet,iftheyrelucky.Therearehumansettlementsthatliveonandinlandfills,theirsoleeconomyscavengingthewasteofothersfortheirlivelihood.Homesmadeoffoundmaterialscardboard,tin,plastictarpsaretheonlyshelterforoveronebillionofEarthshumaninhabitantstoday.Norunningwater,nosanitation,rampantdisease,constanthunger,violence,crimeandoppressionareawayoflife.Ifthecurrentsituationcontinuesunabateduntil2020,oneoutofeveryfivehumanbeingsonEarthover

2.5billionpeoplewillliveinaslum.19

Cities,DemocracyandEconomicChangeForalltheirdifficulties,citiesarethelevelofgovernmentclosesttothepeople,andtheyprovidepeoplewiththelargestnumberofcriticalserviceseverythingfromeducationtowastewatertreatment.TheyarecollectivelythelargestgovernmentonEarth,dwarfingstateandnationalgovernmentsinpublicservicebudgetsandemployees.Whileinsomepartsoftheworld,citybudgetscomedirectlyfromnationalgovernment,citiesstillneedtobetheonesprovidingtheservices;itistheonlywaytoeffectivelyandefficientlyservethemajorityofthepopulation.Thismakescitiesthelogicalnexusforincreaseddemocraticpracticeingovernmentandmore

democraticeconomicsystems.NewEnglandcitiesandtownsintheUS,forexample,havesomethingthatiscloselyakintodirectdemocracy,wheretheirbudgets,ordinancesandothercityactionsneedtoberatifiedbyvoters.IntheTownMeetingformofgovernment,theregisteredvotersmakeupthecitylegislatureeveryyearanddeliberateandvoteonallcitymatters.Citiesneedtodeepentheirmandateforrealdemocraticandeconomicchange.Todothis,theyneed

toinvolvetheirresidentsingovernmentmoreeffectivelyfourstoriesofhowcitieshavedonethisareincludedinChapter13.Citiesneedtounderstandhoweachoftheireconomiesworkandwherethereareopportunitiesformakingeconomicimprovements.Theycandothisbyconductinganinventoryoftheirassetsandidentifyingwheretheyhaveunmetneedsandunderutilizedresources.Citiescanalsodesignandsponsornewwaysofmakingexchangesandprovidingincentivestomatchtheirassetsandresourceswiththeneedsoftheirresidents.ExamplesofsomeofthewayslocalcurrencieshavemobilizedpeopleandimprovedeconomicconditionsareofferedinPartII.Tostartprojectsandidentifythekindsofcurrencieswhichmightbemostuseful,cityleaderscanfollowthedirectionsofferedintheAppendix.Citiescanandwillchangetheworldastheyabsorbandaccommodatethemajorityoftheworld's

population.Thechoicecityleadershavetomakeiswhethertolettheforcesofglobalizationandpopulationmobilizationovertakethem,orwhethertotaketheinitiativetoconsciouslyanddeliberatelyplanforavitalanddynamiclocaleconomy.Thebuildingblocksfortakingthisinitiativearethesubjectofthenextchapter.

CHAPTER3

CommunityCapitalism

IbelievetotallyinaCapitalistSystem,Ionlywishthatsomeonewouldtryit.

FRANKLLOYDWRIGHT

Ifyoulookupthedefinitionofcapitalisminthedictionary,itwillsaysomethinglikethis:aneconomicsystemcharacterizedbyprivateorcorporateownershipofcapitalgoods,byinvestmentsthataredeterminedbyprivatedecision,andbyprices,production,andthedistributionofgoodsthataredeterminedmainlybycompetitioninafreemarket.1Inthatcontext,thetermcommunitycapitalismsoundsabitpeculiararewegoingtotalkaboutcommunityexpropriationofprivatepropertyinthischapter?Theanswerisemphaticallyno.Yettherearemanyformsofcapitalwhicharenotentirelyinprivateownership,orthatbenefitfromservices,infrastructureandotherpubliccapital,sothischapterwillhelpyouunderstandhowacommunitymanagesallitsformsofcapitaltocreaterealwealthforitsresidents.Ifyoulookatthecommunityasanenterpriseanditscitizensastheowners,thecapacitythe

communityhastocreaterealwealthandwell-beingcanbecharacterizedasthecommunitycapitalusedtoproducethatwealth.Onedefinitionofthewordhasbeenassetsavailableforuseintheproductionoffurtherassets.Thewordsorigincomesfromcaput,theheadofacow,fromatimewhenpastoralcivilizationscountedthelivestocktheyownedtodeterminetheirwealth.Ifassetsareexamplesoftherealwealthwehavetomeetourneeds,thencommunitycapitalrepresentsthecapacitytocreatethisrealwealthonanongoingbasisforthebenefitofthecommunityanditsmembers.Thisgenerativenatureofcapitalisofparticularinterestforcommunityleaders.Communitycapital

thegenerativecapacityofacommunityformsthefoundationoftheeconomy.Athousandboardsareassetsthatmightbeenoughtobuildahouse,butmanagingaforestforsustainableyieldandoperatingasawmillwillhelpinsurethatmanymorehousesgetbuilt.Theforestandthesawmillarethecapitalbase.Theircombinedcapacitytocontinuetoproducelumber,alongwiththeforestscapacitytoproduceoxygen,toabsorbcarbondioxide,toprovidehabitatforwildlifeandtoserveasacriticalpartofthewatercycle,willhelpinsureahealthyandsustainablehumancommunitycancontinuetolivenearby.Competentcapitalistsknowthatinordertoproducetheitemsthatmakeitpossibletoearnaprofit

andcreatewealth,theyneedtomaintaintheircapitalingoodworkingorder.Thismeanscontinuallyreinvestinginupkeepandmaintenanceoftheassets,keepingontopofthelatesttechnologyandminimizingthecostsofproduction.Theaccountingandtaxations