20 March 1999, Wellington

Money is central to all human activity, yet we have a poor understanding of what it is and how it functions. The conventional money system, based on debt-financing, is irrational, unsustainable, and destructive of peoples and their environments. The seminar critiqued the conventional money system, explored the purpose of money, and outlined socially and ethically systems and complementary (supplementary) currencies. The challenge is to develop strong complementary systems whilst simultaneously reforming the conventional system. The seminar was directed at enhancing our understanding of currency systems and making linkages between organisations working for social and environmental justice. The seminar was a sequel to Beyond Capitalism which attracted 150 people.

Alan Fricker critiqued our conventional debt-based financial system (DBF) focusing on the effect of debt on the ordinary citizen in the developed world. Whilst money is created from nothing (by banks from loans that we seek), the money supply (incomes, etc) is restricted to maintain price stability (inflation). Money is kept scarce, even though the resources we wish to access are abundant, which forces us into more economic activity (growth) to earn money and more debt. Inflation and debt are opposite sides of the same coin. The adverse effects of the former are relatively immediate; those of debt emerge much later. Hence the political preference to control inflation. The indebtedness of nations, industry sectors, households, and consumers relative to the ability to service that debt has been increasing steadily over the last 30 years. Every nation is in debt; every new born child carries an IOU - $15,000 in NZ. Clearly reform is necessary and supplementary money is required for those who cannot afford or obtain credit - mainly those on less than the average income.

Roland Sapsford explored money as an abstract concept of enormous power - people may be killed for it or may die for the lack of it in the midst of plenty. Chronic monetary problems are usually symptoms of a more general malaise. In relation to work, money has come to be compensation for something we would rather not do rather than a reward for useful activity. Money also lubricates commerce - a human activity that long predates capitalism. Our current problems are a failure of the feedbacks in society. Accumulation is occurring on a global scale without any means of redistribution. When commerce dominates society and money dominates commerce then the scale of influence of money is out of kilter. Yet money is a chimera, essentially because it is a function grounded in shared beliefs. One way or another people will want to transact for which they need something to use as money. Modern money has become impersonal. In relation to credit, collateral or security it has become largely physical. Need, ability, determination, integrity and trust no longer apply. That well-meaning creditors in the developed countries can make draconian demands on the developing nations illustrates how our actions have become detached from our own experiences. Local currencies can facilitate that re-integration and have little spillover into the rest of the economy.

Bruce Dyer asked whether we could have ethical investment in an unethical economic system. The extreme, indeed obscene, disparities in wealth, between nations and individuals, and the obvious poverty of 20% of the global population clearly indicates an unethical economic system. Even Adam Smith endorsed the traditional spiritual, theological, and philosophical teachings on ethical imperatives in our interaction with each other and the resources of the earth. Whereas modern commerce has sought to detach itself from social and ecological responsibility, recent trends overseas and in NZ seek to restore balance. These include businesses for social responsibility and the emerging field of ethical investment. Such companies are keen to allow independent social and environmental auditing and are out-performing more conventional companies. In NZ ethical investment is presently assisting small businesses and individuals that cannot obtain finance through conventional channels. These organisations have assisted over 1500 projects in employment, agriculture, education, environmental protection, housing, refugee settlement, and superannuation, and have combined assets of $7 million.

Prue Hyman presented a cogent case for Universal Basic Income (UBI) for many diverse reasons, eg. the arbitrary nature of what work is paid and what unpaid. Technological development is displacing jobs. A significant proportion of people, including the retired, already receive a guaranteed income. UBI would reduce poverty, remove the stigma of targeting and free people to do meaningful work. The primary rationale for UBI however is the recognition of citizenship, community, and interdependence of all members of society. Unpaid work, voluntary and involuntary particularly of women, is at least as great as paid work. A UBI, albeit at a low level, could be afforded at two levels; a gut level that we in NZ can afford a basic standard of living for everyone, and at a technical level through the tax/benefit system. Rankin, for instance, advocates the integration of the current benefits with the implicit benefits enjoyed by those earning over $38,000 (the level at which the top tax rate of 33% starts) through a flat tax/UBI system. There are other means, including a Tobin tax on international financial speculation, and a rethink of the tax system to tax those things we not want, like pollution and environmental degradation, whilst removing tax from those things we do want, like employment.

Deirdre Kent promoted the need for community banking, building societies and credit unions not only to keep capital within the locality but also to develop a stronger sense of community. From a very useful set of tabular handouts Deirdre traversed the range of complementary or supplementary currencies. The main community currencies are LETSystems or Green Dollars, Ithaca Hours, Time Dollars (Fair Share in UK) and are based on mutual credit (zero interest). There are some 2000 operating world wide. In effect they are supplementary currencies in that they usually provide only a few percent of a person's livelihood. The WIR is the best known of supplementary trading (commerce) currencies. Bartercard commenced operations in NZ in 1993 and now has 2200 members with a turnover of $93 million. Bernard Lietaer, former international financier and architect of the European Central Bank, is an advocate of a range of currencies (global, national, regional, local) and in particular of negative interest (demurrage) currencies. Negative interest encourages the circulation, ie. the use, of money. Alan Fricker outlined the successful implementation of these in Bavaria in the early 1930s. The Toronto Dollar, launched by the mayor in late 1998, is essentially a straight swop of new local money for Canadian dollars, which depreciates only if it is redeemed. Scotland's Other Currency (SOCs) is a country-wide, primarily rural scheme, supported by local governments, for commerce and community.

Alan Fricker
Sustainable Futures Trust, Wellington
email: frickera@actrix.gen.nz

Any medium of exchange - coins, notes, paper-money, ledger-entries, electronic.

First exchanges were moneyless - the bartered exchange of surpluses (abundance). These exchanges were about win/win relationships too. Money widened that exchange but weakened the relationship, and was/is used to replace violence in human intercourse.

Now, money is almost a total abstraction. It is become de-coupled from real value (480 grains middle ear of corn = 1 troy ounce of gold), and has become the thing of value itself.

Much of our time is spent thinking about money - earning it, spending it, saving it. It dominates our lives. Money has become a phenomenon of collective psychology.

Money is also an invention, a technology. Like all technologies it is an extension of ourselves whereby we seek control over nature or each other - for good or bad. It has become a crude tool for manipulation but it could become a tool for sustainability.

A concept that is simultaneously a technology, an abstraction, and disconnected from real value is potentially very dangerous.

Should money have value or function - or both? Not only should money be linked with real value, it should also be a store of value. (Even a modest inflation rate can halve its value within a generation.) Money should also function as an instrument of policy that goes beyond the present very narrow vision of price stability, to social goals like employment, public services, and social cohesion. Money should also be and function as part of nature - above monarchs, central banks and parliaments - to achieve ecological sustainability. Money should be seen as the property of the community, to be passed on to future generations in as good a shape as we found it, a part of the environment to be protected from corruption. In short, it should become a language, a means of communication where success is expressed as coordinated behaviour.

Effectively all money is created by going into debt. Banks create money on the strength of loans - but from nothing. It is not borrowed from depositors. The interest repaid with the loan must come from other money. The bank owns the repaid loan and interest. The loan is discharged, but the money still exists even though withdrawn from circulation. The interest becomes a credit to the bank and remains in circulation. The money supply is therefore dependent on debt - hence debt-based financing. Banks themselves are dependent on an increasing demand for debt-money.

Loans usually repay over their lifetime more money as interest than the loan itself. Over time therefore the money supply should greatly exceed the undischarged debt. But it doesn't. The money supply itself has become de-coupled from the debt that created it. The supply is controlled by the banking sector and kept scarce to contain inflation. In consequence it encourages us into more economic activity, that is growth and more debt, to generate money. Although more debt would seem to increase the money supply, debt in fact reduces the supply by draining a greater amount as interest from the economy to service the debt. Thus inflation and debt are opposite sides of the same coin. The adverse effect of inflation, reduced value of money savings, is relatively immediate. The adverse effect of debt is deferred in time. Hence the political preference to contain inflation. The repayment of debt can be deferred by competing against others for scarce money, or by continually increasing economic activity (growth). Eventually however, the social and ecological effects of debt have to be faced.

It is by no means clear what happens to the 'surplus' money, ie.the difference between that created and that supplied. Do we have look further than the vast amount of private sector (in particular banking) money in the global financial markets? Consider these historical warnings of the power of banks.

The devastating effects of debt on the developing world are well known. The astronomic quantities of money sloshing around the speculative global financial markets are also created by debt. Not just through loans in the normal way, but through driving up asset values, and through the derivatives (futures) market.

Emphasis here is on its insidious effects to the developed world too, particularly to Jean Citizen, to you and I. We, as consumers, are using credit to purchase items other than houses, items that do not hold their value, notably cars. Most consumer debt is undertaken by those earning more than the average income. We do so not just because of the facility, but because we are short of ready cash today to satisfy our perceived needs (in fact wants) and because we believe we can repay. This 'buy now pay later' trend is a form of additional income which in part accounts for the visible and increasing gap between rich and poor. Nevertheless all debt is at the expense of future earnings foregone, particularly in a low inflationary environment to which we seem to be headed. It is vital that the significant minority, those with above average incomes, recognise that debt-based financing is not in their long term interests either if we are to bring about change.

• Money has become de-coupled from real value.
• Money is created by debt (the ledger must balance).
• Interest on debt must come from another source of money (someone else's debt).
• Private debt is usually repaid, public debt rarely is.
• Repaid debt is withdrawn from circulation; interest payments are not.
• Yet outstanding debt always exceeds money supply! (The ledger doesn't balance).
• Money supply has become de-coupled from debt.
• Money supply is presently used to control narrow monetary policy (price stability, inflation), at expense of social objectives (public services, employment).
• Scarcity of money supply fuels more economic activity, ie. growth, to 'earn' more money.
• Economic growth requires more money, ie. more debt.
• Servicing increasing national indebtedness reduces ability to pay for public services.
• Servicing increasing personal indebtedness reduces personal disposable income.
• Scarcity of money forces competition and increases inequality.
• Inequality leads to impoverishment, to injustice, to exploitation.
• Economic growth leads to environmental degradation.

Every nation is in debt - massive and constantly increasing debt. If all nations are in debt, who are they in debt to? For every debt there must be a credit, and for every debtor there must be a creditor. These debts are astronomical - $5 trillion for the public debt of the US, US$2 trillion for Japan. Each person born into the US is immediately burdened with a debt of around $20,000. In NZ the debt is $36 billion - $12,000 per capita. NZ has the largest net foreign debt per capita of all developed countries, larger even than Mexico, making us very vulnerable to external shocks.

Budget deficits are funded by creating a second institutional debt in respect of money that is already indebted. There is a constant rescheduling of a completely unpayable debt. Instead of creating debt-free money, like we and many nations used to do and the Channel Islands still does, the government places a country and a people in an absurd position of overall negative equity, owing far more on paper than the money supply.

Public debts (PD) are utterly unrepayable by this or any other generation. No nation in history has been able to repay other than the merest fraction of its debts. Efforts to restrict the growth rates of these debts invariably plunges the countries into recession. Under a debt-based system, a public debt is unavoidable, indeed essential to prevent the economy from collapse.

Public debt is an illustration of the lengths to which governments will go not to create money. By permitting banks to create money governments are transferring the ultimate financial power to banks, even though they, the elected representatives, are the only true authorities to create money. That they do not do this is because of the power dimension of public debt.

There are three aspects of this power.

• The reliance of the economy on debt bestows power on the government to control the economy. The debt and/or budget deficit can be used to argue for any expansive or regressive policy.
• The public debt gives government detailed control over many different areas of the economy. If the government wants to 'find the money' it can - the national debt is a potentially infinite source of funding. When there is a scarcity of money and a background of debt, and when it is in control of the size and extent of that debt, the government can win every financial argument.
• The responsibility for the debt is transferred to the economy, ie. the public who are living beyond their means. Both government and the banking sector are absolved of responsibility. Debt is as much a tool as it is a measure.

Both commercial and consumer debt have increased over the last three decades, consumer debt in particular.

The increases over the period 1963 to 1996 are:

• commercial debt in the UK from 11 to 20% of the GDP;
• consumer debt in the UK from 14 to 70%;
• consumer debt in NZ from 8.9 to 56%.

Household debt relative to household income over the same period has increased too:

• in the UK from 30 to 105%;
• in NZ from 42 to 90% (last decade only).

Accordingly therefore a greater proportion of both commercial and consumer income is used to service debt. Disposable income has therefore decreased. Consumer price indices however are based on incomes after tax, not disposable income.

The farming sector in the UK is being devastated by debt and globalisation. Interest payments relative to farm income have increased from 8 to 40% over three decades whilst real incomes fell by two thirds over four decades.

Around 55%, 62% and 70% of the NZ, UK and US money stock respectively are mortgages and thus are central to a debt-based economy. Mortgages are not so much a means whereby the population become homeowners, as a mechanism for supplying money to the economy. Mortgages have in fact reduced the ability to own property. Second mortgages are becoming common. Japan has generational mortgages that extend beyond the life expectancy (not just income earning years) of the borrowers. Defaults have increased substantially since 1980.

Although it is possible for any one person to pay off their mortgage, it is absolutely impossible for the community as a whole to buy its houses outright since mortgages are heavily relied upon for money creation. Mortgages are a statement of financial poverty, a statement which completely belies our obvious modern wealth. On the one hand we in NZ are advised against 'investing' in property as it is unproductive, even though the money supply is dependent on us doing so.

Two points to focus on here are the pressure on nations to seek an imbalance of trade, and the competition between companies for markets. Whereas money can be exported (as goods or money) from a country, debt remains. International trade therefore presents both a tremendous opportunity and a terrible danger. The opportunity is to obtain debt-free money, money that has been borrowed into existence in another country. The danger is the converse, and the smaller and weaker you are the greater the risk.

A balance in international trade is not sought for two reasons. Each nation is debt-ridden and debt-free money from overseas earnings is used to balance domestic debt. The modern battle over exports has nothing to do with genuine trade. It is a battle of sales, growth and solvency in a world dominated by debt. Ultimately it is game where everybody is losing. But it is the developing world that is losing fastest. Speculative transactions and the share market are the only means of staying ahead of the play - the global casino - but at substantial risk.

Whilst all countries trade from a position of insolvency, developing nations trade from a position of greater insolvency. TNCs control raw commodity prices, the exports of developing nations. The same or other TNCs control the prices of the finished products, the exports of the developed nations. The former is driven down as much as possible, and the latter is driven up as much as possible. It is therefore logically impossible for indebted developing countries to repay their debts, other than by the developed countries accepting a trade deficit which they cannot afford to do as they themselves are indebted.

We, like the developing nations, are hooked into a system which is destroying all of us. The drug culture is a massive price the West has to pay for impoverishing the developing world. Other casualties are the destruction of traditional culture, poverty, unemployment, commercial and political tensions, civil conflict, economic and political refugees, migration, social unrest and breakdown.

The beneficiaries are the financial and commercial interests loosely based in and identified with the US; those who control and administer the global financial system - the International Monetary Fund (IMF), the World Bank, and the international banking and commercial interests who associate with these institutions. It is they who hold the lien over both the developing and the developed world. The matter of 'who gains?' however is not so much a matter of profit, but of power.

The success of the TNCs is not a measure or reflection of true productivity or the efficient use of resources. Success is founded on the ability to take advantage of the gaping financial disparity between nations, the power to hold peoples and nations to ransom, the power to enforce low wages, extract concessions, and externalise social and environmental costs. All these circumstances arise through the often none too subtle pressures of the debt-based financial system.

The debt-based financial system is a race to the bottom by the majority, consuming our resources as we go, whilst the few pull the puppet strings and enrich themselves and their progeny. In the process, not only may we destroy sustainable communities, but we will end up having no concept of what constitutes viable and sustainable community.

Reform at least is necessary, and in the meantime we should be encouraging complementary or supplementary debt-free systems. Whilst we are doing all this we could be following the very sound advice of Joe Dominguez and Vicki Robin in their invaluable book Your Money or Your Life.

Roland Sapsford
Econnection, Wellington
email: roland@actrix.gen.nz

Money is often seen as a problem. Witness sayings such as 'Money is the root of all evil'. For most people, personal money problems are problems related to not having enough, either in terms of what they want or need to buy, or in terms of what they owe.

Understanding money takes us to the heart of what Alfred North Whitehead calls the fallacy of misplaced concreteness. Money is a symbol; a representation; a facade but we give it enormous cultural power. People kill for money. People die for the lack of it in the midst of plenty. Yet we cannot eat or drink money and when one includes 'credit' in the definition of money, we cannot even touch or feel it.

The purpose of this talk is to provide an introduction to some of the roles underlying the concept of money. This talk will not provide answers; there is no 'magic bullet' to use a slightly distasteful but lucid analogy. And I need to make a point of language clear; I use the adjective 'monetary' to mean 'in relation to money' in this paper - rather than as shorthand for any particular view such as monetarism.

I am not one who believes there is a single underlying flaw in our monetary systems, the remedy of which will fix a wide range of problems - rather I am of the view that monetary problems are usually symptoms of a more general malaise. That is not to say that in certain circumstances, action in the monetary realm cannot make an enormous difference. Keynes in the 1930s and local currency or barter schemes everywhere now show that they can. But these are amenable to analysis in terms of the existing body of thought on money. Local currency and credit for example, is a concept with a history dating back thousands of years.

In the sections that follow I will share some thoughts on several issues. To break up the flow of text I have devised some headings: Money and Work, Optimal Scale and Money, Money as a Function, Lending and Credit and Money at a macroeconomic level. All are no more than glimpses of a larger area. I will now launch myself into the first of these snippets.

When I was a child I was always puzzled by money; I never understood why we could not just match up people's needs and the process of production; perhaps through sophisticated computers, but more generally because surely we could only want what others would willingly make. Anything else was wrong, I felt.

Work gives us an identity and a sense of achievement - it is part of the Bhuddist concept of right living - right livelihood. We see this most clearly with unpaid work, where the rewards are clearly non-monetary. We also see this in the endless quest for meaningful work that preoccupies some white-collar employment. Yet economic theory analyses paid work on the basis that we don't want to do it - that after all is why we are paid, at least according to labour economics.

Money as a payment for labour has thus come to be associated with compensation for unpleasantness rather than as a reward for a valuable service. In this view, we work because other people value our labour rather than because we value what we do. I cannot help but think that this has affected how we see money and how we see work. The value of work becomes defined by money. Unpaid work is a curiosity from this perspective - and it is a small step from here to see unpaid work as less valuable.

Herman Daly, an ecological economist of considerable insight, discusses the concept of scale of economic activity. He adds this to the economists usual concepts of 'efficiency' (the way the cake is made) and 'equity' (sharing of the cake). Efficiency is often referred to as the 'size of the cake' but this is in fact a misnomer - arising from the simple assumption that a bigger cake is a better cake. Optimal scale is a useful concept. The physical size of our economic activities is important for sustainability and, as a concept, ties in well with physical science concepts of rates of energy and material flow.

Optimal scale is useful also when thinking about the role of money in our lives. Adam Smith - who is quoted selectively by everyone from the Business Roundtable to the Hari Krisna cookbook - knew full well that commerce is a useful servant but a poor master. (There I go again with dodgy metaphors - I am not really a fan of master (or mistress) - servant relationships). His Wealth of Nations is underpinned by his Theory of Moral Sentiments - the core of which is the concept of benevolence. One needs more than self-interest to make a society work. Adam Smith's observation was rather the more limited observation that competitive self interest can generate some useful results.

Similarly money is not evil - it makes commerce possible. I do share a little of the ageing Frederick Hayeks views that there is an element of rose-tinted sentimentality in our dislike of some modern institutions. The poor have always had trouble getting credit; money lenders have been disliked since pre-Christian times. Like money itself, these issues pre-date capitalism by millennia.

Rather our problems at present represent a failure of the feedbacks in society. Accumulation is occurring on a global scale without any means for redistribution. Money is a useful tool for enabling commerce but when commerce dominates society and money dominates commerce then the scale of influence of money is out of kilter.

This dominance has both an economic and a wider social context. In terms of economics, the perfectly sensible rules of small lenders and small businesses developed over hundreds of years add up to a disaster when they are applied at national and even global scale - this lesson of Keynes has been forgotten more often than it has been remembered.

Looking more broadly, and this is well beyond the bounds of this talk, I do recommend Ann Wilson Schaef's book 'When Society Becomes an Addict' not so much for its detail as for its broad sweep. Our cultures' ecologically and socially catastrophic attempts to create a materialist dream throughout the world become much more intelligible from the perspective of addictive behaviour patterns!

When I was at school, a rather stylised picture of the evolution of money was presented. First came barter, then coins and then credit and banking. This of course is nonsense. If one looks at the financial history of the world there has been credit without coins, barter based on credit, and a range of other combination. But first things first -

Money has three inter-linked roles attributed to it:

• a medium of exchange
• a store of value
• a unit of account

What do these mean? Well money as a medium of exchange means simply that something is money if it can be used in a transaction as a way of purchasing something. In this sense balances in cheque accounts are money. Clearly trust and confidence have a lot to do with whether something is seen as a medium of exchange. Media of exchange facilitate transactions - this is a key role for alternative currencies.

Value is a 'value-laden' term - and a topic for another day! I only briefly note that the idea that coin money has 'real value' while paper money does not is misleading. This simply means that people believe 'gold coins' are generally valuable for reasons other than their monetary role. Yet this general value is nothing more than a social consensus, much as the confidence in paper money is a consensus.

A store of value is perhaps more aptly called a store of purchasing power. If you have a dollar coin you can keep it rather than spend it - it will still serve as medium of exchange tomorrow. Inflation and price surprises aside, it will buy the same amount tomorrow. It helps if the store of value is stable in its own right so that only external factors influence its role as a store of purchasing power. And again, confidence is crucial here - often entire currencies cease being perceived as stores of value and people seek refuge in gold, US dollars etc where the consensus still prevails.

The unit of account concept is also simple. Currency provides a standard measure for describing financial transactions. There have been situations where the medium of exchange and the unit of account differed - the simplest example is where units of account persisted after they had disappeared from the physical currency.

Money is a chimera - it is difficult to pin down what it is exactly. This is essentially because 'money' is a functional definition grounded in shared beliefs. Almost any thing or concept can and often has been money. Very large stones, for example, make sense as stores of value on islands plagued by tropical storms that destroy less durable constructions. And they are no sillier than pieces of paper in terms of being money!

Money is characterised by 'shades of grey'. Many things can and do fill some of the roles of money. Notes and coins for example clearly don't tell the whole story in a world of banking and credit. Is a cheque, a credit card, a Work and Income New Zealand grant sheet money?

This vagueness helps explain the difficulty in statistical definitions of money aggregates. For some decades economic statisticians have used M1, M2 and M3 as measures of 'the money stock'. These definitions become broader as the number increases. During its increasingly desperate attempts to make monetarism work the UK considered an M5 (very broad) and an M0 (very narrow). All proved equally useless as tools on which to base monetary policy.

This area is one where there is much more to be said - especially about how attempts to control one money aggregate simply lead people to use things outside the definition as 'money'. The exception is when people accept the limits as part of life - as occurred in New Zealand for many years.

I cannot really do this topic justice here, except to make the cheerfully sweeping statement that a focus on money supply to the exclusion of money demand is partial and pointless. One way or another people will want to transact and to do so they need something to use as 'money'. I'll return to this point briefly later.

Consider for a moment a common situation: a friend wants to borrow a book. In making this judgement you'll take into account the value of the book to you, whether your friend has looked after and returned books in the past and a host of other factors. So it is with lending money.

People have lent and borrowed money for a very long time. The basic reason that 'banks are bastards' is that they want to keep their 'interests' safe. The more impersonal the system and the larger the scale of the banking system the less the scope for personal relationships to interfere with this.

Banking used to be quite personal. Your relationship with a bank manager and that manager's prejudices, along with the banks, determined your access to credit. Banks used to be far more honest about their role in capitalism - credit was gladly extended to companies struggling during a waterfront strike because of the need to hold the line against socialism. Reputation and the 'old boys network' served as collateral (or security as it is sometimes known).

In a more impersonal world, physical collateral is simply a risk-spreading device. Your house is more likely to be stable in value than your income. It means lenders don't suffer with your personal financial crises, only with regional or national ones. And therein lies one of the long-standing concerns about finance systems: the equity of risk sharing. This is at its most venal in fringe banking where loans at outrageous interest rates simply defer the day of reckoning for the desperate. Ironically mainstream bankers recognise that interest rates that are too high increase the risk of default and attract only desperate or dodgy borrowers. They will usually just not lend - hence the existence of a fringe sector.

When you borrow from a neighbour it is usually a relationship of equals with a reciprocal nature implicit in it - they may borrow from you and so on. If they don't return the favour you may be less likely to help in the future.

As financial institutions have increased in size two things have happened. First they have become less vulnerable to individual failures - a business failing does not mean the bank fails. This is a good thing for many people who would have lost all their savings in times past. Bad managers and charlatans usually survive the demise of their schemes - individual savers were not so lucky.

Second they have become more able to protect their interests at the expense of individuals. Most borrowers are honest people - when hard times strike or if they cannot manage their money, there is a moral question about how this loss ought to be shared between borrower and lender. The more impersonal and the less reciprocal the system the more the burden falls on individual borrowers.

These two changes are not unrelated but they are not synonymous. The indebted individual is rarely the main problem a bank faces. Rather the direct link between action and experience has ebbed away. Competition for returns forces banks to appear 'hard-nosed'; the shift away from mutual funds has led to an increasing focus on short-term results. Yet it is wrong to focus solely on banks; as any corporate manager will tell you, they feel hemmed in by the need to survive 'competition'. And we ourselves feed that competition. We need to expand our sense of options - it is reasonable to seek value for money; it is also reasonable to ask that this quest occur within socially defined bounds.

The potential unfairness of the present system is at its most blatant when the borrower is a nation. The poor of that country may have received no benefit from loans siphoned off to corrupt causes; they will certainly bear the brunt of policies that stress international debt repayment. That well-meaning individuals can advocate such things only illustrates both the extent to which our actions are inter-linked far beyond our direct experience of each other's lives and the paucity of economic theory outside certain well-defined contexts.

Such arrangements are the result of increasingly impersonal circumstances. By contrast many alternative lending services rely on the fact that people will not cheat their friends and neighbours (eg credit unions), or will feel a sense of reciprocity for assistance in a time of need (eg Women's Loan Fund). By contrast large, multinational lenders are quasi-immortal entities with neither souls nor consciences. Lending and borrowing are part of life. The key issue is how to bring these activities back within a framework where wellbeing is not sacrificed in the quest for creditworthiness.

Speaking in terms of money as shared confidence also shows the problem with people saying that money/credit ought to be 100% backed by something 'real'. No matter what the law says and unless one makes extending credit a criminal offence most people will continue to borrow and lend routinely in the course of business. So-called trade credit is the most volatile and difficult to pin down. If you buy a phone card you're lending money to Telecom. If you use electricity you're probably borrowing from the power company. Anyone who has been in a small business knows that the reliability and regularity of payments from others is quite variable.

Local currencies and facilitated barter schemes have been around for many years. They help facilitate transactions by creating a medium of exchange within a subset of transactions. Assume I'm a hairdresser in a green dollars scheme and you are unemployed. In essence I may be willing to trust the overall Green dollars scheme and give you a haircut even if the bank won't lend you money to pay for a haircut. In essence we have found a way for you to gain credit in a form that I will accept.

The scale and reputation of these schemes is important to their success. Green dollars, for example, are a system of shared faith rather than a physical alternative currency. The crucial feature of this example is that Green dollars does two wonderful things: (i) it stimulates activity amongst people who would otherwise be underemployed and (ii) has little spillover into the rest of the money economy.

The idea that money is scarce and alternative currencies can help bridge this gap starts to take us into another realm - the role of money and monetary policy in our economy as a whole. I will limit myself to the comment that I do not believe in a fundamental flaw such as was claimed by Major Douglas - the founder of the 'social credit' movement. The 'social credit' argument, I believe, fails to recognise the circular nature of the flow of income. In essence, interest income is still income and is still spent by those who receive it. However a little credit creation may still be a good thing. As a French entrepreneur named Richard Cantillon observed over 200 years ago - the effect of an injection of money depends on the way it enters the economy.

Many people would agree it is better to ensure that 'new money' raises the level of useful activity rather than simply bidding up the cost of existing activities. Alternative currencies may well have a much greater role to play in this arena than mainstream economics has yet recognised.

As I said in the title, this paper has been more of a meander through some concepts than an analysis. My purpose was to try and give our discussions some context. There are very real questions about the role of money in our society. The answers are complex and systemic and it would be the height of arrogance for me to claim to know them. But I do believe the principles of localisation, redefining social and ecological limits to commerce, and rebuilding community are as applicable to monetary discussions as to any other realm.

Broader questions I have hardly tackled include the extent to which all this conceptual apparatus is tied up with gender perspectives. That is a serious omission; it simply reflects my own lack of knowledge of the subject area. Nor have I considered cultural theory - an even greater sin since I had the pleasure at Schumacher College of meeting with Drs Kusumlata Kedia and Aruna Sinha, trenchant, youthful and perceptive critics of western cultural biases in development theory. Their work seems little known here but if you are able to read either 'Genetic Assumptions of Development Theories - a drag on search for alternative' or 'Roots of Underdevelopment: A peep into India's Colonial Past' then I recommend them highly.

I hope that this short offering will prompt some further comment. I am delighted to be part of today's discussion. The more we know the more we realise there is to know. In this sense, knowledge is humility. Enough from me.

Bruce Dyer
Proutist Universal
Box 984, Nelson
email: bdyer@prout.org.nz

The following argues

1) that our current economic system is unethical

2) that taking the spiritual factor into account would help it become more ethical

3) Looks at some of the shifts towards a more ethical socio-economic environment in New Zealand including ethical investment.

1) Firstly in what way is our economic system unethical?

1.1 The Oxford dictionary defines ethics as that dealing with moral principles, i.e. that which is concerned with the distinction between right and wrong.

1.2 How well our socio-economic system performs from this perspective might be gauged from a statement by Marion Wood, the Executive Director of the YWCA and Chair of NZ's Council for International Development in a recent panel discussion on National Radio when she argued that our economic system is immoral.

1.3 Evidence of it being unethical or immoral, is the growing inequality between rich and poor, a situation that is increasingly dividing our society.

The recent report by Professor Srikanta Chatterjee of Massey University into the distribution of wealth in New Zealand over time, confirmed what is becoming increasingly obvious - that the wealthiest increased their wealth over the last 15 years by 25%, while the bottom 80% were left relatively worse off.

1.4 The point is not that there are differences. Income differentials that recognise effort and skill, constitute a necessary incentive to reward effort. Rather the point is that the differentials have moved to the point of being extreme if not obscene. This is borne out by Gordon Campbell's example in the Listener, of it taking a person on the minimum wage, two years of steady work to earn what Telecom's Roderick Deane earns in a week.

1.5 Internationally the situation is if anything, worse. Last year's UN Human Development Report, revealed that the 225 richest people in the world have a combined wealth of more than $US1 trillion - equal to the annual income of some 2.5 billion people, or close to half the Earth's population (47%). In addition citing the 1992 Human Development report, David Korten has estimated that comparing incomes globally, the income of the richest 20% of the world's population is now 150 times greater than that of the world's poorest 20%."

Figures from the World Bank also show that despite its efforts to reduce poverty, - ostensibly its chief objective - in the 23 years up to 1995, those living in absolute poverty grew 60% from 800 million in 1972 to 1.3 billion in 1995.

In brief, our capitalist economic model is unethical in its concentration of wealth in the hands of an elite and because it fundamentally ignores "those who have too little."

2. How might this situation be changed?

2.1 Traditionally Christian teachings have separated spirit and matter and provided a rationale for humanity having "dominion over the earth and all living things upon it" - or in a word a rationale for exploitation. An emerging world view however associated with philosophers like Teilhard de Chardin and P.R.Sarkar , emphasises the oneness of all creation and seeing one in all and all in one.

2.2 Lloyd Geering believes this represents a more ecologically viable form of the Christian tradition and one that "will lead to a transformed set of ethical imperatives which will include care for the earth and a deep concern for the future of all species" including our own. He also sees these ethical imperatives calling for a restructuring of macroeconomics. Geering's position is in line with the Catholic framework for economic life affirmed by a National Conference of Catholic Bishops in the USA in November 1996. One of the principles enunciated at the conference was that "A fundamental moral measure of any economy is how the poor and vulnerable are faring".

2.3. In considering the restructuring Geering calls for, one cannot help but be struck by the absence of spirituality as a factor in the way economics is currently taught, notwithstanding Adam Smith's "invisible hand", which implicitly acknowledges the presence of an unseen force in our lives.

2.4 As children of the universe, it is our nature to constantly seek to expand our horizons. The physical world however is limited and to seek our fulfilment in it, is to remain forever frustrated. Limitlessness on the other hand is a property of the intellectual and particularly the spiritual realms.

2.5 The free society which Milton Friedman holds in such esteem and within which businesses seek to maximise their profits and individuals to amass unlimited wealth, is essentially bound by the limited physical world. Such a society is not free.

2.7 To recap, the spiritual factor needs to be taken into account in any restructuring to make our economic system more ethical. It would do this by acknowledging that because we have the same origins, human beings are family and that to neglect consideration of those who are less fortunate than ourselves is to deny the essence of a truly human society. The Indian philosopher P.R.Sarkar goes further by stating that unless as a people we are moving together we don't have a society.

3. What attempts are being made to change this?

3.1 One attempt in New Zealand are businesses for social responsibility being championed by Dick Hubbard which are coincidentally meeting in Auckland this weekend. Hubbard and others contend that socially responsible businesses need to support the community more. However he doesn't hide the fact that he retains control of his business and that there's no question of collective decision-making let alone ownership. In the event of his demise, the company will presumably become the property of his heirs. So while businesses for social responsibility may be more socially conscious and supportive than many, they remain firmly within the capitalist model. If anything they attempt to put an acceptable face on capitalism and as such essentially underpin the status quo, this, notwithstanding Roger Kerr of the Business Roundtable's contention, that it's unethical for Hubbard and his colleagues to give away corporate wealth that should properly go to shareholders.

3.2 Ethical investment can be viewed as another attempt to address the status quo although talking about ethical considerations within an inherently unethical system smacks of talking about honour among thieves. In the present socio-economic environment there is a real question-mark around the issue of whether it is possible to talk of ethical investment in an unethical economic system.

3.3 Acknowledging however that we live in an imperfect world, if we apply ethical considerations to investment we can define it as investment that is socially and environmentally responsible.

3.4. How does the issue of ethical investment impact on communities?

As with individuals, a community's boundaries need to be safeguarded if the community's identity, culture and economy are to be nurtured. The lack of boundaries leads to a loss of a sense of belonging and individuals having no place to stand. From this point of view, the practice by multi-national companies of operating without regard for regional economies and in particular their practice of transferring wealth leaving regional economies the poorer, can be viewed as unethical.

3.5 Leaving these reservations aside for the moment, I am happy to report that more and more people are seeking to invest their savings ethically. Thus ethical investment is one of the fastest growing areas in the retail financial market with over $100 million invested in ethical investment in Australia, two and a half billion US dollars in Britain and $US1.185 trillion in the US in 1997.

Investment in companies that take account of social and environmental issues and as a result lower risk by considering issues that could impact on the profitability of the company, is becoming a significant feature of international investment. Thus in the U.S. the Domini Social Index which comprises 400 companies that meet social and environmental criteria, has outperformed its conventional counterpart, the S & P 500. The New Internationalist cites the case of British Petroleum's stock price rising when it dropped out of the Global Climate Coalition as evidence that ethical investors are beginning to have clout. (The Coalition represents a group of oil companies that sought to undermine agreement at the recent Kyoto conference.)

3.6 In New Zealand ethical investment organisations have recently formed Ethical Investment Aotearoa. Its members include those operating nationally like Prometheus and the Quaker-based QIET organisation. Others like Just Dollars and the Nelson Enterprise Loan Trust operate regionally, while others again like the Womens Loan Fund of Wellington and the YWCA Angel Fund in Dunedin make assistance available to women. In May last, the combined assets of the organisations amounted to $7 million while they have assisted over 1,500 projects in the areas of employment, agriculture, the environment, education, housing, refugee settlement and superannuation.

3.7 As an example the Nelson Enterprise Loan Trust which I happen to manage, makes funding available to small businesses in the Nelson region that are unable to get support from banks. Loans of up to $5000 are available at 14% which is comparable with bank rates for unsecured loans were they available. NELT uses the Nelson Building Society as its banker. In providing what amounts to microcredit, NELT can be compared with the Grameen Bank initiative in Bangladesh. NELT has made loans to a diverse range of enterprises including a seasonal employment service, a distributor of water purifiers, a tailor and a clothing shop in Takaka, a tomato grower, a silvicultural contractor, a woman previously on the DPB who now operates a boarding house, a singer-songwriter to market his work on the Internet and an immigrant doctor from the Ukraine.

The Trust operates within the Nelson region because it believes that regional economies are the basic building block for economic activity. It also holds the vision of its activity being incorporated within a regionally-based and co-operatively-owned bank. As a fledgling organisation, the loan pool of which has recently passed the $100,000 mark and having an ongoing challenge to finance its administration, NELT has not been involved with the finer points of whether for example its rate of return should be maximised or merely adequate.

3.8 Further information about members of Ethical Investment Aotearoa can be obtained by writing to EIA@justdollars.org.nz

4. By way of summary

While individually we can invest ethically and socially responsible businesses can offer more support to their communities, the underlying need for restructuring the economic system remains.

References:

Prue Hyman
Associate Professor of Economics and Women's Studies
Victoria University of Wellington
email: Prue.Hyman@vuw.ac.nz

INTRODUCTION

Arguments for UBI include its capacity to give a living income to all, albeit at a fairly low level, and hence reduce poverty, particularly among low income families with young children. Also important are its simplicity, compared with categorical systems of income maintenance, and the removal or reduction of the administrative expense of targetting and the unjustified stigma and policing associated with some benefits. In addition, poverty traps and incentive problems for underemployed people wanting to work more or overemployed to work less would be removed or reduced, freeing up the decisions on what amounts of paid work individuals are free to seek. Other reasons advanced include its role as a social dividend on publicly owned assets, compensation for the increasing concentration of wealth, and a social responsibility of government, matching the current moves for placing such responsibilities on families (Rankin, 1997).

However the primary rationale for a UBI, in my view, in addition to the first above, is the recognition of citizenship, community, and interdependence of all members of society. Buttressing this is the recognition that almost all adults and most children make, and want to make, valuable contributions to society in the form of unpaid household, caring, voluntary and community work, as well as some being in paid employment.

It is largely arbitrary what work is paid and what unpaid, but overwhelmingly individual prestige, status and claims on resources come from paid work. Yet less than half of all work is paid. I also argue that earnings differentials within the standard economy are inequitably wide and only tenuously if at all related to productivity issues. Together, they shake the notion that market rewards and resulting income disparities/standard of living inequalities are a matter of just deserts, with modification of market incomes through the tax/benefit/public expenditure system a matter of simply providing a safety net for the unlucky and/or undeserving. They make the case for a universal basic income overwhelming.

INTERDEPENDENCE AND A UNIVERSAL BASIC INCOME

Bringing up the next generation is one of the most important unpaid tasks, undertaken predominantly by women, whether in two or one parent households or other household structures. This requires support from the community. It is vital work, as well as being for many a joy, and should not be just for the rich. We are on the border line of only just reproducing ourselves with declining birth rates, with those on lower incomes barely able to afford children. The individualist position "Why should I support your taste for having children?" is mean-spirited and if adopted collectively, shortsighted for society as a whole. This means that UBI needs to include children, recognising these arguments for collective responsibility for the costs. Further justifications for this come through recognising also the collective returns that will result from investment in the future, as well as the fact that children too are citizens, contributing both when young and later. If UBI does not cover children, many women could be even worse off under such a regime than they are now (Briar, 1997).

The recent shift towards individual and family responsibility gives insufficient weight to the inevitability and desirability of the interdependence of all members of society. It is important to challenge the capture of the word 'dependence' by New Right orthodoxy to mean dependence on a welfare benefit. Patterns of dependence, independence, and interdependence are complex and varied over the life cycle and between groups, and are not just a matter of money. The New Right reduces it to that and blames those financially dependent on others, especially the state. But in fact paid work is heavily dependent on all the household, caring, voluntary and community unpaid work that supports paid work and is also unequally distributed in society. Who's dependent on whom, practically and emotionally?

THE OVER EMPHASIS ON PAID WORK

Feminist analysis of the dependence of the market economy on women's productive and reproductive work has made some impact. However, all standard measures of national income, such as Gross Domestic Product, continue to exclude these 'goods', while including 'bads' such as pollution and defence industries (Waring, 1988). Despite greater recognition of enviromentalist and feminist critiques of GDP as being totally inadequate as a measure of worthwhile economic activity, let alone welfare, it is frequently used as such and its growth rate receives huge official and media attention as a measure of the nation's health. Increasingly even economists question the omission of unpaid work from national income statistics, based on the size and counter-cyclical nature of such work which means that the impact of boom and recession, in aggregate and on individual households, is overstated. Time use surveys make possible calculation of household input-output tables throwing light on inputs of time and goods/services into household production including the raising of children. From these tables and a reassignment of the capital component of household activity, it has recently been calculated that the household sector comprises fully half of the total economy, a much higher figure than previous estimates (Ironmonger, 1996)

Almost all jobs are at the SAME time undertaken by both paid and unpaid workers. This is true of almost all industries and occupations, from the obvious caring and home maintenance work examples to management and agriculture. Similarly, voluntary workers operate alongside paid workers in the community sector in organisations from CABs to refuges, meals on wheels to Kohanga Reo, schools to hospitals. VALUING all such work properly does not mean paying for it all by the hour. Social cohesion depends on voluntary, gift work, many people WANT to do it, nor could the economy bear the costs of paying for it in that manner. But the desire and ability to do such work may be breaking down with the increasing requirements and financial necessity for almost all adults to be in paid work.

And only those with access to sufficient resources (the retired, those with others in the household earning) can afford for this voluntary work to be their main activity. Under current orthodoxy, this is OK, because they do not require community support for their basic living costs to do this work. But it is not OK for those needing unemployment benefit to spend time this way because they should be looking for 'proper' work. Similarly only those with spouses with adequate incomes are to be allowed to bring up children full time: sole parents should become partnered and/or be in 'proper' work.

Then we have the concerns over workfare - a partial displacement of 'proper' jobs (with a minimum wage and conditions) by created jobs, and a compulsion to work for the dole which is resented. As it was well put at the Beyond Poverty conference, "I'll mow the old lady's lawn, but not because you .... tell me I have to!" A Universal Basic Income may be the better way to deal with all that and get the lawn mown without policing or resentment. Recognition of the total arbitrary nature of the paid/unpaid work distinction with a UBI would alleviate many of these problems.

VIABILITY AND FINANCING

So how do we afford a UBI? The question needs answering on two levels, a gut/general one and a more technical one. And there are, of course many alternative versions and ways of financing it. On a gut level, few would argue that New Zealand is incapable of providing a basic standard of living for all its people - it's a matter of the will to do it and eradicate poverty. And we already have a prototype UBI for older people in the form of New Zealand superannuation.

On a more technical level, it can be argued that in one way of looking at things, the tax/benefit system already involves a UBI or social dividend, with those on top incomes benefiting. Keith Rankin's discussions of UBI are based on the current tax scales and note that those earning over $38,000, where the 33% top marginal tax rate now starts, enjoy an implicit benefit of $5,130 per year through paying a rate under 33% on the first dollars of their earnings. Benefits contained within the income tax scale, he argues, are just as much (or little!) a payment or concession as benefits paid by the social welfare system. He advocates the integration of the two kinds of benefits through a flat tax/ubi system, with some supplementary benefits for those in greatest need.

Others prefer a more hybrid system, with progressive tax rates still imposed on higher incomes. There are also other ways of raising revenue, both to finance UBI and on their own merits, which have not yet been adequately explored in New Zealand. Increasing attention is being paid to the Tobin tax in the context of international speculation and capital flight ruining the economies of several countries. Respected economist James Tobin has long advocated both an international uniform tax on all cross-border financial transactions and a similar one within the United States. Internationally such a tax could go to the World Bank and be used to help the poorest countries. These taxes would be economically useful, increasing the weight given to long-range fundamentals relative to speculative opportunities. With the New Zealand dollar having fallen last year faster than logical criteria dictated, and currencies and futures trading a largely unproductive but profitable activity, a New Zealand tax of this type would be lucrative and make economic sense. Other ideas include trying to shift the emphasis to tax 'bads' such as pollution and other activities destructive of land or environment, away from 'goods' including useful work.

RELATIONSHIP OF UBI TO ALTERNATIVES/SUPPLEMENTS TO THE STANDARD ECONOMY: COMPLEMENTARY POLICIES

Other initiatives which could improve social justice are extension of worker cooperatives, and use of organised consumer buying power to pressure existing firms on environmental and labour policies, and create enterprises with less capitalist, more community values (Matthaie and Amott, 1997). These ideas blend well into another major area of challenge to the standard economy, local trading schemes and currencies, discussed by others at this seminar

Here I will just mention that the differentials between different types of work are invariably smaller in these schemes than in the market economy, with the values of participants, including those of professionals who may be able to command high hourly rates elsewhere, supporting this - and differentials narrow without the world falling apart! This supports my general contention that labour market differentials are inequitably wide and only tenuously related to productivity differences or just deserts. Much highly paid work, such as manipulating futures markets, might be judged by many as totally unproductive in terms of real social value, as against lowly paid socially valuable child care, for example. The argument is that CEOs and other highly paid people are worth their salaries due to their overwhelming responsibilities, and ability to go elsewhere if not paid a competitive salary. The latter sadly may be partly true, but I am not convinced this would matter. As to the former, it is assumed in orthodox analysis of occupational differentials that skills can be objectively listed and measured, whereas there is a growing literature arguing that their definitions and evaluation are socially determined (Hyman, 1994). One can also challenge the whole structure of economists' marginal productivity theory of labour demand, suggesting circularity and lack of reality. On my cautious days, I suggest that the ratio between top and bottom hourly rates should be no more than, say, five to one, rather than the 70 to 1 which approximately reflects hourly rates arising from million dollar annual salaries compared with the minimum wage. On my brave days, I want to write a paper saying all hourly rates should be the same, as in Time Dollar schemes.

CONCLUSION

Universal Basic Income can be made to appeal to various positions on the political spectrum. However, I do not believe it is worth selling it from a right wing libertarian angle. Only if its philosophy is combined with the other elements outlined above, can it hope to help deliver a future of social justice and hope for all. But on my more utopian days, I think that none of this is radical enough. Suggesting that all work should be paid the same hourly rate, that the paid/unpaid work boundary is arbitrary and blurred, and that exchanges other than through the standard markets and money encourage community values, goes only a small way. Perhaps the whole concept of (onerous?) 'work' and compensation for it should disappear, in favour simply of (non-destructive) activities undertaken by people in accordance with their preferences and the needs of themselves and others.

Similarly, more revolutionary thinkers suggest that the whole exchange paradigm is unhealthy, and that gift giving is far more basic to humanity. The gift paradigm emphasises the importance of giving to satisfy needs...giving to needs created bonds between givers and receivers... Opposed to giftgiving is exchange, which is giving in order to receive... In exchange, the satisfaction of the need of the other is only a means to the satisfaction of one's own need. When everyone is doing this, the co-mmunication that occurs is altered and only succeeds in creating a group of isolated, unbonded, independent egos, not a co-munity... As we shift our focus towards validating the gift paradigm and seeing the defects of the exchange paradigm, many things acquire a different appearance. Patriarchal capitalism, which seemed to be the source of our good, is revealed as a parasitic system, where those above are nurtured by the free gifts of their 'hosts' below... Scarcity is necessary for the functioning of the system of exchange and is not just an unfortunate result of human inadequacy and natural calamity" (Vaughan,. 1997, pp. 24/28). Perhaps only this degree of radicalism will lead to REAL change.

REFERENCES

www.wairaka.net/ubinz/IR/items/19990320MoneyMadness.html