I want to suggest the principles and practical outline of a specific method I think could possibly work -a government-backed, federal, mutual credit currency (http://en.wikipedia.org/wiki/Mutual_credit), interchangeable without exchange costs between local currencies and, perhaps later, federally between national mutual credit currencies, to be a positive kind of competition with the conventional fiat fractional-reserve, interest-bearing currencies which are 97% created by private banks’ lending. Mutual credit currencies are anti-inflationary (compare the Wundr von Worgle experiment in 1930s Austria, there are more recent examples but using a historical one is less politically controversial and relatively more objective) and demurrage on capital assets is considered to incentivise long-term investment better than interest from lending alone.
I suggested that such a national or federal mutual credit currency could implement a tax system integrated into the base rate of interest and combined with a base rate of demurrage, operated by the central bank, both variable and the combined rates linked to a grading of social & environmental cost-benefit impact based on a standard statutory methodology for evaluating social & environmental cost-benefit impact of any business or investment instrument, with mandatory independent auditing for companies over a threshold size, as a sort of massively beefed-up version of the Corporate Social Responsibility section of the Annual Report already established by law in the Companies Act 2006. (The idea of massively beefing-up the CSR section of companies mandatory annual reporting was apparently the top priority of the Danish government when they took over the presidency of the Council of the EU (according to a Radio4 program I heard, possibly further info could be found on http://eu2012.dk/en).)
Combined variable central bank base-rates of interest and demurrage would mean companies could be taxed more discriminately on their own social & environmental impacts and internalise their ‘externalities’ into their budget sheets, in principle as much as possible in direct proportion to the actual full (i.e. global & long-term) costs and benefits for society and the environment, based on their own reporting, which would have to follow a standard basic method of accounting and be independently audited if they’re over the usual threshold of >£5m turnover.
In addition, demurrage could be charged on transactions based on both distance in time and distance geographically based on postcodes, which would be feasible since since most (97%) of transactions now are electronic anyway. This would have the effects of incentivising re-localisation of supply and demand, and incentivising investment in long-term development over short-term speculation, because the social cost of holding concentrated capital assets would be accounted for in the demurrage-based tax system. We could even include a quantitative evaluation of the indirect costs of excessive socio-economic inequality (socio-economic inequality correlates strongly with increases in all social problems (except suicide), as shown in The Spirit Level) as one of the factors in setting the variable, progressive demurrage rates on capital assets.
The other major advantage of government establishing a complimentary mutual credit currency nationally or in a federal way providing infrastructure for linking up local, regional or national complimentary mutual credit currency systems, would be that it would enable governments to escape from regulatory capture by the financial sector, which overall on average has become more harmful than functional at present.
I’m still interested in detailed feedback on whether you think this could actually work in principle and in practice. However, I only want to accept as premises natural realities and explicit principles of what a monetary economic system should be expected to do. I don’t want to judge new paradigm proposals for better, more functional monetary systems according to the old paradigm of orthodox economic dogmas of ‘rationality’ (defined in terms of maximisation not optimisation), selfishness (the conventional narrow definition, not HH Dalai Lama’s concept of ‘enlightened self-interest’ which is equivalent to universal compassion!), automatic equilibrium (that monetary market systems automatically self-regulate in the same way as markets in real, natural goods & services do -(the three orthodox economic dogmas identified by Prof Steve Keen in ‘Debunking Economics’), nor the fourth orthodox economic doctrine that ‘there is not enough to go around’ -this is a logical consequence of the dogmas of rationality in terms of maximisation and narrowly defined selfishness, but I think it’s worth distinguishing for practical reasons, to emphasise that it is a moral choice or assumption, it is not a purely ‘objective’ finding of ‘economic science’ as it is claimed to be.
For certain, we have limited resources, there is natural scarcity, but scarcity does not have to mean a competitive ‘struggle for existence’ within our societies (in fact that could be considered the anti-thesis of social living), it is equally logically possible to conclude that having limited resources means we have to find efficient ways of making what we’ve got go around so that everyone has enough or we make the best of what we’ve got collectively. I’d like to call this Enough economics! (Optimisation rather than maximisation also means that sometimes the rationally ‘best’ outcome is to leave some resources alone: e.g. nature reserves, leisure time.)
‘Enough’ (Thai: por dee) reminds me of a story from my monastic days in NE Thailand, when the founder of our monastery, Ajahn Chah, back in the days when it was first started as just a group of monks living under umbrellas with mosquito nets on the forest floor in the village charnel ground, when they sometimes had very scarce food donations on almsround. One day the whole monastic community on almsround only received one small banana between all of them -it happened to be given to Ajahn Chah because he was the most senior monk at the front of the line of monks on almsround (there were times in the 70s when the Isarn region of Thailand was so poor due to the anti-Communist wars going on mostly in bordering Laos and Vietnam but also some ‘anti-insurgency’ over the Thai border in Isarn, which is culturally more part of Laos, that this wasn’t stinginess, the villagers probably were nearly starving too). To some of the monks’ surprise, instead of keeping the one banana for himself, Ajahn Chah asked his attendant monk to fetch a clean razor blade, and cut it up into tiny slices and served it around the whole monastic community. They may only have one banana for the day, but they would make it enough.
We actually have far more than one banana, as a whole global human society we probably have plenty more than enough for everyone to live in peaceful prosperity -but not wasteful or careless extravagance, or with intuitively nonsensical accumulations of merely notional, artificial monetary capital that effectively means political power over democratic governments and central banks, not a measure of access to real resources. The ‘economic crisis’ since 2008 is really a monetary economic crisis, not a crisis in the real economy of natural resources and labour. We still have more than enough natural resources to work our way out of the near ecological collapse situation we’ve got ourselves into and enough labour to do all the work that needs doing around our societies and around our countries. When there is work that needs doing and people willing and able to do it but no ‘money’, clearly we have a dysfunctional monetary system.
The ‘assumption of scarcity’ concept needs modifying -yes there are natural limited resources, but it is our choice whether we design a system based on the belief we have enough for everyone or we will make what we have go around everyone somehow so everyone has at least enough to be healthy, reasonably comfortable, socially happy and content, but not as much as they want for sensuous indulgence so much that others’ cannot possibly even have enough, instead of the concept of scarcity being taken to mean that zero-sum interactions of winners and losers are a natural, automatic inevitability. Zero-sum winner-loser economic interactions of exploitation are indeed the traditional status quo in global economic interactions, but there is nothing ‘necessary and unavoidable’ (Cameron) about it.
Imagine an economic system and culture based on the beliefs ‘we have enough’, ‘we should make the best of what we have’, ‘mutualistic win-win economic interactions are better for me in the long-term, because we are so inter-dependent I cannot exploit my neighbour without it impacting on me’. Imagine monetary systems intrinsically designed to reflect natural realities and our social values as directly as possible. If you can imagine such radical and total systemic changes in our culture, then imagine please what it would feel like to live in such a society, and in such a world. The choice between old and new paradigms is rational up to a point but ultimately it is an emotional or moral decision.