The Growth of Barter
“Poles Survive Collapse of Currency by Using Own System of Barter.” This headline ran in the New York Times on October 23, 1981, just two months before the declaration of martial law in Poland. The article reports that “more than one third of Polish wages aren’t matched by goods in shops, and that gap increases every day.” As a result of a general flight away from money, “the most desired and least available products-spirits, cigarettes, sugar, meat, wash powder—to name a few—have become the means of exchange.”
Under Communism in Poland, prices were held artificially low. Presumably, a rationing system provided some equity for consumers. But shortages of food lowered the market value of ration cards, and people demanded “hard goods.” Food riots had already taken place in Poland, and the article predicted more of them. Undoubtedly this threat was one of the reasons behind the declaration of martial law, which became world headlines two months later.
In the U.S., most of the population can meet its basic needs without price fixing on food or rationing cards. However, an increasingly larger proportion of the population is discovering that, due to inflation and reduced wages, making ends meet is getting harder every day. Moreover the present administration, in its effort to slow inflation, has taken away a great deal of the safety net created over the last forty years by the welfare system—welfare payments, length of unemployment benefits, etc.
Out of sheer necessity, therefore, more and more people are turning to barter as a supplemental means for survival. In her book What Will You Take for It, published by Garden Way of Charlotte, Vermont, Annie Proulx describes in some detail the extent of the growth of barter in the U.S. over the last few years. Many communities across the country have set up variations on a barter exchange. One example is Give and Take, a community barter exchange group based in Burlington, Vermont. According to Proulx, this group was:
…starting to bring the unemployed, welfare recipients, and people with low incomes into a community marketplace where they could exchange their skills and labor for services and goods without cash. The group’s membership varies from 75 to 400, depending on the current needs of the trading community, and takes as its motto St. Paul’s statement, ‘…every man shall receive his own reward according to his own labor.’ The members’ skills and services are listed in a quarterly catalog for a fee of $3. (There are the usual overhead expenses that must be paid in cash.) The range is broad.
The offers, or GIVES in a recent listing include: a Frisbee partner, soup cooking instructions, house painting, yard work, a subscription to any environmental publication, bread baking, VW repairs and maintenance, carpentry, canning, knitting instructions, a chain saw and operator, errands for the elderly, storage space, a fenced meadow, flat stones, sand, sheetrock taping, goat kids, quilt and potholders, light hauling, a window caulking service, wood splitting and cow milking.
The other side of the swaps are TAKES, the services and things members need. These include, homemade bread, hand made mittens, honey, maple syrup, transportation, kitchen supplies, rust spots on a car fixed, shelves put up, the outside of a mobile home washed and waxed, the use of a tent, a skill saw, a camera, a weekend at a camp, mulch hay, a ceiling painted, and windows washed.
Many of these exchanges are springing up in large cities, generally in poorer neighborhoods. But they have often taken on the character of a skills exchange rather than a hard goods exchange. Carpenters, plumbers, everything in the way of skills may be exchanged without money through such skill banks. A typical skills bank would operate in the following fashion:
A central staff keeps track of credits and debits in the bank, and solves any problems that come up. Contact among members is made in several ways, such as through a community bulletin board with different skills posted, through telephone call-ins to the central office, which matches the skills needed with a skill offered, or though a skills directory given to each member of the bank.
In her book, Annie Proulx suggests that while these skills banks are “usually an urban or suburban phenomenon, organized skills banks should work in rural communities, particularly where the influx of city or summer people has been too rapid for newcomers to be absorbed into the traditional life of the region.” She gives specific examples of how a skills bank could work for rural people-especially new arrivals in the rural areas.
Take Poland, and the financial pages of our own major newspapers, as examples indicating that we are entering into a period of increasing economic crisis. As the present national currencies go down in value, communities will need to create alternative methods for local exchange using barter and labor exchange systems. Gradually, as these systems become more sophisticated and better bookkeeping or accounting systems are developed (with aid from the low-cost availability of microcomputers), we should see an emergence of new forms of money. Let us visualize how such community issued money systems may come about and how we can begin thinking, planning, and experimenting to develop them.
Community Issued Money Systems
From a legal viewpoint, money is nothing more (or less) than a claim. But from a technological viewpoint, money is a tool. Like any other tool, it can be shaped to perform in different ways. Just as both a scythe and a combine are tools for cutting wheat, money should be designed to perform in different ways with different objectives. In the same way that we are presently designing and creating more appropriate hardware for small-scale needs, we must create an equally appropriate tool for exchange.
I do not mean to suggest that creating a better money or exchange mechanism will solve all the problems confronting our society. Not by a long shot. But just as E. F. Schumacher pointed out, if we create inappropriately scaled tools, we end up with many social problems—unemployment, dissatisfaction with work, alienation, etc. The tool we presently use for exchange is therefore inappropriately designed for the various functions for which it is intended. As a result, serious economic and social problems have followed. Among these problems is the wide-scale inflation that we know today.
Economists are presently arguing about possible “solutions” to these problems, but because they—like most modern technologists—often look for “macro” solutions, they have virtually overlooked the possibility of microsolutions. Caught up as they are in the London and Paris scene “advising” heads of governments how to control the vast machine called the economy, they can hardly spare time to consider micro- or small-scale community approaches to the problem. It is, therefore, I think up to those of us who are the advocates of appropriate technology and small-scale systems to become the inventors, creators, and producers of an appropriate technology for money and banking. We cannot expect the answer to come outside of our own ranks.
Moreover, this is vital to us, because all of the other appropriate technologies with which we are involved eventually depend upon a proper and decent exchange system. When the dollar system fails through runaway inflation or for whatever reason, we may survive in some fashion through barter or labor exchange systems. But if we are to expand and grow to become not merely a counter culture or a New Age subset of the larger culture, then we must create a new money system to replace the present one. In this new money system, all the attributes we value—cooperation, self-reliance, community, etc.—will have the potential to become the growing and dominant part of the entire culture. Focusing on creating this new system, we will not only survive the coming economic crisis, but we will also develop what Schumacher called an “economy of permanence.”
But can local communities or local banks issue their own currency now, and what good would it do? The fact is that barter exchanges and skills banks issue currency in the form of debits and credits for goods and services. The difficulty is that they have a limited circulation and acceptability. An ideal currency would have the broadest possible acceptance—virtually worldwide and universal. I think it’s possible that beginning at the community level, such a currency could be issued today due to unique factors in our historical situation. Here is a case where high technology, such as microcomputers or semi-conductors could be put to use for small-scale or local development. After all, money is primarily a matter of bookkeeping, figures, and calculations. All of these tasks have been made easy and low-cost by the revolution in the field of microprocessing.
If we are to begin to design a local money system that would work for the development of the local economy or region, there are a few necessary elements and characteristics to such a system:
It would have to be simple to understand, but consistent with our experience of the present money system. That is: It would have to consist of both cash (or paper currency) as well as a checking system, or another form of bookkeeping that utilizes the computer to simplify accounting.
Unlike our present money system, it would have to be redeemable or exchangeable in some form in real value. It wouldn’t necessarily need to be gold or silver. Rather, it would be something that meets the needs of everyday use, such as energy. Without a redemption system, it would be difficult to convince people of its value. After all, isn’t the reason the dollar has become so devalued because it cannot be redeemed for real value by the primary issuer—the U.S. government?
Most importantly, we would need to establish a measurement of value that was as universal as possible, and not subject to value swings up-and-down (as is our present money system). In other words, it would have to remain as constant in value as possible. This would help it establish a sense of permanency and security as well as make it more practical for exchange to take place. Such a method of measurement would be the most revolutionary element in the design, and would be the key factor in creating a universal system of money and banking that worked without the need for central banks or governments to become involved in money issue.
Once this standard of value had been arrived at, the state or federal government could monitor it, just as the Bureau of Standards maintains and monitors other standards of measurement, such as weights and units of space. However, it would not require state intervention into the economic sphere as is now the case.
And finally, it would have to be organized at the local level and controlled by the community as a whole. For example, each community would elect members of the board of the issuing bank, which would preferably be a nonprofit institution. Under such structure, banking would become truly more of a profession; bankers would be paid for their services, but the community would decide how and where its savings were to be reinvested.
Let me reiterate briefly these four specifications: A local, appropriately scaled currency should be: consistent with customary practices (cash, checking, and accounting systems); redeemable in some form of real need of every day value; although it will be based on local production, it should be of a universal measure of value; and finally, organized at the local level and by the community as a whole.
Energy as a Universal Unit of Measurement
In order to make as clear as possible what is suggested here, I would like to make a simple proposal that we consider using some form of energy as the unit of measurement and as the reserve currency for redemption purposes. It is generally recognized that energy is a factor in all forms of production and in meeting the needs of society as a whole. In this respect gold, commodities or resources that provide essential energy are replacing gold as the traditional form of reserve currency. Thus oil is referred to as “black gold.”
In brief, to outline how this transfer could take place, let us begin with energy production. Almost every community has renewable resources for producing energy. Such resources could be wood, wind, hydro, or waste material that can be burned in a modern furnace, such as a pyrolytic burner that converts wood wastes or other wastes into gas, oil, or charcoal. All such energy sources can be converted into electricity or measured in kilowatt-hours.
The first step would be to create a community-based organization, possibly set up as a cooperative (as a worker-owned business), or owned by a community development corporation, to produce energy from any or all of the locally available sources. This organization would sell notes, called energy notes, at the going rate of electricity. For example, if local utility rates are presently 10 cents a kilowatt hour, then 1 dollar would buy 10 kilowatts for future delivery. Owners of the notes, sold in lots of 10, 50, and 100 units (comparable to current values of one, five, and 10 dollars), would hold these notes for future redemption in kilowatts-no matter what their future dollar rate. In effect, these owners would have a guarantee against future inflation of electric rates. This would be the attraction for purchasing notes. The community organization or corporation would issue the notes only in amounts equal to their projected output of electricity, thus avoiding inflation of the currency.
Energy Notes: Redemption
The responsible organization or corporation would invest the dollars received in exchange for the energy notes to buy equipment to produce local energy. This equipment could be pyrolytic converters for wood waste, wind generators for a wind park, or generators for hydroelectric, depending upon the most abundant source of renewable energy available in any particular location. Up-to-date cost analysis demonstrates that such intermediate technology in today’s markets exists, assuming the availability of proper renditions (such as tested wind sites).
For example, a wind park capable of producing 1.25 megawatts of power could be built for a capital investment of less than 2 million dollars, using 25 machines that each average 170,000 kilowatt-hours per year. Assuming that an average family needs around 5,000 kilowatt-hours a year, the production of the wind park would produce sufficient electricity for 800 families. In comparison, current costs of constructing nuclear power plants are running several times the capital investment necessary to produce the equivalent amount of electricity.
The electricity generated would be fed directly into the existing grids of utility companies under the PURPA legislation mentioned in the last chapter. The utility company would either be paid cash for this electricity, or ideally, agree to accept the energy notes issued by the energy cooperative or community-based corporation as payment, kilowatt-hour for kilowatt-hour. Such a system would constitute the optimal way to redeem the energy notes. For instance, assume that Mary Smith has bought 5,000 kilowatt-hours for $500. That would mean that, at any time in the future, Mary could pay an electric bill of 500 kilowatt-hours with five of her 100 kilowatt-hour notes.
The utility company would have to agree to accept such payments in advance of selling energy notes. Some utilities may be willing to do so and others will not. However, if there was a broad base of public support for the concept, including environmental, antinuclear, and other citizen groups, it would be difficult for utilities to refuse a reasonable proposal. PURPA legislation requires utilities to accept or buy such energy but does not specify the terms of the sale. These terms are left up to state-regulated public power commissions. In either case, under the same PURPA legislation, the utility companies are required to carry independently produced electricity on its grids.
The validity of the energy notes does not, however, rest on the agreement of the utility companies to redeem them. The community corporation that originally issued the notes might ultimately be the redeemer based on its cash income, which would increase as electric rates increase. The investor in energy notes could still receive 10 kilowatt-hours of value in the future for a 10-kilowatt-hour energy note purchased today.
Liquidity and the Role of the Local Bank
Redemption is one concern for the creation of an appropriate currency; liquidity is another. Assume that John Jones purchased energy notes equal to 10,000 kilowatt-hours of electricity. Knowing that as a single man he only consumes about 3,000 kilowatt-hours of electricity per year, he has made an investment in his future as well as an investment in his community’s self-reliance. But unexpectedly, John finds he needs cash today. He might sell the energy notes to a friend, or barter them for services he needs. However, if a bank would accept the notes, it would provide John with a broader base for the sale of his energy notes. It is the appropriate function of banks to be the managers of money and to deal with the question of liquidity.
A local bank has an important function in the creation of a community-based currency. A local bank could buy and trade in energy notes like it might in foreign currency or securities. The dollar value of the energy notes would fluctuate as the price of electricity increased. Another institution might be set up to provide the same function, but a bank already has the staff and processing equipment to handle the management of money. Such equipment and staff would be costly to duplicate.
In order for a local bank to agree to accept energy notes, it would have to have confidence in the capability of the community corporation initiating the project. But again, broad-based public support would make it hard for the bank to resist handling the new currency. Soon, other companies beside the utility company might accept energy notes in payment for bills. Mary Smith might open a savings account with her extra energy notes. Before long, there could be a broad local market and trade in energy notes, all traded with the confidence that ultimately this currency, at least, is redeemable for something of real value-energy that can heat the home or warm the meal or produce the light to read by. There would also be the added satisfaction that this energy was produced locally from renewable resources.
What has then been outlined above is a way for communities to finance the production of their own energy by the issuing of energy notes. The appropriate technology movement is badly in need of capital. This “self-financing principle” once grasped is a very useful and flexible tool for community development. Shann Turnbull of Australia describes this concept more fully in his book Democratising the Wealth of Nations.
Still, the question remains of how to capture the value gained in this trade of energy notes back within the community. It is a question of community reinvestment. Though banks are the proper managers of money—essentially dealing with accounting questions—they are not necessarily the most competent to make decisions about the lending of money. In the question of lending community capital, an ethical dimension should be at work. Social and ecological considerations should come into play as well as purely short-term financial considerations.
Credit Unions come the closest to a community group establishing its own criteria for lending. However, credit union legislation and the high cost of overhead limits the scope and flexibility of credit unions. Again I would suggest working with a local bank whose facility and staff are already in place and who have had experience in the managing of money. An interested community group could open a separate account in the bank, designating that deposits to that account would be loaned only for specific purposes—such as providing increased community self-reliance in the areas of food, energy, housing, and essential services. The depositors would assume all the risk. However, with demonstrated community support for the businesses receiving the loans, the chances for the success of those businesses would be very good. Though the interest rate of the depositor might initially be lower than available from money markets, in the long run the return would be higher in terms of local availability of basic items. Such a fund could begin with U.S. dollars, then gradually accept deposits of energy notes. A percentage of each loan could be made in the new currency, thereby facilitating and expanding its circulation.
In any case a community based fund has merit even without the energy notes. Small local banks are looking for innovative ideas to draw in depositors and depositors are increasingly seeking ecologically and socially responsible investment opportunities. Such a proposal for a community development fund has already been made to a bank in the Berkshire region. Final paperwork and brochures are now in process. A public announcement of its opening is expected for April or May.
Appropriate Exchange and Human Scale
Let me reiterate this major point: the most pressing need I can imagine for a local regional self-reliant economy is the invention and establishment of an appropriate exchange system such as I have described. Yet such a system, because it is based on a universal measure of value like a unit of energy could, at the same time, become the key to eventually establishing a world-wide system. For it is obvious that while on the one hand we are at a historical point where local and democratic participation in the economy is essential to our economic survival and to our humanity, it is also clear that we live in a world which is rapidly moving towards a one world economy. This new, appropriate system would consist of thousands of small, primarily self-reliant regions exchanging or trading directly with each other using a common unit of exchange. Thus the foundation for a true world economy could emerge.
The unsettled times mandate that we consider the options that are open to local community groups, working together to establish economic systems on a human scale in harmony with the wise use of land and natural resources.
