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The Economics of Peace

This article was originally published in The Catholic Worker (January 1967) and was reprinted in Peace News.

If we are serious about building an independent, non-governmental world peace corps (a Peace and Freedom Corps) then we must turn our attention primarily to solving economic problems. For centuries men have attempted to change human attitudes, to achieve disarmament agreements, to promote international understanding and cooperation. But little attempt has been made, and except in a nationalistic framework almost no success has been achieved, in eliminating poverty, exploitation, and imperialism. In my opinion, only an economic programme can reach to the heart of the world peace problem.

An economic conference in London recently issued a statement to the effect that the underdeveloped countries are getting steadily poorer and that nothing, including the Alliance for Progress and Agency for International Development programmes, is stopping this process. In a world in which the poor are getting poorer and the rich are getting richer, what chance exists for peace, in the absence of programmes directed towards economic change? The civil rights problem has been seen more clearly of late as an economic problem, and that is how the world peace problems should be seen. In a sense, Marxists have taken this view, but unfortunately they have assumed that answers can come through concentration upon economics within a national framework.

Whatever approach to the economic situation we wish to take, it must be in a non-national context. Our vision should encompass the world as a whole. It should be basically a cooperative vision concerned with all of mankind, excluding none, and should focus upon the task of bringing justice through non-violent means. It is within this context that a new Fund is being conceived, originating in major part out of the experience of the non-violent movement in India.

The Indian experience has shown that economic programmes which have concerned themselves primarily with land reforms (Bhoodan and Gramdan) are not sufficient to answer the problem. One way of putting it is that there exists a lack of credit (that is, money) to finance the very real potential which has been created by the land reform movement in India.  Credit shortage, indeed, is present in virtually all underdeveloped countries, including those, like China, in which socialist governments have attempted to solve economic problems with major efforts towards industrialisation rather’ than through development of agricultural and other rural resources. In the bulk of the Third World the crucial shortage remains shortage of credit for agricultural development.

So far in the Third World, only a few countries (which happen to be socialist countries, and notably China) have been at all successful in closing the gap between existing hunger and available food.  And in those cases, the appeal to nationalism has contributed to the chances of international nuclear war, originally created by nationalism in the West.  It should also be noted that China, the prime example, is a large country with diversified resources and human capital seven hundred million strong: the fact that China has managed to pull herself up by her bootstraps does not indicate that smaller countries can expect on their own to be likewise successful, even with nationalistic spirit of equal fervour.

India, though large and thus theoretically able to match China’s potential, for many cultural and philosophical reasons is unlikely to follow China’s lead, even were Indian leaders to change their minds and attempt to do so.  The most practical answer for India and other underdeveloped countries must involve the pooling internationally of human and capital resources to work towards the inseparable ends of peace and justice.

PEACE LOANS

Interest shown by the leaders of India’s non-violent movement in the Fund signifies a realisation on their part that only through international non-governmental cooperation can there be a meeting of the small farmer’s pressing need for credit and the similar need of related ‘processing’ industries in rural India. For years the Indian non-violent movement (and most social movements in underdeveloped areas, including the American South) has tended, to look to its national government as a source of credit for economic development. In vain. Government and private capital has largely been devoted to industrial development and war production: comparatively little has gone to rural and small-village development.

Quixotic as this may sound in 1966, I’m convinced that the really significant and reliable source of credit for a basic constructive programme lies within the world’s peace and non-violent movements. Through the Fund envisaged, an opportunity will be provided for individuals, organisations and businesses anywhere in the world to invest in the small farmer, the rural cooperative, the village industry, the small businessman: in other words,  in those who have heretofore been neglected by governmental and private financial institutions, but who must constitute the backbone of any successful ‘self-help’ programme to eliminate poverty and injustice.

The reason for present neglect on the part of investors is baffling, for as Simon Williams, in a Harvard Business Review article (November-December, 1965) points out:

Experience in many countries with directed and supervised credit is proving that small farmers will repay loans promptly and fully, and that in the great majority of cases, no other security than trust, and potential for increased production and income, is required to insure repayment of loans by small farmers.

It should be made explicit at this point that an essential element in the plan is that the Fund’s loan will be administered in the field by workers trained by and associated with the Peace and Freedom Corps or international groups of a similar nature already in existence. Shanti Sena and Sarvodaya workers in India, and civil rights and peace activists in the United States, would be ideally qualified; but the Fund would expect them to relate to its economic programme through an international group of like intent, not a national group.

COMMODITY VALUE

Here are some of the ways in which the Fund’s investment plan, and surplus Funds, will work for peace and justice:

  1.  By making loans to farmers, cooperatives, and small businessmen in rural communities at reasonable rates of interest (about twelve percent) where loan money either had not been available (perhaps due to prejudice, as in the American South) or had been available only at very high rates of interest (as in India or Latin America).
  2.  By helping to provide land where small farmers and cooperatives have by and large been unable to obtain land, thus working to make the Bhoodan (land gift) movement of India worldwide.  Since the land provided can be held in trusteeship rather than private ownership, the Fund would be helping to take land out of the speculation market, which in turn would tend to reduce land rent, a basic need in underdeveloped countries.
  3.  By helping to develop cooperatives (such as those in Mississippi coordinated by the Poor People’s Corporation) and credit unions through making loan money available when it would otherwise be unavailable.
  4.  By providing social movements which have established their ‘credit’, such as the Gramdan movement in India and the civil rights movement in the South, with a powerful financial base (since they will become trustees of the funds), and in addition with money for basic education (since a moderate portion of the Fund’s money would be made available as gifts for educational purposes).
  5.  By offering to investors alternative investment possibilities, which hopefully can prepare the ground for a significant boycott of the present financial structure (involving savings banks, insurance companies, etc., which fund injustices as diverse as the war in Vietnam and segregated housing, by means of United States Savings Bonds, anti-integration mortgage policies, etc.).
  6.  By offering a just form of savings (and, incidentally, insurance against inflation) to persons on old-age pensions and the like.  Savings Banks, insurance companies, government bonds, all rob such people, since inflation tends to erase a large percentage of their savings over a period of years.
  7.  By beginning a basic, long-range transformation away from national currencies and towards a single international or universal currency of stable commodity value.  At present, virtually all national currencies are in a continuous process of inflation, caused by the internal necessities of a money system based upon debt creation. Since under Keynesian economics, we no longer believe in or permit deflation   (depression), the process of inflation must be expected to continue into the indefinite future (unless, in spite of the best efforts of the Keynesian economic managers, a major depression does occur again).  As a result, any currency (or ‘negotiable instrument’) which develops an insurance against inflation and deflation is likely to acquire, due to its stability, greater ‘currency’ than present national currencies.
  8.  Through the use of a commodity rather than a gold base for value, there would be introduced a naturally depreciating currency, ending the basic injustice and exploitation perpetuated by all present non-depreciating currencies.  Non-depreciation of currency is the primary reason why the rich grow richer and the poor grow poorer. (Today, national currencies depreciate through inflation, but the rich avoid the process by investing all their money in land or business ‘equities’, which do not depreciate).
  9.  Due to the transformation of currency, a transformation of banking institutions could gradually be brought about, after which they would not be debt-creating institutions, but merely service institutions, performing the legitimate function of handling accounts and loans.
  10.  Since the Fund envisaged will be a non-profit corporation, and since it will be operating within the context of a worldwide commodity free market, it would, once large enough,  be an effective means for combating monopolies and cartels, as do large cooperatives in such countries as Sweden and Denmark.  In other words, the Fund would help to bring down costs for the consumer, particularly the cost of money as measured by interest rates.

In places such as Latin America and South East Asia, the Fund’s approach could result in gradual across-the-board reductions in interest rates forced upon small farmers. Currently in India, they must pay from 37.5% up to 100% or more on their loans. Rates charged by the Fund would be comparable to those employed by credit unions in the United States for short-term loans: that is, about 12%. It is theoretically possible for the Fund’s approach to affect the world money-market interest rate (now about 4.28%), moving that rate in the direction of a non-exploitative service fee level of perhaps 1% or 2%.

In order to visualise the scope of what this could mean, one must comprehend that billions of dollars are paid every year to the controllers of the money monopoly. Economists estimate that in the United States alone, up to one third of the annual national income (which tops six hundred billion dollars) is derived from unjustifiable exploitation. For example, the tax-payers of the United States are paying several billion dollars a year to banks as interest on government bonds. The banks create (out of thin air) the money or credit which they give the government in exchange for these bonds, and the only real cost to the banks is a tiny percentage of the amounts involved: the service cost.

SOUND EXPERIMENT

Any reduction, therefore, even of a fraction of a percent, in the worldwide interest rate would tend to result literally in the billions of dollars being saved for consumers and poor people throughout the world. This level of relevance would of course be dependent upon the sale of millions, perhaps billions, of dollars worth of the Fund’s certificates, and at present such a degree of success seems far away. Nevertheless, the tremendous need for a stable world currency might bring about a more rapid transformation than is now conceivable.

  1.  The Fund would aid the development of the international Peace and Freedom Corps, and the Corps in turn would attempt to create training centres in various parts of the world, where trainees would learn community organisation skills, following methods such as those worked out by the Shanti Sena, Student Non-Violent Coordinating Committee, certain United Nations agencies, the Peace Corps, and voluntary service agencies. The trainees would learn how to handle loan funds in order to make them available to rural communities. At present the Agency for International Development funds   (and Office of Economic Opportunity funds within the United States) go mainly to urban centres. In Vietnam, for instance, 80% of the population is rural but only 10% to 20% of AID funds   (the total for Vietnam last year was $269 million) have reached the rural areas.
  2.  By helping to right the balance between rural development and urban development, at present weighted in favour of the latter, the Fund would perform an important long range function (again, if successful enough).  The present monopolistic land and money system acts as a magnet to attract resources into the urban centres at the expense of rural areas. As a result, populations are drawn more and more inexorably into the urban vortex.  As these refugees, largely without funds or relevant skills, move from economically destitute rural areas in ever greater numbers into the mass centres, the inevitable result is slum after slum,  ghettoisation,  mass unemployment, destitution,  and violence.

The Fund would admittedly be an experiment: but based on sound principles, researched by capable attorneys, stockbrokers, community developers and financial experts, and guided by men of good will and good conscience. The success of the experiment would depend, first, on adequate investment by persons who want to meet the challenge of world economic problems in a realistic way; and second, on wise handling of invested funds.  If these conditions are fulfilled, the concept of the Fund could have a profound impact in moving the world towards peace, and towards freedom from economic injustice.

Publication By

Robert Swann

Robert (Bob) Swann was the founder of the E. F. Schumacher Society, now the Schumacher Center for a New Economics. In 1974 E. F. Schumacher asked Robert Swann to start a sister organization to his own Intermediate Technology Development Group, but it was not until 1980, when prompted by Resurgence editor Satish Kumar, that Swann organized the E. F. … Continued

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