By Matthew Slater

In our economic activity – our processes of extracting/ harvesting, processing, manufacturing, shipping, selling, consuming, and disposing of the earth’s resources – we rely on abundant energy availability and assume the atmosphere’s ability to absorb the CO₂. Reducing carbon emissions means reducing not just the energy and CO₂ intensity of economic activity but the volume of CO₂ emissions from our activity. More generally, we need to strongly reduce the flows of materials being put through our economies. And this might well require, in turn, reducing economic activity itself.

However, reducing economic activity is not yet a choice we have collectively been able to make. Despite noble and indeed numerous proclamations in international fora, and the most dire warnings emanating repeatedly from the IPCC, there has been only one moment since records began when emissions actually decreased. This was the result not of any concerted diplomatic effort, not of any coalition of nations, not of any treaties or “cap-and-trade” schemes. Rather, it came in the wake of the 2008 financial crash when global credit and trade froze until the massive addition of liquidity from the public bailouts started to take effect. (On this bailout process, see for instance Neil Barofsky’s book Bailout: An Inside Account of how Washington Abandoned Main Street While Rescuing Wall Street, 2012.)

So what exactly is the problem with reducing economic activity? It’s easy to point to “human nature” and say that we are greedy, competitive animals in possession of powerful tools – children quarreling over sweets but armed with machine guns. But to lay the blame on nature is simultaneously to condemn all humans, which is arrogant in the extreme, and to condemn them for all time, which obviates any efforts to improve our situation. As thinking, choosing, wise beings we can follow another path: We can reframe the problem as a solvable, albeit difficult one!

The behavior of societies is not only shaped by the collective intentions of their members. Another factor that more and more people have recently been pointing towards is our money system. The effects of money are in many ways invisible. That’s because money mediates so much of our activity, so that few people experience everyday existence within our societies without any money, or with monies other than the dominant currencies – the euro, the dollar, the franc – that are circulating by default between us. The question of whether our current money system is adequate given the need to reduce CO₂ emissions and economic activity is deemed heretical and, at best, irrelevant by the vast majority of economists, whether conservative or liberal, progressive or socialist. Yet there’s a growing minority of monetary reformers who think otherwise. In this age of unsustainability, when we are looking for ways to become more regenerative and perma-circular, these people need to be heard – urgently.

Many monetary reformers are now arguing that it’s the money system that acts as a key driver of the economic growth we’ve come to see as the root cause of our negative ecological impact. There are different theories about how exactly our money system spurs growth. One is that, since almost all money is created in the form of commercial credit which must be repaid with interest, and since the only source of money is the banking system, ever more money must be borrowed into circulation to repay itself with interest. Another theory I’ve recently read concerns the way the global reserve currency is continuously issued as dollar-debt and is never intended to be repaid, but is mostly hoarded in central banks so as to increase the value of domestic currencies in a sort of “currency competition.” Economic growth, then, is a systemic consequence of the ever-increasing debt and interest that must be paid. (For primers on these mechanisms, see for instance Michael Rowbotham’s 1998 book The Grip of Death: A Study of Modern Money, Debt Slavery, and Destructive Economics, or the 2012 book by Bernard Lietaer, Christian Arnsperger, Sally Goerner and Stefan Brunnhuber, Money and Sustainability: The Missing Link.)

Money per se is merely a tool or a set of tools designed to serve the functions of medium of exchange, store of value, and unit of account. There are many forms of money. There’s nothing about money per se that necessitates growth. True enough, the credit/ debt form of money our system currently relies on is an extremely powerful one – especially when entrusted to a group of commercial banks that stand to profit from its creation. However, the idea that all money must be issued in the form of interest-bearing debt arises out of a twofold misconception: that money is scarce and – somewhat akin to gold – is valuable in and of itself. While the large-scale balances of trade between countries will rarely be absolutely equitable, there are other forms of non-interest-bearing money that can provide incentives which will drive the balances more towards equity, rather than towards an ever-renewed spiral of disparity, debt, and instability. Chief among such alternative, reformed money forms are so-called credit clearing systems. Such systems – of which time banks and Local Exchange and Trading Systems (LETS) are small versions – rely on peer-to-peer transactions to create exactly the amount of “mutual credit” that’s needed for exchanges to happen. In credit clearing systems there is no interest-payment duty attached to the quantity of money in circulation. The quantity of money grows and decreases in sync with people’s actual purchase needs – not with the perpetually growth-oriented credit activity of a commercial banking system. Credit clearing is compatible with perma-circularity whereas today’s prevailing debt-money logic isn’t.

This is because today’s money system has two particularly pernicious features which are usually hidden from citizens’ plain sight. The first feature is the commercial banking system’s need for ever-increasing profits, which can only be sated by the ever-increasing indebtedness of everybody else. This means both putting constantly more money into circulation and requiring constant economic growth in order to repay the associated interest without too high inflation. The second feature is the United States’ need for ever-increasing public but also private debt, which it can effectively keep high and rising thanks to the dollar continuing to be a global reserve currency. This means that both the US legislative and executive branches, as well as Wall Street, have an interest in the current money system persisting and not being questioned – even at the cost of war and an oversized military. As a result, it’s very hard to envisage serious changes in the money system without the power of these institutions – banks and governments – being challenged and reduced, or possibly shifted into another realm.

So moving towards a perma-circular economy may require replacing these institutions by more “regeneratively aware” ones – or, alternatively, engineering a mass exodus with people taking their wealth out of mainstream banks, transactions no longer using the dollar or other global currencies, and local currencies being designed outside of the dominant logic, preferably through the generalization of the mutual credit logic inherent in credit clearing systems. Such an exodus would leave the now dominant banking and government institutions to collapse under the weight of the blood they have gorged on. It may mean building money and finance anew with a currency that cannot be bought for dollars. It would probably mean putting our trust, our belief, our worldview into institutions that don’t yet exist. Whether money is fiat, created out of nothing and given value by law, whether it gets backed again by a commodity such as gold, or whether it is “mutual credit” issued directly by national or local governments, businesses, or even between citizens, new forms of money could embody a wide range of regenerative values according to the intentions of their issuers and users. As a human invention money reflects our collective values, or at least the values of the most powerful people. If we wish to move towards a regenerative culture, or better yet a diversity of regenerative cultures, ideas of perma-circular money reform need to be part of the new equation of the future.

Let’s imagine for a moment that we got a chance to redesign the money system from scratch, with the intention of reducing material flows (among which, CO₂ emissions) and creating a truly perma-circular economy. What if your recycling depot issued you a receipt as a form of legally sanctioned money when you bring in your worn-out goods? It could issue you a higher-value receipt the older your stuff was, if that meant you had had more use out of it. You could then use that receipt as currency to buy the new things you need. The money would be destroyed at the other end of the supply chain when new goods were purchased and, especially, when any additional raw materials were taken from the earth – which, ecologically speaking, represents the ultimate cost! So the currency people would use would be genuinely perma-circular: It would “reward” those who both recycle and reduce – not just those who recycle while continuing to extract more materials each year; it would allow recyclers and reducers to be “wealthier” than prodigals who don’t recycle, but at the same time it would not encourage increasing consumption and extraction. So overall purchasing power and the associated power to command rising material flows would be capped at both ends of the supply chain.

Less radically perhaps, there are money systems which, like a bicycle, veer towards stability and balance the faster they go, or display “antifragile” qualities (in the sense of Nassim Nicholas Taleb), becoming stronger as a result of experiencing shocks. A financial system in which debts were actually payable would be a big step towards our collective sanity! Credit clearing, in which each individual’s debt is supported by the whole network of exchange partners, usually ensures that no one goes into unpayable debt – certainly not as a structural, for-profit practice as occurs today in our system. The faster the currency circulates, the faster momentary debts are generated but also cancelled, and the overall exchange network provides people with what they need. True enough, not just any credit clearing system will automatically be successful and there are parameters – such as the size of the payment community and the degree functional diversity within it – that make certain systems more stable and robust than others. But fundamentally, mutual-credit systems that dispense with bank-debt money tend to be more stable and more trust-based than today’s system, which implodes as soon as commercial banks stop trusting the economy to provide them with interest-payment-related profits.

Because of the way it’s issued and circulated nowadays, money plays an important, largely unrecognized role in making our economies unsustainable. But if the logic of issuance and circulation could be reformed, money could also become a very powerful tool for social organization, increasing our capacity for coordination and hence our productivity. Alas, the primary purpose of the money we have now is different – it is to aggregate financial and political power. We know this because we are in a recession and many people are unable to coordinate and produce the basic necessities of life – i.e., there aren’t enough jobs – even though the will to work and the resources exist.

We have more than enough materials already extracted (and recyclable) and renewable energy resources to provide everyone with more than what is strictly necessary though with any trifle they might happen to fancy, and we’d be able to do so in a stable, non- or low-growth economy that is sustainable and provides work for all that want to be useful. But the way we organize our money system doesn’t orient the financial flows towards such ends. Insofar as we can agree to start doing things differently, a system of perma-circular money that reinforces our regenerative values will surely emerge. Reducing economic activity could then finally become a choice we would be collectively able to make.

Matthew Slater is a community currency designer, co-founder of Community Forge and co-author of the Money & Society MOOC