The Guernsey story is in addition a case study in how small, local, face-to-face communities — where innovative thinking, tight coordination, trust and commitment are uniquely possible — may be essential to the kind of social and economic innovation that the world is so much in need of. Guernsey is one more exemplar of why, as E.F. Schumacher stated in his famous book, “small is beautiful.”
A SMALL COMMUNITY REBUILDS ITS OWN ECONOMY WITHOUT OUTSIDE HELP
The story begins in the early 1800’s, when Guernsey, a community of 16,000 (2), was economically on the ropes -- as was much of Europe during the hard times caused by the Napoleonic Wars of 1803 to 1825.
The conventional wisdom presumed that every community had to suffer with the downturn in the wider financial system. With the larger economy in bad shape, what could little Guernsey do? It seemed a victim of circumstances beyond its control.
But, thrown to its own devices, this island community came together to defy the conventional wisdom. In a surprising tale of success, Guernsey invented a different kind of money that enabled the community to pull itself out of a woeful period of depression and unemployment, rebuild its severely deteriorated infrastructure, cancel its public debts, and become an exceptionally prosperous, fully employed and happy place.
This all started in the second decade of the 19th century, when Guernsey found itself in terrible shape. “[The] trade of Guernsey was practically extinguished and the people were in despair. Unemployment was rife, ... there were practically no roads.”(3) What roads they did have “were muddy and only 4 1/2 feet wide.”(4) The island’s “sea walls were crumbling,” “public buildings were in disrepair and, above all, a new market house, where the islanders could exchange their produce, was urgently needed.” Not surprisingly, people were leaving Guernsey and there was little employment.(5)
There seemed nothing the community could do. They were stuck between a rock and a hard place. Higher taxes were out of the question. “It was impossible for the Government to finance these necessary improvements out of revenue, as this only amounted to £3,000 yearly, and of this amount £2,400 had to be used to pay interest on its public debt of £19,000. Nor could the necessary finance be obtained by borrowing; the Government sought indeed to raise a loan, but such was the poor state of the island's assets that the only would-be lenders demanded the prohibitive rate of 17 per cent per annum.”
In short, “Orthodox finance could do nothing to get the people out of the depression caused by the Napoleonic wars.” (6)
In the middle of these financial straits, some people began to see an unnerving irony. Large numbers of unemployed people ready and able to work were everywhere on hand, as were the material resources needed to get the public work done. Activity was at a standstill only because there was no money available, except at prohibitive cost. Under this nonsensical situation, someone had an epiphany: “there was nothing to prevent the Government issuing its own money.” (7)
[T]he idea put forward that the State should issue its own money daily gained ground. It was argued that, as labour and materials were both available, it was absurd for improvements to be held up simply through lack of money, and as conditions became even worse, this plan served to provide the only solution. Finally, after various setbacks and considerable opposition, the adherents of State money carried the day and, in 1816, 4,000 notes of £1 each were printed by the Government and paid out for the most urgent repairs. (8)The notes were issued to pay for the reconstruction of Guernsey’s sea walls, and once paid out, they began to circulate in the local economy, enabling people to begin freely exchanging goods and services once again. The locally-printed money worked like a magic dust to awaken the productive activity of the islanders.
By the success of this issue the principle was established, and during the next 20 years the Government authorised notes to the extent of £80,000, which were utilised in building the new Market House, schools in every parish, roads all over the island, St. Elizabeth's Cottage, etc. (9)Since the astonishing success of its initial experiment, Guernsey continued a string of public issues of money well into the 20th century:
[T]he appearance of the island changed out of all recognition. From its backward and depressed state it became, within 20 years, renowned for its well-being. Moreover, by issuing State money, this transformation was carried out without increasing the island's national debt and without incurring interest charges. In fact if interest had been payable on the capital sums for these improvements, they could not possibly have been carried [out]. (10)
[In 1816, the initial] 4,000 pounds were used to start the repairs of the sea walls. In 1820, another 4,500 pounds was issued, again interest-free. In 1821, another 10,000; 1824, 5,000; 1826, 20,000. By 1837, 50,000 pounds had been issued interest free for the primary use of projects like sea walls, roads, the marketplace, churches and colleges. This sum more than doubled the island’s money supply during this thirteen year period, but there was no inflation. In the year 1914, as the British restricted the expansion of their money supply due to World War I, the people of Guernsey commenced to issue another 142,000 pounds over the next four years and never looked back. By 1958, over 542,000 pounds had been issued, all without inflation. (11)Ellen Hodgson Brown summarizes: “When it wants to create some public work or service, [Guernsey] just issues the money it needs to pay for the work. The Guernsey government has been issuing its own money for nearly two centuries.” Brown adds that Guernsey has a simple, low and loophole-free 20% flat income tax. And no government debt. (12) Inflation has been kept at bay because increases in the amount of money in circulation were matched by the growing number of goods and services available for people to exchange with one another.
Unfortunately, according to historians, Guernsey’s exercise of self-reliant power today isn’t quite what it used to be, due to the intervention of private banks. Starting as early as 1827, banks began focused efforts to halt Guernsey’s control of its own local money supply; the banks questioned the legality of the issues, set up competitive and linked systems, and found various means to influence Guernsey public discourse and legislation. Through such means, the banks succeeded in severely blunting Guernsey’s independence. “Although since 1914 the Guernsey Government has again issued its own notes, these are now always covered by the Government deposits with the banks, and as today Guernsey currency is linked with Sterling, these notes are issued or withdrawn in conformity with orthodox principles.” (13)
The Guernsey story is by no means unique. Many other governments — including, famously, the American colonies (14) — have generated local prosperity through issuing their own money. But “Guernsey is one of the few to have stayed under the radar long enough to escape the covert attacks of an international banking cartel bent on monopolizing the money-making market.” (15)
DEVELOPING LOCAL SELF-EMPOWERMENT FOR GLOBAL BENEFIT
Guernsey’s success was in part due to its luck in staying “under the radar long enough” for local innovations to gather steam without outside interference. Such possibility of flying “under the radar” of larger governmental and private institutions – or, more to the point, of communities acting on their own initiative and sense of entitlement – is part of what gives us hope today. Guernsey tells us that there is room, here at the grassroots level, underneath the big institutional superstructures, for reinventing the world where we live, with our friends and neighbors, in our local communities.
We are not limited to fighting the existing behemoth institutions that dominate the system – big government and big business. Instead, local innovation in small communities can lead the way. The lesson we take from Guernsey is that small communities can begin to act on their own for change, in ways that can have consequences around the world. When communities lead, government and even business will often follow. We do not need to fight the problems when we can take initiative to create the solutions. (16)
If local communities can begin to realize and exert their own power, and eventually create a new layer of thoughtful cooperation and action at the grassroots level, our hope is that local communities can eventually coordinate on a wide scale to bring the world back into balance, locally and globally, infusing the ethics and qualities of healthy face-to-face, human-scale communities back into the larger system.
Today, there is more room than ever at the grassroots, because government and big business are more remote than ever. Even while we are more dependent on the control of distant forces than ever before, the conditions for self-organizing local action have also become more propitious.
Perhaps that’s why, today, little Guernseys are springing up everywhere, and in a variety of areas including economics, food production, land ownership, health, direct democracy, etc.
Our work at Institute of the Commons (http://www.iotc-hub.org) is dedicated to creating the small-community skills and infrastructure that can support such innovation and networked collaboration among small communities and neighborhoods.
ADDENDUM: THE GLOBAL LEARNING CURVE -- MONEY AND DEMOCRACY
The Guernsey story shows that, underlying the phenomenon of money even as it functions in the present system, are the keys to a broad public power with enormous potential that has not yet been fully realized. We have learned that money as a tool can unleash extraordinary productive activity in large populations.(17) What we haven’t fully learned is how this money power can be wrested from private control in order to serve the common good.
This is not the place to go into detail about the current money system of the United States, established with the institution of the Federal Reserve in 1913, and modeled on the British banking system. But a few outlines can be drawn to indicate the deeper relevance and import of what we are discussing.
Under the Federal Reserve system, the U.S. Government does not issue its own currency, but instead leaves the issuance of currency in control of the private banks that form the Federal Reserve System. The money supply is increased in the U.S. only when private U.S. banks make loans. Our Government, unlike that of Guernsey in the story, must borrow all the money that it spends by selling bonds that pay interest. Over time we have built up an enormous national debt that consumes an ever-larger percentage of annual revenues.
Moreover, because all money in the United States is created only through bank loans that require the payment of principal plus interest (with the interest owed typically much more than the principal), money is always artificially in short supply. By definition, more is always owed than has been borrowed, forcing competition among debtors such that bankruptcy for some is foreordained, and such that, regarding the system as a whole, the only way to pay off current debt is through additional borrowing, which only creates more debt, and so on ad infinitum.
The current money system thereby fuels ever-expanding, increasingly frantic production and consumption, while growing an increasingly burdensome debt closer and closer to a point of collapse. In a way of which few social and environmental activists are aware, the money system itself thus is a major contributor to the country's most pervasive social, political and environmental concerns. Not only does it favor the concentration of wealth that skews our political process, it also demands a hyper-production and consumption that extracts an unsustainable toll on people and the environment.
Yet our current banking system is only a recent historical development, resulting partly from accident and partly from the actions of the interested parties who developed modern banking and who were able to take private advantage of their insights into its internal mechanisms. Presently, individuals across our society are only beginning to discover and raise broader awareness of the alternative choices that lie before us concerning how money as a social tool is created, used and implemented. (For some emerging voices and insights, see some of the suggested resources listed below.)
Historical examples show that alternative money systems are not just theoretical. They have worked exceptionally well over long periods of time, with highly desirable results.
The choice is ultimately ours, whether the issuance of money will direct human activity towards the benefit of a few, or to the broader common good. We have the choice of producing a democratic currency, based on trust and collaboration, or a currency based on private control, doubt and competition for domination. But how to find our way, burrowing beneath present assumptions and daily practical realities, to discovering and implementing the choices that are actually there for us to take up, albeit only through concerted focus and collaboration? (18)
We believe that the place where full awareness of such choices can be best developed, along with the skills of implementing them, is in the laboratory of smaller communities.
We find hope, excitement and meaningful purpose in the recognition that western civilization hasn’t figured out everything yet, and that some of our most basic and unquestioned concepts and institutions — like money, community and democracy — are only in their infancy. The world is young on a steep learning curve, which means that the opportunity for individuals and small communities, including you and me and our neighbors, to advance the world’s learning is huge.
If people were to become more cognizant of the opportunities for learning and invention that lie near at hand for all of us, we might organize the world in a way that enabled us all to be a part of acting on those opportunities -- of learning and collaborating in the interest of all. That is only another way of defining meaningful, active, thrilling citizenship.
With such a way of thinking, we might begin to transfer our primary forums for learning from our present-day universities to the streets of our communities; we might start to join learning and thinking more directly to real innovation, action and citizenship. Only the domination and routine keep us somnambulating on the prescribed pathways of orthodoxy.
We’ve only barely started as a culture to understand the nature and potential of money. We’ve only barely started to understand the nature and potential of democracy. Small communities like Guernsey, and innovative neighborhoods anywhere can start to lead the way to new discoveries, new institutions, building on the ancient and recent past.
Once we have had the liberating realization that all of our existing institutions are only recently-fashioned stepping stones along a larger human path, roughly-designed and changeable artifices invented out of initial learnings; once we have the realization that each of these stepping stones has been created on the basis of human energies and conditions that we share with our ancient ancestors – joy, fear, desire and love; body, earth, and sky; life and death -- then we together, as individuals and as communities, can begin to feel rejoined to one another and to our ancestors in a great quest that unites us all: the quest to discover and shape the deeper essence and future of humanity itself.
What is it to be human? Who shall we be and what shall be the consequence of our having lived? Shall humans build a legacy of love and cooperation among people living in harmony with the earth? All of us are a part of fashioning the answer, whether we know it or not. To take up the answer consciously is to have a life of meaning.
We are all entitled to weigh the essence, history and future of humankind in our thoughts. We are all entitled to presume, on the basis of care for the common quest, that we have something to say in response to all those who have gone before and all those who are with us now. We would like to create communities designed to support every individual in assuming such eminence.
SUGGESTED RESOURCES
Ellen Hodgson Brown. The Web of Debt. 2007.
Henry George. Social Problems. 1883.
Thomas Greco, Jr. Money. 2001.
Paul Grignon. Money as Debt. (Video. 2008.)
Bernard Lietaer. The Future of Money. 2001.
---------. "Money, Community and Social Change" (Interview transcript. 2003.)
Stephen Zarlenga. The Lost Science of Money. 2002.
ENDNOTES
1. Cf. my earlier blogs: http://tognotti.blogspot.com/2009/06/how-understanding-what-is-money-could.html, and http://tognotti.blogspot.com/2009/04/policy-follows-practice-mammon-or-maman.html
2. For citation of 1816 population, see http://www.islandlife.org/history_gsy.htm. Guernsey’s present-day population (2008) is 68,000; see http://en.wikipedia.org/wiki/Guernsey
3. “History of Guernsey,” at http://www.islandlife.org/history_gsy.htm
4. Bob Blain, “The Other Way to Deal with the National Debt,” Progressive Review (June 1994). Blain is Professor of Sociology at Southern Illinois University. Quoted in Ellen Hodgson Brown, The Web of Debt, 2007, pp. 100-101.
5. D.M. Sherwood, “The Guernsey Market House Scheme,” The Fig Tree Quarterly (No. 10, September, 1938, pp. 190-3. Full article at http://www.alor.org/Library/The%20Guernsey%20Market%20House%20Scheme%20.htm
6. Sherwood, ibid.
7. Ibid.
8. Ibid.
9. Ibid.
10. Ibid.
11. Blain, ibid.
12. Ellen Hodgson Brown, The Web of Debt, 2007, pp. 100-101.
13. Sherwood, ibid.
14. The American Colonies started issuing paper currencies in the 17th century. In 1690, Massachusetts printed the first colonial paper money not backed by any physical thing (backed only by the State’s agreement to receive them in taxes), and spent it into circulation on public projects. Seeing the paper scrip's power to develop local economic activity, other colonies soon followed. Pennsylvania developed another model, creating a State loan office and loaning money into circulation at low interest. According to Benjamin Franklin, it was above all the British Crown's clampdown on the colonial currencies that incited the Revolutionary War. The Revolution was itself funded through the printing of the Continentals, which, even though their value suffered greatly due to the huge British counterfeiting efforts, managed to pay for the war effort – a huge feat. The next great instance, it seems, was Lincoln’s issuance of Greenbacks to fund the Civil War, in defiance of bankers who sought to profit enormously off both sides. Some conjecture that Lincoln's assassination, like the assassinations of McKinley and other Greenback supporters who followed, was due to this threat posed to the financial industry control. The Greenbacks remained in circulation for decades, although banks sought to remove them from circulation in various ways (and ultimately succeeded). The great populist movements of the late 19th century, in which small farmers and urban labor joined forces together against the great industrial and financial monopolies, took the name of the Greenbacks for their party name. For a more detailed account, see Stephen Zarlenga, The Lost Science of Money, 2002, pp. 361ff.
15. Brown, ibid.
16. An aside on the possibility of dual money systems, local and translocal: One insight the Guernsey story teaches is how the money system, when organized and controlled by private entities, can keep communities oppressed (by direct means as well as on the basis of a community’s own ignorance concerning the mechanisms of money creation and control). This insight was understood by the ancient Romans, during the glory years of the Roman Republic before the rise of the Roman Dictators. Hence they created a dual monetary system on the basis of the distinction between local public control of the money supply, and control by private and/or foreign interests. In order to avert outside or private manipulation, Rome used one kind of money, based on gold and silver, for foreign trade, and another currency for domestic trade, based on publicly-issued currency -- fiat currency like the currency created by Guernsey. The dual system combined local control with the capacity to take advantage of international trade, without risking dependency on outside exploiters. In his book The Future of Money (2002) Robert Lieatauer advocates for such a system under his notion of “complementary currencies.”
17. As we have seen, the issuance of money gave rise to amazing productive activity in Guernsey. The same phenomenon on a larger scale can be seen when, with the discovery of the New World, a sudden infusion of gold and silver into Europe led to an astounding new levels of European economic activity. See my blog: http://tognotti.blogspot.com/2009/06/how-understanding-what-is-money-could.html
18. Is money inherently “filthy”? We speculate that what makes money “filthy lucre” isn’t inherent in the concept of money itself. Our belief instead is that our sense of money as a “tainted” object reflects the fact that currency as we know it is under private control, ultimately an instrument of domination, competition and climbing. The public essence of money, the value it gains from the aspirations, needs and desires of all human beings to engage in activity, has been usurped. It’s the manipulation by the usurping parties that causes the stink, not money itself. If the sources of air had been taken over by a very few, and all of us were forced to elbow each other aside in order to get the best air for ourselves, we might begin to look upon the very desire for air, and even air itself, with suspicion and revulsion, not to mention greedy air-grasping humanity itself. With Woody Guthrie, we might say, “Look what your greed for money has done." Yet perhaps the artificially scarce money supply, manipulated under private hands, fosters greed and not money itself.
8 comments:
Your post about money in Guernsey reminded me, almost immediately, of my frustration with the healthcare debate. I think the analogy is waiting to be made.
You can't solve economic problems on this huge scale, and communities can't survive when currency is issued and value is created and destroyed on this massive national or global scale. Guernsey makes this affirmation (is that the right word) of value, separate and apart from the big value-creating system: we will honor this currency. I almost hear some Big Economy voice saying "You can't do that!" And Guernsey lightheartedly -- it has to be lighthearted, in my mind -- lightheartedly saying, "sure we can!" and issuing this money, maybe just as an experiment, at first. For me the tone of the thing matters as much as the serious economic consequences. Why? Because it is an affirmation of the community's value, or of the community's ability to create value, or both. And that has to be joyful and life-affirming.
And what a salutary alternative to the crazy right wing mumbling about the Federal Reserve: salutary because creative and empowering, not stewing and grimacing its teeth and arming itself for a showdown.
Same goes for healthcare: I remember how the healthcare "system" seemed to me as a kid: no system at all. We had a family doctor, who delivered all of us, fixed our broken legs, gave us annual checkups, extracted our tonsils, and so on. He was the town doctor (and the town was pretty small at that time). He would send a bill and we would pay him with a check, as I recall. (That's how patients paid my father for dental work, too. And I remember my father resisted taking insurance for a long time. He didn't want to deal with the paperwork, I think.
Patients owed him money, they'd pay part of it, they'd skip out without paying, they'd bring him stuff from their garden with partial payment, and so on. It all worked out ok, I think; and it was only with the establishment of AT&T corporate headquarters in the mid 70s near my hometown that my father started getting patients who had only an insurance form.)
Anyway, the point is that we had a healthcare "system" in my little town, but it operated on the scale and terms of the town, and it required human beings dealing directly with one another, owing one another, getting annoyed with one another, forming opinions about one another's reliability and credit -- in all senses of that word-- and it did not operate through the medium of some insurance agency or HMO.
That's at least how it seemed to me when I was a kid, and that perspective is valuable to me for present purposes (I don't really care if someone can prove me wrong.)
Now we have an effort to "reform" healthcare and it's starting where? With providers and patients? With doctors and the small number of patients a single doctor can really serve? with families? With communities of people who deal directly with one another? No, it's starting on a national level, on this huge federal government level, constructing an enormous system and technocracy for people to fit into. No attention to healthcare as part of a community, no attention to healthcare as something human beings really do together (care for one another), but just an alternative to the big insurance and hospital system we currently have in place. Another big system. Like the money system.
What would it take for local communities to create their own healthcare? To attract doctors and deal direcly with each other, and to exclude big insurance companies from most medical and health transactions -- with the exception, maybe, of disasters or crises that required sophisticated hospital care etc.? What would it take? The same Guernseyan affirmation: when told "hey, you can't do that, that's not how the system works!" to reply with the same lightheartedness and joy: sure we can. Si se puede. Or, as somebody said back in 2008, during the Presidential campaign, Yes, we can.
Thanks for your comments, Louis and Tree.
I like Louis's thoughts and questions that seem to gravitate around what it might look like to rebuild healthcare from the bottom up, on the basis of a local community framework. Of course, creating skills and an infrastructure for that kind of community-level thought and action is a major focus of our work at Institute of the Commons.
Tree asks a lot of important questions.
Yes, when Guernsey issued money they spent it on infrastructure projects and other programs, employing people.
They spent it in much the same way any government spends money -- except in this case the government didn't go the indirect and unnecessary route that our government follows today, i.e. of having banks issue the money out of thin air and then obligating the government to pay them back, with interest.
And, yes, then the workers who are paid to carry out the government-funded public projects in turn spend the money to generate even more economic activity. Once money is spent into circulation, a "multiplier" effect comes into play as the same quantity of money begins to recirculate within the community -- people earn it and then spend it on in an unending circulation.
As long as the money doesn't get taken out of the community, it keeps generating economic activity in this way.
When a community is money-starved, there's simply not enough of these tokens to keep everyone active and employed for the benefit of the whole. Energies go to waste. Dreams languish.
If the supply of money is in control of self-interested private hands, then these private interests naturally direct money in ways that they imagine best serve their own private interests.
Those who control the money flows can limit the options open to the community; they can make some activities harder to pursue, and others like rolling downhill. Essentially, to control the money is to set the course for the community. People naturally end up standing in line at the doors of those who happen to have the money, literally and figuratively.
A good money system, it seems to me, would fund those things of greatest common importance, and every individual would have a share in saying what those things are. I guess what we are saying is that the money system is an essential component of democracy, and you can't consider one without taking the other into account.
Where control of the money system gets appropriated by private hands, it's as if the golden glint with which nature invests all things has fallen under some one person's control. The public mind is forced into making a kind of split: the beauty of nature and call of the heart come to seem at odds with the consent and approval of worldly power. That's sad.
To respond to another of your questions, Tree. What I said above about money being issued directly, without going through the middleman bankers who charge loan interest, provides an initial answer to your question about who would have owed interest.
In the U.S., the government owes interest on money that it "borrows" rather than issues itself, and then the taxpayers hold the bag for paying back that interest, as well as the principal. (Note: Some sources say that the U.S. Federal Income Tax was created by Big Bank lobbies who wanted a guaranteed source of funding for those interest and loan repayments.)
By issuing the money itself rather than borrowing it at interest, and by spending it into circulation rather than lending it into circulation, Guernsey issued money that was "interest free."
Could the City of Berkeley print "Berkeley Bucks"? How have local currency experiments worked in other cities?
At a later date in another blog, I hope to write something about the successes and failures of various local-community experiments. And I am in fact planning to do a little more research on that topic myself.
I have read a number of stories, however, about municipalities that have created successful currencies. Bernard Lietaer tells one such story in his book (see my references) about a town in Austria that successfully put its people back to work through a currency issuance. That experiment, though, like Guernsey's, eventually attracted the opposition of established financial institutions, who reportedly aligned political powers to put a stop to it.
Why don't other communities make their own money? Exactly! That's the question that's being raised, with what seems like increasing frequency these days. It's one way in which communities are now exploring means of gaining more local control of their lives. Can community currencies provide a tool to help give communities more say in their own futures?
I think so many of the wondrous tools of the modern age - television, radio, newspapers, transportation, internet, international finance - have had one sad unintended consequence, that is, they have ruptured the container of "local community."
All the "limitations" that nature once imposed on us -- limitations of travel, communication, etc., limitations within which unique places, ecosystems and ethical cultures developed -- were exploded when we leaerned how to overcome them with technology.
This has had many wonderful benefits, but also some very worrisome consequences.
My hope is that with some concerted effort and attention, we can again learn how to think, work, cooperate and develop more self-sufficient autonomy within our local communities. We need strong localities everywhere to keep large, impersonal, global forces in balance and in service to healthy communities and environments.
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