This article was co-authored with Dr. Robert Ulanowicz and Dr. Sally Goerner. Part 1 is here. The full, original text can be found here.
V. Understanding Systemic Stability and Viability
The solution we propose below is new, and relates to the identification of the fundamental systemic reason for our monetary and financial instability. Understanding this solution, however, requires that we review some evidence as to why a systemic problem is likely, that we develop a scientifically-sound understanding of its nature, and, finally, that we identify effective ways to address the trouble.
The good news now is that we know a lot more than in the 1930s, and that we have many more tools available than even a decade ago. Consequently, it is now possible to identify the deeper underlying systemic causes as well as a new way to deal with them. Furthermore, this new way is one that governments can afford, and that actually addresses a number of other social and economic issues that exist even when there is no financial crisis.
At first sight, it may not be the bankers' preferred solution, but it would actually stabilize their own portfolios while structurally stabilizing the economies of the world. It would also give them a whole new line of business, in activities that would be particularly attractive for local and regional banks. Introducing such a systemic solution is the only way to avoid periodically repeating the banking-crisis exercise, which all conventional approaches are condemned to do because they deal only with some of the symptoms, and not the cause.
A. Beyond the Blame Game
A lot of energy and ink will be spent trying to allocate the blame for this disaster. Greed in the financial sector, lack of oversight by regulators, policies that over-emphasize deregulation, and incompetence at various levels, will all become favorite targets. Our view is that any or all of these may indeed have played a role, but at the core we are dealing, as already stated, with a much deeper systemic issue.
Indeed, while the current crisis may be the biggest one ever, it isn't the first such crisis. The World Bank has identified no less than 96 banking crises and 176 monetary crises in the 25 years since President Nixon introduced the floating exchange regime in the early 1970s. Furthermore, even before this period, booms and bust cycles involving banking and monetary crises were, in Kindleberger's words, a remarkably "hardy perennial." Kindleberger inventories no less than 48 massive crashes ranging from the 1637 tulip mania in Holland to the 1929 crash on Wall Street.
Such repeated financial breakdowns, in very different countries and times, under different regulatory environments, and in economies with very different degrees of development, should be seen as a first telltale symptom of some underlying systemic or structural problem.
If such a deeper issue is involved, it would explain why each new set of regulations achieves, at best, a reduction in the frequency of banking and monetary crises, without getting rid of them or their horrific economic and socio-political costs. If such a deeper structural problem exists, it would also explain why even some of the brightest and best educated people on the planet have not been able to avoid major financial catastrophes, however diligently they do their work, whether on the regulatory or on the financial services side. Finally, if our money system is indeed a structural "accident waiting to happen," then even if it were possible to perfectly control greed through innovative, tight regulations, this will only defer when the next disaster will hit.
B. Stability and Sustainable Viability in Complex Flow Systems
We now have scientific evidence that a structural issue is indeed involved. The theoretical origin of this evidence may be surprising to the economic or financial community, although it wouldn't be such a surprise for scientists familiar with natural ecosystems, thermodynamics, complexity or information theory. The science that explains this issue rests on a thermodynamic approach with deep historical roots in economics.
In this view, complex systems, such as ecosystems, living organisms, and economies are all seen as matter-, energy-, and information-flow systems. For example, the famous food chain is actually a matter/energy flow-network built of complex relationships among organisms. Plants capture the sun's energy with photosynthesis; animals eat the plants; species then eat each another in a chain to top predator, only to have all organisms die, decompose, and their energy/matter be recycled by bacteria. Similarly, economies are circulation networks consisting of millions of businesses and billions of customers exchanging different products and services, which when taken as a whole, are supposed to meet the needs of all participants.
For the past twenty-five years, major progress has been made on understanding what makes natural eco-systems sustainable or not. This work is the natural extension of Nobel Prize winning chemist Illya Prigogine's, and Club of Rome cofounder Erich Jantsch's work with self-organizing energy-flow systems. In fact, according to Kenneth Boulding (1981), many early economists held energy-based views of economic processes. This changed when those who favored Newtonian mechanics during the late 19th century (such as Walras and Jevons) turned economics into today's familiar views on the mechanics of "rational actors" and the reliable self-restraint of General Equilibrium Theory, an approach which completely dominates not only practically all of today's mainstream academic economic literature, but also the boardrooms and political venues of the world.
A growing body of empirical and theoretical work, published under different academic banners such as Self-organization Theory, Universality Theory or Non-linear Dynamics, shows that all flow systems follow certain universal principles and patterns. Consequently, as Goerner (1999) says about universality: "all [flow] systems, no matter how complex, fall into one of a few classes. All members of a class share certain common patterns of behavior." Similarly, Cvitanovic explains: "The wonderful thing about this universality is that it does not matter much how close our equations are to the ones chosen by nature, as long as the model is in the same universality class…as the real system. This means that we can get the right physics out of very crude models."
The existence of parallel patterns and dynamics explains why similar energy-flow concepts and analysis methods apply to economic systems as well as natural ones. Decades of studying natural ecosystems, in particular, have led to very sophisticated mathematical understandings of how a network structure affects an ecosystem's long-term viability, as judged by its balance between efficiency and resilience. Efficiency measures the ability of a system to process volumes of the relevant matter-, energy- and/or information-flow.
Resilience measures the ability of a system to recover from a disturbance. These variables have been more formally defined as follows:
1) Efficiency: a network's capacity to perform in a sufficiently organized and efficient manner as to maintain its integrity over time (May 1972); and
2) Resilience: a networks reserve of flexible fall-back positions and diversity of actions that can be used to meet the exigencies of novel disturbances and the novelty needed for on-going development and evolution (Holling, 1973, 1986; Walker, et al., 2006).
Two key structure-related variables — Diversity (the existence of different types of agents acting as "nodes" in the network) and Interconnectivity (number of pathways between agents) — play a central role in both efficiency and resilience but in the opposite direction. In general, a system's resilience is enhanced by more diversity and more connections, because there are more channels to fall back on in times of trouble or change. Efficiency, on the other hand, increases through streamlining, which usually means reducing diversity and connectivity.
The main point is that nature does not select for maximum efficiency, but for an optimal balance between the two opposing poles of efficiency and resilience. Because both are indispensable for long-term sustainability and health, the healthiest flow systems are those that maintain an optimal balance between these two opposing pulls. Conversely, an excess of either attribute leads to systemic instability. Too much efficiency leads to brittleness and too much resilience leads to stagnation; the former is caused by too little diversity and connectivity and the latter by too much diversity and connectivity.
Sustainability of a complex flow system can therefore be defined as the optimal balance between efficiency and resilience of its network. With these distinctions we are able to define and precisely quantify a complex system's sustainability in a single metric. Indeed, we now have a way of quantitatively measuring all the relevant components separately: total throughput, efficiency, and resilience. Furthermore, the underlying mathematics are well-behaved enough so that there exists only one single maximum for a given network system. The generic shape of the relationships between sustainability and its constituent elements is such that there is an asymmetry: optimality requires more resilience than efficiency!
Until recently, total throughput and efficiency have been the only means for us to identify the relative success of a system, whether in nature or in economics. For example, in ecosystems, as in economies, size is generally measured as the total volume of system throughput/activity. Gross Domestic Product (GDP) measures size this way in economies and Total System Throughput
(TST) does so in ecosystems. Many economists urge endless growth in size (GDP) because they assume growth is a sufficient measure of health. GDP and TST, however, are poor measures of sustainable viability because they ignore network structure. They cannot, for example, distinguish between a resilient economy and a bubble that is doomed to burst; or between healthy "development," as Herman Daly (1997) describes it, or explosive growth in monetary exchanges simply due to runaway speculation.
Now, however, we can distinguish whether a particular increase in throughput and efficiency is a sign of healthy growth or just a relatively short-term bubble that is doomed to collapse. Over time, nature must have solved many of the structural problems in ecosystems (otherwise, these ecosystems simply wouldn't exist today.)
C. Application to Other Complex Systems
The question will undoubtedly be raised whether what we learn from ecosystems still makes sense when applied to other systems, such as economic communities. It is critical to understand that the findings described so far arise from the very structure of a complex system, and therefore that they remain valid for any complex network with a similar structure, regardless of what is being processed in the system: It can be biomass in an ecosystem, information in a biological system, electrons in an electrical power network, or money in an economic system. This is precisely one of the strong points of using a web-like network approach instead of machine-like metaphor.
The fields of engineering, business and economics have all been focusing almost exclusively on efficiency, and therefore constitute a wide-open field to explore the validity of the proposed metrics to improve sustainability. For example, electrical power grids have been systematically optimized for decades towards ever greater technical and economic efficiency. It has come as a surprise to many engineers that, as they have approached higher efficiencies, suddenly large-scale blackouts have been breaking out with a vengeance "out of nowhere". For instance, a few decades ago, several blackouts hit large areas of the United States. The data should be available to model these systems as networks because that is what they literally are. One can then quantify their efficiency and resilience. The solution on how to rebalance such a system to make it less brittle, and to determine its optimal sustainability would be an obvious "hard science" test application of the metrics described here.
The point being made here is truly profound and has wide-reaching implications for all complex systems, natural or human-made, including our worldwide financial and monetary system.
Placing too much emphasis on efficiency tends to automatically increase size and consolidation at the expense of diversity, connectivity, and resilience until the entire system becomes unstable and collapses. In short, excessive focus on efficiency tends to create exactly the kind of bubble economy which we have been able to observe repeatedly in every boom and bust cycle in history, including the biggest bust of them all, the one that we are experiencing today.
D. Application to Financial/Monetary Systems
Viewing economies as flow systems ties directly into money's primary function as medium of exchange. In this view, money is to the real economy like blood is to your body: it is an essential vehicle for catalyzing processes, allocating resources, and generally allowing the exchange system to work as a synergetic whole. The connection to structure is immediately apparent. In economies, as in ecosystems and living organisms, the health of the whole depends heavily on the structure by which the catalyzing medium, in this case, money, circulates among businesses and individuals. Money must continue to circulate in sufficiency to all corners of the whole because poor circulation will strangle either the supply side or the demand side of the economy, or both.
Our global monetary system is itself an obvious flow network structure, in which monopolistic national currencies flow within each country (or group of countries in the case of the Euro), and interconnect on a global level. The technical justification for enforcing a monopoly of national currencies within each country was to optimize the efficiency of price formation and exchanges in national markets. Tight regulations are in place in every country, to maintain these monopolies. In his seminal paper of 1955 on this topic, Milton Friedman proposed that letting markets determine the value of each national currency would further improve the overall efficiency of the global monetary system. This idea was actually implemented by President Nixon in 1971, to avoid a run on the dollar at that time. Since then, an extraordinarily efficient and sophisticated global communications infrastructure has been built to link and trade these national currencies. The trading volume in the foreign exchange markets reached an impressive $3.2 trillion per day in 2007, to which another daily $2.1 trillion of currency derivatives should be added. Nobody questions the efficiency of these markets, but many people are now coming to question their resilience.
The global network of our monopolistic national moneys has evolved into an overly efficient and dangerously brittle system. This system's lack of rebound capacity, however, shows up not in the technical field of the computer networks (which all have backups), but clearly in the financial realm. This fact has been, as has been spectacularly demonstrated by the large number of monetary and banking crashes over the past thirty years. Such crises, particularly a combined monetary and banking crash, is — other than war — the worse thing that can happen to a country.
Even more ironically, whenever a banking crisis unfolds, governments invariably help the larger banks to absorb the smaller ones, under the logic that the efficiency of the system is thereby further increased.
Today's global monetary ecosystem is significantly overshooting the optimal balance, because of its exclusive emphasis on efficiency. It is careening toward brittleness and collapse because a general belief prevails that all improvements need to go further in that the same exclusive direction (red arrow) of increasing growth and efficiency. For instance, the global monoculture of bank-debt money as legal tender is technically justified on the basis of efficiency of price formation and exchanges within each country. Internationally, floating exchanges were also justified because they are "more efficient." An overly efficient system is "an accident waiting to happen". In observing the dynamics of an artificially enforced monoculture in a complex system where efficiency is the only criterion considered relevant, we find that the only possible outcome is systemic collapse.
As stated earlier, nature has over billions of years selected the conditions under which complex ecosystems are sustainable, otherwise they wouldn't exist today. In contrast, humanity still struggles with the issue of how to create sustainable economies. We know that the theoretical framework applies to both natural and man-made complex systems. Has the time not come to learn in this domain from nature?
E. The Systemic Solution
The systemic solution to our monetary crisis, therefore, is to increase the resilience of the monetary system, even if at first sight that may be less efficient. Conventional economic thinking assumes the de-facto monopolies of national moneys as an unquestionable given. The logical lesson from nature is that systemic monetary sustainability requires a diversity of currency systems, so that multiple and more diverse agents and channels of monetary links and exchanges can emerge.
This is the practical lesson from nature: allow several types of currencies to circulate among people and businesses to facilitate their exchanges, through the implementation of complementary currencies. These different types of currencies are called complementary because they designed to operate in parallel with, as complements to, conventional national moneys. The problem is the monopoly of one type of currency, and replacing one monopoly with another isn't the solution.
As Edgar Cahn's work in Time Dollars[1] demonstrates, whenever complementary currencies begin flowing through the mainstream, this strategy will ensure also a much higher increase the degree of diversity and interconnectivity in the system, due to their ability to catalyze business processes and individual efforts that are too small or inefficient to compete for national currencies in a global market place. This approach will certainly appear unorthodox to conventional thinking, but conventional thinking is precisely what got us into this trouble to begin with. This tactic can also resolve the dilemma of what to do now about today's systemic banking crisis.
VI. Our Proposal
Our proposal focuses here on what can and should be done most urgently to reduce the impact of the financial crisis on the "real" economy, the one where businesses produce and sell non-financial goods and services. It involves three components: a) actions by the private business sector, b) decisions by national governments, and c) decisions by city and local governments.
A. The Business Sector
The "real" economy will predictably become the next victim of the financial crisis. Whatever governments do for the banks, credit will be a lot harder for companies to obtain from banks for years to come. Once a domino effect plays out in the real economy, when a chain of bankruptcies is started with all its effects on unemployment and other social problems, it will turn out even harder to stop than the dominos in the banking system. It is futile to hope that governments will be in a position to save even important businesses after having born the cost of bailing out the banks. However, there is something that companies can do themselves to avoid the worst aspects of this problem. It is possible for companies to lead themselves out of this crisis.
The WIR in Switzerland: A Case Study
Once upon a time, during a crisis similar to the one we are now mired, sixteen businessmen got together to decide what they could do among themselves. They or their clients had each received a notice from their respective banks that their credit line was going to be reduced or eliminated; hence bankruptcy was only a question of time. They realized that business A had needed the bank loan to buy goods from business B, which in turn needed money to buy stuff from its own suppliers. So they decided to create a mutual credit system among themselves, inviting their clients and suppliers to join. When business A buys something from B, A gets a debit and B the corresponding credit. They created their own currency, whose value was identical to the national money, but with the interesting feature that it didn't bear interest.
The country's banks mounted a massive press campaign to try to squelch this revolutionary idea. Miraculously, that campaign failed, and this little system saved the businesses involved at the time. A cooperative was set up among the users to keep the accounts dealing with that currency. Soon participants could also borrow from that cooperative in that currency at the remarkably low interest rate of 1% to 1.5%. All such loans need to be backed by inventory or other assets. Over time, the system grew to include up to one quarter of all the businesses of the entire country.
Sixty-five years later, an American professor performed an econometric study proving that the secret for the country's legendary economic stability was that strange little unofficial currency, circulating among businesses in parallel with the national money. That well-known economic resilience was usually credited to some mysterious and unknown national characteristic.
Whenever there was a recession, the volume of activity in this unofficial currency would expand significantly, thereby reducing the recession's impact on sales and unemployment. Whenever there was a boom, business in national currency expanded, while activity in the unofficial currency proportionally dropped back again. The surprising implication of this study is that the spontaneous counter-cyclical behavior of this little "unorthodox" system actually helped the central bank of the country in its efforts to stabilize the economy.
This is not a fairy tale, but the true story of the WIR system. The country is Switzerland and the sixteen founders met in Zurich in the year 1934. And the system is still operating today. The annual volume of business in the WIR currency is now about $2 billion per year. The American professor is James Stodder from Rensselaer University. His remarkable quantitative study 36 uses more than 60 years of high quality data to prove the points made in this story. The WIR system is also now accepting deposits and making loans in Swiss Francs as well as in WIR.37
We propose that businesses take the initiative of creating such Business-to-Business (B2B) systems at whatever scale makes most sense to them. The big advantage, compared to what happened in Switzerland, is that with what is available with today's information technology tools, setting up such a system can be achieved in a fraction of the time and costs of what it took in the 1930s. And timeliness is going to be critical if one wants to avoid the social and economic ravages that will be unleashed by the unraveling of complex business supply chains. In the U.S., a nation-wide system would be justified. In Europe, ideally, such a system should be designed to be able to operate at the Euro zone level. Otherwise, we are going to see a lot of the economic gains achieved by European integration go to naught over the next decade.
There is one more thing that the businesses that get involved in such systems should consider doing: lobbying their respective governments to have them accept their B2B currency temporarily, in partial payment of business taxes. This could apply only temporarily, i.e., for the period during which the banking system will not be in a position to fulfill its traditional role of financing the real economy to the extent that is necessary. Partial payment of taxes — it could be as little as 10 or 20% — would be the most effective incentive that governments could provide to accelerate the widespread acceptance of this currency. The lobbyists have a simple but powerful argument: governments have just spent trillions of taxpayers money to save the banking system, in the hope that this would avoid spreading the rot to other businesses. The strategy proposed here doesn't cost the government any money, will actually increase tax revenue, and is the best systemic way to avoid spreading the rot anyway, regardless of governments' efforts to help the banks.
B. Governments
In the end, governments will not be willing or able to force banks to lend out to the real economy, any more than you can push on a string. Therefore, in addition and parallel to accepting the usual bank-debt conventional money, accepting some complementary currency for payment of taxes makes a lot of sense. Which currencies should be acceptable for payment of what types of taxes is a political question that remains open for each government to decide.
As stated above, by accepting this currency in partial payment of taxes, the government provides a powerful incentive for businesses and people to accept it. Governments should probably not get involved in creating or managing such systems. Their role should be to assess and determine the criteria of quality and reliability that makes the currency qualify for acceptance by the government. They also have a built-in interest in receiving payments in a robust currency. It is obvious that the existence of such a currency facilitates exchanges that otherwise wouldn't happen, while conventional money or credit are difficult to obtain. These additional exchanges, in turn, increase the taxable income of the businesses involved, thereby starting a virtuous loop that counteracts the credit reductions by the banking system.
When people and businesses are strangled by lack of money, taxable income is automatically squeezed as well. By accepting some payments in currencies other than bank debt money, by definition more governmental income is possible. This isn't theory. For instance, during the crisis of the ruble of the late 1990s, the Russian government accepted corporate taxes paid in copper. What we propose is a lot less extreme: complementary currencies are a standardized medium of exchange which governments can spend to buy goods or provide services in the locations and communities that accept the complementary currency.
C. Cities and Local Governments
There are two reasons why we recommend allowing cities and local governments to choose their own complementary currencies to implement this strategy. First, cities and local governments will be the first governmental entities to get into still deeper trouble than they are today; and second, they represent diversity and resilience at work. Given that this approach is radically new, it is simply safer to test out a new system as a pilot at a city or local level, rather than directly on a larger scale at the national level.
Indeed, cities and other local government entities will find themselves in the first line to bear the brunt of the social effects of the looming recession, while at the same time they will see their tax revenue shrink, and conventional financing through debt become much harder to obtain. This kind of problem is not going to be limited only to the US.
The London-based Observer asks: What could possibly come along in the middle of this series of economic nightmares to make things even worse? How about a total depletion of local government finances that pay for the things that make up the very fabric of American society? Imagine that rippling across the rest of the world, reducing public services to skeleton operations…
"'What is most disconcerting about the way this turmoil is panning out,' says Sujit Canagaretna, senior fiscal analyst at the Council of State Governments, (CSG), ‘is that most state governments were already in a terrible state. But now things have worsened considerably and the credit markets have a real choke hold on almost all state treasuries. It is so bad that economic activity in most states has all but ground to a halt.' … As the spectre of a long and painful recession looms ever larger across the globe, it is troubling to note that these dual problems facing governments across America — falling tax revenue and reduced access to debt — are universal. Brace yourselves for another great American export."
The second argument for local currencies is that some diversity in experimenting with a strategy that is new can only be beneficial to all concerned. If specific issues are considered a political priority, other types of complementary currencies than the B2B one we described above could be considered. For instance, if carbon reduction is considered an important priority, a carbon reduction currency program could be launched and accepted in partial payment in taxes. Some applications of the eco-money programs in Japan are relevant precedents in this domain.
Similarly, local or regional taxes could be paid partially in conventional money, and partially in regional currencies. In short, a whole new set of tools to create incentives for specific behavior patterns, either corporate or individual, is now available, tools that in most cases have already been tested somewhere in the world.
D. Some Pragmatic Considerations
The speed at which the pragmatic application of this strategy can move is greatly facilitated in our times, thanks to the availability of various softwares designed to manage complementary currencies, and the Internet as a communication tool. For instance, the WIR cooperative, which we talked about above, has a large scale system operational in Switzerland in four languages that deals simultaneously with national money and WIR. There are also several other fully operational software packages available for specific complementary currency applications.
It would be a good idea to consider particularly open source software for use in this case, as this would provide the flexibility to add new functions, or new currencies on the same smart card, without having to wait for the propriety software developers to catch up with their backlog. For instance, the Strohalm Foundation in the Netherlands has an open source software for mutual credit systems used for social purpose applications, which is already in operation in various countries. Similarly, the European Union has funded in cooperation with French regional governments the development of the SOL system 42 using three different types of complementary currencies on the same smart card, and this system is now also becoming available in open source. This application is currently in pilot test phase in five different regions in France, and could easily be expanded for additional languages, and a fourth currency application for the B2B currency that is described above.
Obviously, implementing a strategy of this nature should be done in careful steps, starting with pilot application on a limited scale. A European wide project, for instance, should be started with a cooperative venture on a smaller scale.
E. Answering Some Objections
The first objection will obviously arise from the banking system, which would prefer to keep the status quo. One argument will be that they will see the proposed B2B currency as excluding the banking system from their usual function; in short technical terms it "disintermediates" the banks.
This objection is valid if and only if the banks themselves choose not to get involved in providing accounts and transactions in the B2B currencies. It is interesting to note that several banks — local and regional banks particularly — have gotten involved in providing account and payment services for several complementary currency projects. This is the case, for instance, of the Bank of Ithaca, which deals with Ithaca HOUR accounts in the city of Ithaca, New York; the GLS Bank in Germany, or of the Raiffeissenbank in Vorarlberg, Austria. The logic is that local or regional banks can compete with the giant banks only by providing services that the big ones don't bother to provide, and of course a client with an Ithaca Hour account with the Ithaca Bank will also tend to open a dollar account as well.
So banks are going to be disintermediated by a broader use of B2B currencies only if they themselves remain aloof. Even if they don't get involved, however, banks would still benefit from the introduction of B2B currencies. The reason is that the counter-cyclical stability, as proven by the WIR precedent, is also helpful to the banking system's portfolios. Finally, since our proposal only temporarily requires banks give up their monopoly on issuing legal tender, it provides them a much less drastic compromise than, for instance, nationalization or losing the right to issue legal tender altogether.
The second objection that is quite predictable will come from traditional economic thinking: using multiple currencies within a national economy reduces the efficiency of the price formation process and of the exchanges among economic agents. While this argument is valid, we know now that this overarching emphasis on efficiency is precisely what has reduced the resilience of the system, and made it so brittle.
F. Some Advantages of the Proposed Approach
Our proposal , therefore, provides a systemic solution to the instability of the monetary system, something which the current approaches are not even trying to achieve. Systemic solutions are the only ones that will avoid repeatedly having to go through the same type of problem in the future. For example, as the WIR example demonstrates, complementary currency systems have proven to be a key factor in fostering counter-cyclical stability. It has achieved this not only during the Great Depression of the 1930s, but also during every subsequent business cycle of the Swiss economy.
A multi-scale multi-stakeholder strategy has a number of advantages for the different parties involved, particularly during the transition period that we now have entered. Leadership will be required at all levels — public and private, local and national — to lead ourselves out of this crisis.
– This approach will avoid or reduce the strangulation of the real economy by the banking credit contraction that unquestionably is going to occur.
– The decision that governments should reach — accepting partial payment of taxes in money other than exclusively bank debt money — rests completely within their own political decision power. This strategy is also very flexible: a government can decide to accept payment of certain taxes only, only for a given percentage, for specific types of complementary currencies chosen for their robustness and have other positive effects, and/or only for specific fiscal years.
– Until now, taxes have been payable only in "legal tender," which means conventional bank-debt money. Any currency is an incentive scheme, and our current way of dealing with taxes and subsidies is limited to that single instrument, which needs to be scarcer than its usefulness to keep its value. With complementary currencies, a whole additional array of options become available, which can focus on — and fine tune precisely — the objectives that one wants to reach. We can, therefore, tailor the complementary currencies accepted for payments of taxes to the massive challenges currently faced around the world.
– Complementary currencies have proven a useful tool for enabling the design of incentive schemes in a wide variety of domains, regardless of whether a crisis is at hand. The evidence for this can be found in a number of publications.
– Perhaps most importantly: This strategy will avoid repeating the worst part of the 1930s scenario where a Second Wave strangulation was left to play out fully, which resulted in massive bankruptcies in the productive economy, intolerably high unemployment and untold suffering, and a toxic political fallout that has proven a dangerous mess to disentangle once started. Hjamar Schacht, Hitler's central banker, pointed out correctly that the electoral popularity of Nazism was directly due to mass "despair and unemployment."
Image by alles-schlumpf, courtesy of Creative Commons license.
[1] Cahn, Edgar. (2004). No More Throw Away People. Washington, DC: Essential Books.
