Thinking Outside of the Box to Fix the Money Function in the US Economy

16 01 2011

I’m involved in various grass-roots initiatives around complementary currencies, local-investment mechanisms, a national credit system, and a State Bank for Oregon. The common objective of all these is to allow economic exchange, including putting people to work and investing in new enterprises. These have been stopped recently because of a lack of US dollars (the credit freeze). A bigger theme to which I am also fully committed is to create institutions that prevent concentration of economic power in this country and in the world.

Consequently, I am listening to a lot analysis and solutions that economists and other thinkers have put forth on these issues. As those of you who are like me and following this focus, you know that there is a fervor of activity and suggestions happening right now.

The exciting thing today is that there is a widespread willingness among people to entertain major changes to the architecture of banking and the money-creation function (i.e. the Fed) in the US economy. The band-aids and bail-outs have taken place. Now, it is onto getting real about lasting reform. The willingness to re-design our money institutions is a very profound development, and one that promises to deliver a qualitatively different kind of economy in the future.

There are three developments that are exciting to me right now:

  1. First are the proposals that are actually making it to Congress. In December, Dennis Kucinich put forth a bill to abolish the Federal Reserve. The US Treasury Department, in his bill, would take on the money-creation function for the country. When money was created by the Treasury, there would be no interest charge on it as there is today when the Fed buys government bonds to create money and when banks simply lend out as loans with interest the newly created money. Debt money, as this particular design of money is often called, has a built-in requirement for the economy to continuously grow which is bad for the environment. Just like a Ponzi scheme, ever higher levels of GDP must be attained in order to meet the debt service on the money created at earlier periods. Also last year, Ron Paul introduced a bill that requires the Federal Reserve to be audited so that its balance sheet and income statement is fully transparent to the American people.
  2. Second area of interest to me are the assessments by more conventional economists of the financial reform that is taking place. Prominent here is Paul Volcker who advocates separating banks into two wholly separate types of companies: one that takes deposits and makes loans; another type that invests and speculates on its own account. Along with Volcker is Simon Johnson, at MIT and former IMF Chief Economist, who is loudly calling for size limits on banks. Banks should never become so large that should they fail, the whole economy fails. Volcker and Johnson are certainly right about these important architecture issues.
  3. The third and most exciting area to me is the work of Bernard Lietaer and Robert Ulanowicz. Lietaer is an economist, Ulanowicz is a theoretical ecologist. In the past two years, they have come out with papers that show how the design of the money-creation function in an economy contributes to the systemic performance of the economy. With a good design of money, the economy can be resilient to shocks. With a bad design, it will collapse.  Their main point is that an economy needs more than one currency. It needs multiple complementary currencies: a national currency, local currencies, currencies for education, for resource management, for international trade, and potentially many other sector-oriented currencies. Multiple currencies create the diversity that is needed to give a system resilience. While the efficiency of a single currency is sacrificed, the ability to bounce back from shocks and to act in a counter-cyclic fashion is what is gained from using multiple currencies.

What is most satisfying and “break thru” in Lietaer and Ulanowicz’ thought is their framework, primarily Ulanowicz’, on how to measure the sustainability of a system. They claim that it is a balance between the two poles of efficiency on one hand, and resiliency on the other. A system should not be completely one or the other. It needs to be a careful blend in order to operate in the optimal “window of viability.”

A really eye-opening and well written paper on this is here:

A system is composed of agents and connections between the agents. When the system is efficient, this means it moves energy, material and information through it quickly. But to do this, only a few agents and by only a few connections will be needed. Efficiency, therefore, necessitates a reduction in diversity and connectivity. On the other hand, with lots of agents and every agent connected to the other, there are a lot of behavioral options for the system to take in any circumstance. But too many options can be stagnative. In other words, too much diversity and interconnection will lead to stagnation.

Lietaer and Ulanowicz’ framework for evaluating systems sustainability is ideal for designing monetary systems. More importantly, however, it gives us a framework for understanding and dealing with concentration in the economy. If poorly designed money systems, such as a debt currency, fractional reserve banking, and a monopoly on the money-creation function (characteristics of the US dollar and all world currencies) are to blame for at least part of the inequality of incomes and wealth in our country, then fixing the money architecture will go a long way in making a better society to live in. And furthermore, by adding “resiliency” to the framework of evaluating an economic system, we will get away from the mono-centric value of “efficiency” as the sole measure of performance. This too will help produce a new quality in our standards of living.


An Economic Plan for Jackson County

20 10 2010

In the current race for County Commissioner seats, there seems to be some misunderstanding of what a “local-economy” strategy means for the Rogue Valley. Greater resilience, self reliance and local ownership of business is viewed by some folks as a throwback to an earlier age and out of step with a global economy.

This view is very mistaken.

One only needs to look at current day China, who continues to grow at 8 percent even while its number one customer, the USA, has been in recession for the past two years. One only needs to look at such ‘mini dragons’ as Taiwan, South Korea, Singapore, and Hong Kong; or European countries and regions such as Germany, Scandinavia and Northern Italy. All of these areas have taken a pronounced local-first approach to developing their economy. We should do the same here.

The local-first approach revolves around two important ingredients: local ownership of business and import substitution.

The crux of the local economy strategy is the ownership of business enterprise and other productive assets (such as farm land) by the people dwelling in the region. No other factor is as important as this. Local ownership allows for the greatest proportion of the added value stemming from enterprise and economic activity to accrue to the population that created and managed it. Added value is composed of wages, salaries and profits (and also taxes, as taxes come out of the former). This accrual to locals is the basis for further expansion, as when saved earnings can be channeled, ideally through a local bank, to new and expanded businesses.

For the people of the Rogue Valley to get the most out of economic development requires them to own the businesses and economic assets that generate incomes and profits. Inviting outside companies as a source of jobs – most of which would be minimum wage jobs – is NOT the best approach to development. To think that a country such as Taiwan became prosperous by inviting foreign companies in merely to provide its people with “jobs” is ludicrous. In all of these other countries listed above, there are strict requirements about ownership. Foreign firms, to operate in China, must have a local joint-venture partner that maintains 51% or greater control of the company.

The second crucial ingredient to a living economy is import substitution. This does not mean to become 100% self reliant in every conceivable good or service that we use here. Import substitution is an ongoing strategy that is never finished. It means for our local entrepreneurs to provide services and products – if profitable – that have been coming from out of our region. Energy and food production are two sectors of our economy where we have much potential to provide more for our own consumption. Certainly we will never become “off the grid” of the national and global economy, but to capture more of the value add in the consumption in these two areas can boost our prosperity immensely.

Japan provides a classic example of import substitution. At the beginning of the 1900s, every bicycle in Japan was imported from the USA or Europe. Over the decades, Japanese entrepreneurs went from building replacement parts, then full bicycles for the domestic market, to finally, building full bicycles for overseas markets. Today, Japan is a dominant exporter of bicycles and high-margin bicycle components.

Japan also underscores a third important aspect of the living economy model: that of exports. Living economies are export driven. This may sound like a contradiction. If every region attempted to reduce imports, how could any region sell its exports? Trade happens because every economy is dynamic. New products and services come and go. Entrepreneurs and investors have to be agile to global conditions and markets. Again, the living economy model does NOT mean “getting off the grid” of the global economy. It means the people of a region realizing the greatest return on their human, natural and financial capital through their own ingenuity and hard work.

Two other important ingredients to the local economy strategy are buying locally and creating local investment mechanisms. These act to keep local dollars circulating locally and through a multiplier effect, increasing local personal incomes.

For further detail about how the living economy can be applied to Jackson County, see

Could Japan be a Model for a Post-Growth Economy?

17 10 2010

The New York Times launched a series of articles examining the effects on Japanese society of two decades of economic stagnation and declining prices. I am interested in this series for clues on what a post-growth economy could look like.

There are many comments and descriptions in the article that shatter accepted icons of what we believe to be fundamentals to economic growth. For example:

  • The younger generation in Japan — people who have known nothing of Japan’s super prosperous times of the ’70s and ’80s — is devoutly ANTI-consumption. They buy clothes at discount stores, don’t travel abroad and think spending in general is stupid.
  • Young Japanese men are called “herbivores,” meaning that they don’t have the will to succeed and work for long hours that their fathers did. In other words, a special kind of manhood is seen as necessary for economic growth.
  • A Japanese economist wishes inflation would return because it is the engine for “creative destructionism,” a reference to Joseph Schumpeter’s famous praise for entrepreurialism. Today’s deflationary environment, he says, is “just destructive destructionism.”

I believe that we face an imperative to go, in the words of Herman Daly, “beyond growth.” This means not consuming more than can naturally be regenerated. It means not having an inflationist economic system where debt-based money requires prices and output to either (a.) rise exponentially or (b.) have the whole whole economic edifice collapse. It means getting away from conceptions of wealth being tied to masculine power.

The deflation besetting Japan could be seen as a glass half full, not empty, in showing what a post-growth society could be.

Capitalism at Bay: A Letter to the Economist

27 10 2008

Dear Sir/Madame:


Your summary of the worldwide debate on the financial crisis and your making explicit that capitalism is on trial, brings the usual Economist succinctness and wit (Leader Article of October 18, 2008). But you miss the underlying issue here through your broadbrush, unreflected concepts of what a capitalist economy is. You speak as if there is only one variety of capitalism: that it must be free-market globalism; that government is bad, private sector is good; that global capital mobility is a God-given commandment. These concepts completely miss important, albeit subtle distinctions. You thus keep concealed a genuine solution to our current malaise.


The key issue in this crisis is that unfettered free enterprise leads to concentration of power, whether by a single individual, a single enterprise, and/or a single industry over all other industries. That literally a couple hundred firms, mostly in New York City and London, abetted by policy makers in those two countries’ capitals – most of whom formerly worked at said firms – should send the entire world into an economic tailspin, is once again evidence of capitalism’s necessary instability stemming from overconcentration.


Economic liberty is indeed under attack, as you state in your editorial. But the attack comes from within the system and has been ongoing for years now. You are mistaken to consider that the discourse of the last several weeks is where the attacks are to be heard. Even after several centuries of recognizing this tendency in capitalism, there has yet to be a cogent institutional framework that effectively deals with it.


What needs to be recognized is that large, national governments don’t work. Indeed, national governments often accelerate the concentrative tendencies that cripple free markets. Government must indeed be of a size that they truly, operationally can be ‘of the people, by the people, for the people.’


True stability in a worldwide market culture will only come when cities and regions, with indigenous businesses owned by local citizens, are the locus of global political-economic power. In this picture, free enterprise and civic engagement naturally dovetail. Self determination by all people is maximized, and done so in the context of free enterprise and economic liberty. That horrid line between government and market that you speak of in your piece, thus becomes much more humanized, liberal and democratic. It is when you have people on other sides of the planet making decisions that impact your and your neighbors’ livelihoods, that there will never be an economic liberty nor reliable prosperity for all.

Slow Food Nation, San Francisco

2 09 2008

My notes and photos from attending the conference.


Panel: Re-Localizing Food (1pm, Saturday, 29 August 2008, San Francisco)

  • Gary Nabhan, Renewing America’s Food Traditions (RAFT)
  • Dan Barber, Chef Bluehill Restaurant NYC
  • Michael Pollan, Author
  • Winona LaDuke, Native American Activist, former VP candidate Green Party (w/ R. Nadar)
  • James Oseland, moderator, editor of Saveur.


M. Pollan.

There are 5 million less farms than there were in the 1930s. There are only 2 million farms left. Fifty percent are corporations.


It has been the infrastructure that has created the current agribusiness food sector namely:

  • Cheap Fossil Fuel
  • Interstate Highway and Road System
  • Refrigeration


The costs of this infrastructure are rising fast. To ship a box of broccoli from California to New York has risen from $3/box to $10/box in the last year.


W. LaDuke.

Re-localizing food is about ‘recovering relatives’ including those with fins, paws, hooves and roots. Recovering these are animal relatives will help us recover our humanity.


M. Pollan.

It is hard to do local for a store. Such high transaction costs. It is easier for the store to deal with one big supplier rather than 100 small, local suppliers.


How can large institutions talk to small ones? This is the big challenge to overcome in order to re-localize food.


In the agribusiness economy, Big likes to talk with Big. Witness: Whole Foods, Sysco, Wal Mart, others. We can’t dismiss these players and their efforts (to go local, go green, etc.).


This issue of big talking to small is important for the environment and for food security. We want not just efficiency but resilience. Resilience comes from having diversity and adaptability.


The CEO of Sysco ($26 billion in sales last year), Rich Needers, sees more change in the food marketplace in the last 10 years than the last 300 years. Chefs are asking for names of specific varieties of produce. There is a growing awareness in chefs and consumers about food quality.


How is the government helping or hindering the re-localization of food? What is the effect of the Farm Bill on localizing food?


M. Pollan.


There are three drivers of food change:

  • Energy
  • Water
  • Consumer Demand


Must develop new infrastructure. For example, make local slaughterhouses. Four companies in the US process 84% of the beef.


[cf. Anna Lappe’s remarks in Day II about the denial of global warming and environmentalism by the Beef industry as indicated at a recent trade show.]


The government has limited resources (limited budgets and manpower). It must put its resources on the big companies. E.g. putting inspectors at the big processing plants makes more sense than many inspectors spread out to smaller plants.


A solution: Federal agencies should allocate a certain portion of their budgets to be specifically applied to local initiatives. Such agencies include: Forestry Service, BLM, USDA, etc.


A GAO (Government accounting Office) post-911 study found that the food system in the USA is very vulnerable to terrorism due to its centralization.


How are the presidential candidates addressing the reform of food?


Each candidate has a specific program for:

  • Energy independence
  • Climate change
  • Healthcare


While they don’t explicitly address the food system, in order to change any of the above three, you must reform the food system. Food system reform is implicit in those programs.


How to make local and organic food more affordable to low income people?


M. Pollan

Local food is not necessarily expensive. It is that industrial food is artificially cheap.


Members of the panel spoke of the “false accounting of the price system.”  (due to subsidies and externalities)


What should local exclude?



It is not all or nothing. (either all local, or all global-centralization). There is trade that supports diversity and then there is trade that supports homogenization. We know the difference.


Keep justice local. Have fair trade between foodsheds.


There is the concept of “Virtuous globalization,” a term coined by Carlo Petrini. You can support local foods at a distance.


Specific solutions:


Have kids deliver local produce and pick up compost on the return trip.


Through grants, enhance the value of food stamps that are used at farmers’ markets.


Farmers should get carbon credits when they put charcoal and other nutrients into the soil. These credits then are tradabable/sellable on the carbon-offsets market.


Features of a better food system:


  1. Systems optimization. The actual farm is highly optimized and in a self contained system. E.g. all energy is created at the local level. The system is very ecological.


  1. Land use policy. Must save the farm land near cities. Have policies like those in recent years that have protected wetlands. We will need more farms near cities but they won’t be able to afford the land. Must deal with this.


A vegetable garden was set up on the square in front of City Hall.

A vegetable garden was set up on the square in front of City Hall.






Slow Food Nation. Day II.

Panel: Climate Change and Food. (12pm, Saturday, 30 August 2008, San Francisco)

  • Wes Jackson, author
  • Anna Lappe (daughter of Frances Moore), co-leader, Small Planet Institute
  • Carl Pope, Executive Director, Sierra Club
  • Ari Bernstein, Pediatrician
  • Patrick Holden, Director of Soil Association (UK) and farmer (Wales)
  • Mark Hertsgaard, Moderator, author.


Is there awareness among agribusiness companies and politicians that climate change is important?


A. Lappe.

The Grocery Manufacturers Association (GMA) had its first “Climate Change Summit” earlier this year. This shows awareness that even the corporate players recognize that there is a problem with the current food system.  But, in contrast, ….


The Meat Association of America at its conference this year had NO MENTION of climate change even though meat production contributes 18% of climate change.


So, the awareness is mixed.


La Via Compesina, a worldwide association of small farmers.


C. Pope.

There is a profound denial and unconsciousness among American politicians about food.


What are some game-changing solutions for climate change and food?



First of all, we have to bust the myths of agribusiness. Biotech does not: increase yields, increase diversity, nor increase democracy.   Monsanto, Syngenta are trying to suggest otherwise.


It is the emergence of civil society initiatives regarding climate change and food that is helping change the world. E.g. Greenpeace, Forest Action Network, and others campaigns against agribusiness.



The silos among activist groups are breaking down around the environment. Especially in the last year, groups are really coming together and coordinating. E.g. scientists and evangelical Christians. This will make it easier for the new president to engage the international community.


Everyone cares about their children and the planet perhaps for different reasons.


New generations (of humans) will see health as inseparable from the health of the environment.



We should develop “transition plans.”  Set goals: by 2020 we will use fossil fuels 75% less than today.


In the UK we are developing a “national strategic food plan based on resilience in the face of depletion of fossil fuel.”


Plan to create foodsheds.


Rob Hopkins has a great resource on the web: Transition Handbook.


Each of us has three selves:

  • Household
  • Community
  • Society



It is the uncertainty of global climate change that is catastrophic. You cannot adapt under uncertain conditions. In earlier epochs, the climate was constant. Not now.


We’ve always thought of a place’s climate as given. In earlier times it was true. Now, this is not true. Furthermore, agribusiness cooked the books (i.e. produce its product on subsidized inputs and externalized costs). The result of these two factors is that it is very obvious now that we are out of balance. It is good, in a way, because it makes us take action. When you are up against a big challenge staring you in the face (like food) it makes you get smart.


It is a crisis because millions of people are affected. But it is an opportunity too. There are solutions. For example…


         i.      A village in India has solar fed LED lights in the small huts of the villagers. The whole village pooled their moneys to create the solar generator. Each household buys its own lights. The savings of pooling the costs of the generator allowed greater income to each household, which allowed greater purchasing (of lights and other things). It created a virtuous cycle. It is a whole business model that mixes collectivist and individualist ethos in one.


       ii.      We will witness a dramatic shrinking of global supply chains.


      iii.      Water. Traditionally, 2/3 of our drinking water was stored in ice and snow, and 1/3 stored in reservoirs. This may no longer be possible. We need to start storing water in the soil. Nobody in California is thinking of using land to store water. Los Angeles is designed around a “roof and gutter” metaphor. All the cement flood control channels route rain water into the ocean. It is a big waste. Los Angeles should be designed around the metaphor of a ‘sponge.’



“Cattle and pig welfare program”  – referring to the subsidies for raising and processing meat.


As you study the supply chains to the farming and agricultural sector, and try to calculate how much energy-use is built into the system, you realize that energy costs are much higher than you can anticipate. (We were even linking back to the iron mines used to make the steel that went into tractors.)


Economic growth is proceeding at an incredible pace. Today, the 20-year old has in his/her lifetime, experienced 50% of the oil that has ever been burned. Today’s 10-year old has experienced 20% of the oil that has ever been burned.



At the beginning of the industrial revolution, three major assumptions:

  • Natural resources were cheap.
  • Knowledge was expensive.
  • And ____________.


These assumptions are no longer true.


Forest, prairies, fisheries, topsoil all getting used up.


We must embrace economic growth that is based on knowledge, not resources. For example, how to have economic growth based on prairie grass?



As my mother said 30 years ago, the food crisis is not a crisis of scarcity, but a crisis of democracy.


It takes 16 pounds of grain to make 1 pound of meat.



30% of global warming is due to food production and distribution. And this is split 50/50 between farm and post-farm activities.


Must develop a strategy on carbon-neutral farming. E.g. use crop rotation.


We have to start where we are (the developed world) rather than preach to the developing world. We are such a major part of the problem.



We must develop a consciousness that is rooted in the soil and earth.


If you eat, then you are interested in agriculture.



There is a fundamental disconnect of humans with the natural world.



Empathy with farmers is crucial. City folks should adopt a farm, like a CSA. Develop co-dependency. “If we commit to you farmers now, you will help us when it gets tough.”


The most productive food system in the world is the small Japanese farm. Yes it is labor intensive, but it is a full systems, self contained system.


Closing Suggestions:



Developing a 50-year farm bill (and each five years the legislated farm bill can tap into this). It addresses: agriculture, forestry and ranching.



  1. Make connection with food.
  2. Develop your empathy with farmers.
  3. Recognize the three people inside you: family/householder, community, global society.
  4. Tap your passion (whatever, wherever it is)
  5. Remember that we all are media makers.
  6. Bust the myths (of agribusiness)
  7. Support and live by sustainable agriculture!


Food stalls and eating areas.

Food stalls and eating areas.




Your intrepid reporter.

Shorts and flip flops in San Francisco in August?!! Yes, climate change is real!