J.5.5 What forms of co-operative credit do anarchists support?

J.5.5 What forms of co-operative credit do anarchists support?

Anarchists tend to support must forms of co-operation, including those associated with credit and money. This co-operative credit/banking takes many forms, such as credit unions, LETS schemes and so on. In this section we discuss two main forms of co-operative credit, mutualism and LETS.

Mutualism is the name for the ideas associated with Proudhon and his Bank of the People. Essentially, it is a confederation of credit unions in which working class people pool their funds and savings. This allows credit to be arranged at cost, so increasing the options available to working people as well as abolishing interest on loans by making increasing amount of cheap credit available to working people. LETS stands for Local Exchange Trading Schemes and is a similar idea in many ways (and apparently discovered independently) — see Bringing the Economy Home from the Market by V.G. Dobson for a detailed discussion on LETS.

Both schemes revolve around creating an alternative form of currency and credit within capitalism in order to allow working class people to work outwith the capitalist money system by creating “labour notes” as a new circulating medium. In this way, it is hoped, workers would be able to improve their living and working conditions by having a source of community-based (very low interest) credit and so be less dependent on capitalists and the capitalist banking system. Some supporters of mutualism considered it as the ideal way of reforming capitalism away. By making credit available to the ordinary worker at very cheap rates, the end of wage slavery would soon occur as workers would work for themselves by either purchasing the necessary tools required for their work or, by their increased bargaining power within the economy, gain industrial democracy from the capitalists by buying them out.

Such ideas have had a long history within the socialist movement, originating in the British socialist movement in the early 19th century. Robert Owen and other Socialists active at the time considered the idea of labour notes and exchanges as a means of improving working class conditions within capitalism and as the means of reforming capitalism into a society of confederated, self-governing communities. Indeed, “Equitable Labour Exchanges” were “founded at London and Birmingham in 1832” with “Labour notes and the exchange of small products” [E.P. Thompson, The Making of the English Working Class, p. 870] Apparently independently of these early attempts in England at what would later be called mutualism, P-J Proudhon arrived at the same ideas decades later in France. In his words, “The People’s Bank quite simply embodies the financial and economic aspects of the principle of modern democracy, that is, the sovereignty of the People, and of the republican motto, ‘Liberty, Equality, Fraternity.'” [Selected Writings of P-J Proudhon, p. 75] Similarly, in the USA (partly as a result of Joshua Warren’s activities, who got the idea from Robert Owen) there was extensive discussion on labour notes, exchanges and free credit as a means of protecting workers from the evils of capitalism and ensuring their independence and freedom from wage slavery. When Proudhon’s works appeared in North America, the basic arguments were well known.

Therefore the idea that mutual banking using labour money as a means to improve working class living conditions, even, perhaps, to achieve industrial democracy, self-management and the end of capitalism has a long history in Socialist thought. Unfortunately this aspect of socialism became less important with the rise of Marxism (which called these early socialists “utopian”) attempts at such credit unions and alternative exchange schemes were generally replaced with attempts to build working class political parties. With the rise of Marxian social democracy, constructive socialistic experiments and collective working class self-help was replaced by working within the capitalist state. Fortunately, history has had the last laugh on Marxism with working class people yet again creating anew the ideas of Mutualism (as can be seen by the growth of LETS and other schemes of community money).

J.5.6 What are the key features of mutual credit schemes?

Mutualism, as noted in the last section, is a form of credit co-operation, in which individuals pull their resources together in order to benefit themselves as individuals and as part of a community. LETS is another form of mutualism which developed recently, and apparently developed independently (from its start in Canada, LETS has spread across the world and there are now hundreds of schemes involved hundreds of thousands of people). Mutual banks and LETS have the following key aspects:

    1) Co-operation: No-one owns the network. It is controlled by its members directly.
    2) Non-exploitative: No interest is charged on account balances or credit. At most administrative costs are charged, a result of it being commonly owned and managed.
    3) Consent: Nothing happens without it, there is no compulsion to trade.
    4) Money: They use their own type of money (traditionally called “labour-notes”) as a means of aiding “honest exchange”.

It is hoped, by organising credit, working class people will be able to work for themselves and slowly but surely replace capitalism with a co-operative system based upon self-management. While LETS schemes do not have such grand schemes, historically mutualism aimed at working within and transforming capitalism to socialism. At the very least, LETS schemes reduce the power and influence of banks and finance capital within society as mutualism ensures that working people have a viable alternative to such parasites.

This point is important, as the banking system and money is often considered “neutral” (particularly in capitalist economics). However, as Malatesta correctly argues, it would be “a mistake to believe . . . that the banks are, or are in the main, a means to facilitate exchange; they are a means to speculate on exchange and currencies, to invest capital and to make it produce interest, and to fulfil other typically capitalist operations.” [Life and Ideas, p. 100]

Within capitalism, money is still to a large degree a commodity which is more than a convenient measure of work done in the production of goods and services. As a commodity it can and does go anywhere in the world where it can get the best return for its owners, and so it tends to drain out of those communities that need it most. It is the means by which capitalists can buy the liberty of working people and get them to produce a surplus for them (wealth is, after all, “a power invested in certain individuals by the institutions of society, to compel others to labour for their benefit.” [William Godwin, The Anarchist Writings of William Godwin, p. 130]. From this consideration alone, working class control of credit and money is an important part of the class struggle as having access to alternative sources of credit can increase working class options and power.

Moreover, credit is also an important form of social control — people who have to pay their mortgage or visa bill are more pliable, less likely to strike or make other forms of political trouble. And, of course, credit expands the consumption of the masses in the face of stagnant or falling wages while allowing capitalists to profit from it. Indeed, there is a link between the rising debt burden on households in the 1980s and 1990s and the increasing concentration of wealth. This is “because of the decline in real hourly wages and the stagnation in household incomes, the middle and lower classes have borrowed to stay in place; they’ve borrowed from the very rich who have gotten richer. The rich need a place to earn interest on their surplus funds, and the rest of the population makes a juicy lending target.” [Doug Henwood, Wall Street, pp. 64-65]

Little wonder that the state (and the capitalists who run it) is so concerned to keep control of money in its own hands or the hands of its agents. With an increase in mutual credit, interest rates would drop, wealth would stay more in working class communities, and the social power of working people would increase (for people would be more likely to struggle for higher wages and better conditions — as the fear of debt repayments would be less).

Therefore, mutualism is an example of what could be termed “counter-economics”. By counter-economics we mean the creation of community-based credit unions that do not put their money into “Capital Markets” or into capitalist Banks. We mean finding ways for workers to control their own retirement funds. We mean finding ways of using money as a means of undermining capitalist power and control and supporting social struggle and change.

In this way working people are controlling more and more of the money supply and using it ways that will stop capital from using it to oppress and exploit the working class. An example of why this can be important can be seen from the results of the existing workers’ pension fund system. Currently workers pension funds are being used to invest in capitalist firms (particularly transnationals and other forms of Big Business) and these companies use the invested money to fund their activities. The idea is that by so investing, workers will receive an adequate pension in their old age.

However, the only people actually winning are bankers and big companies. Unsurprisingly, the managers of these pension fund companies are investing in those firms with the highest returns, which are usually those who are downsizing or extracting most surplus value from their workforce (which in turn forces other companies to follow the same strategies to get access to the available funds in order to survive).

Basically, if you are lending your money to be used to put your fellow worker out of work or increase the power of capital, then you are not only helping to make things harder for others like you, you are also helping making things worse for yourself. No person is an island, and increasing the clout of capital over the working class is going to affect you directly or indirectly. And, of course, it seems crazy to suggest that workers desire to experience insecurity, fear of downsizing and stagnating wages during their working lives in order to have slightly more money when they retire.

This highlights one of the tricks the capitalists are using against us, namely to get us to buy into the system through our fear of old age. Whether it is going into lifelong debt to buy a home or lending our money to capitalists, we are being encouraged to buy into something which we value more than what is right and wrong. This allows us to be more easily controlled by the government. We need to get away from living in fear and stop allowing ourselves to be deceived into behaving like “stakeholders” in Capitalistic and Plutocratic systems. As can be seen from the use of pension funds to buy out firms, increase the size of transnationals and downsize the workforce, such “stakeholding” amounts to trading in the present and the future while others benefit.

The real enemies are not working people who take part in such pension schemes. It is the people in power, those who manage the pension schemes and companies, who are trying to squeeze every last cent out of working people to finance higher profits and stock prices — which the unemployment and impoverishment of workers on a world-wide scale aids. They control the governments of the world. They are making the “rules” of the current system. Hence the importance of limiting the money they have available, of creating community-based credit unions and mutual risk insurance co-operatives to increase our control over our money and create our own, alternative, means of credit and exchange (as presented as mutualism) which can be used to empower ourselves, aid our struggles and create our own alternatives. Money, representing as it does the power of capital and the authority of the boss, is not “neutral” and control over it plays a role in the class struggle. We ignore such issues at our own peril.

>J.5.7 Do most anarchists think mutual credit is sufficient to abolish capitalism?

The short answer is no, they do not. While the Individualist Anarchists and Mutualists (followers of Proudhon) do think that mutual banking is the only sure way of abolishing capitalism, most anarchists do not see mutualism as an end in itself. Few think that capitalism can be reformed away in the manner assumed by Proudhon. Increased access to credit does not address the relations of production and market power which exist within the economy and so any move for financial transformation has to be part of a broader attack on all forms of capitalist social power in order to be both useful and effective (see section B.3.2 for more anarchist views on mutual credit and its uses). So, for most anarchists, it is only in combination with other forms of working class self-activity and self-management that mutualist institutions could play an important role in the class struggle.

By creating a network of mutual banks to aid in creating co-operatives, union organising drives, supporting strikes (either directly by gifts/loans or funding food and other co-operatives which could supply food and other essentials free or at a reduction), mutualism can be used as a means of helping build libertarian alternatives within the capitalist system. Such alternatives, while making life better under the current system, also can play a role in overcoming that system by being a means of aiding those in struggle make ends meet and providing alternative sources of income for black-listed or sacked workers. Thus Bakunin’s comments:

“let us co-operate in our common enterprise to make our lives a little bit more supportable and less difficult. Let us, wherever possible, establish producer-consumer co-operatives and mutual credit societies which, though under the present economic conditions they cannot in any real or adequate way free us, are nevertheless important inasmuch they train the workers in the practices of managing the economy and plant the precious seeds for the organisation of the future.” [Bakunin on Anarchism, p. 173]

Therefore, while few anarchists think that mutualism would be enough in itself, it can play a role in the class struggle. As a compliment to direct action and workplace and community struggle and organisation, mutualism has an important role in working class self-liberation. For example, community unions (see section J.5.1) could create their own mutual banks and money which could be used to fund co-operatives and support strikes and other forms of social struggle. In this way a healthy communalised co-operative sector could develop within capitalism, overcoming the problems of isolation facing workplace co-operatives (see section J.5.11) as well as providing a firm framework of support for those in struggle.

Moreover, mutual banking can be a way of building upon and strengthening the anarchistic social relations within capitalism. For even under capitalism and statism, there exists extensive mutual aid and, indeed, anarchistic and communistic ways of living. For example, communistic arrangements exist within families, between friends and lovers and within anarchist organisations.

Mutual banking could be a means of creating a bridge between this alternative (gift) “economy” and capitalism. The mutualist alternative economy would help strength communities and bonds of trust between individuals, and this would increase the scope for increasing the scope of the communistic sector as more and more people help each other out without the medium of exchange – in other words, mutualism will help the gift economy that exists within capitalism to grow and develop.

J.5.8 What would a modern system of mutual banking look like?

The mutual banking ideas of Proudhon could be adapted to the conditions of modern society, as will be described in what follows. (Note: Proudhon is the definitive source on mutualism, but for those who don’t read French, there are the works of his American disciples, e.g. William B. Greene’s Mutual Banking, and Benjamin Tucker’s Instead of a Book by a Man Too Busy to Write One).

One scenario for an updated system of mutual banking would be for a community barter association to begin issuing an alternative currency accepted as money by all individuals within the system. This “currency” would not at first take the form of coins or bills, but would be circulated entirely through transactions involving the use of barter-cards, personal checks, and “e-money” transfers via modem/Internet. Let’s call this currency-issuing type of barter association a “mutual barter clearinghouse,” or just “clearinghouse” for short.

The clearinghouse would have a twofold mandate: first, to extend credit at cost to members; second, to manage the circulation of credit-money within the system, charging only a small service fee (probably one percent or less) which is sufficient to cover its costs of operation, including labour costs involved in issuing credit and keeping track of transactions, insuring itself against losses from uncollectable debts, and so forth.

The clearinghouse would be organised and function as follows. Members of the original barter association would be invited to become subscriber-members of the clearinghouse by pledging a certain amount of property as collateral. On the basis of this pledge, an account would be opened for the new member and credited with a sum of mutual dollars equivalent to some fraction of the assessed value of the property pledged. The new member would agree to repay this amount plus the service fee by a certain date. The mutual dollars in the new account could then be transferred through the clearinghouse by using a barter card, by writing a personal check, or by sending e-money via modem to the accounts of other members, who have agreed to receive mutual money in payment for all debts.

The opening of this sort of account is, of course, the same as taking out a “loan” in the sense that a commercial bank “lends” by extending credit to a borrower in return for a signed note pledging a certain amount of property as security. The crucial difference is that the clearinghouse does not purport to be “lending” a sum of money that it already has, as is fraudulently claimed by commercial banks. Instead it honestly admits that it is creating new money in the form of credit. New accounts can also be opened simply by telling the clearinghouse that one wants an account and then arranging with other people who already have balances to transfer mutual money into one’s account in exchange for goods or services.

Another form is that associated with LETS systems. In this a number of people get together to form an association. They create a unit of exchange (which is equal in value to a unit of the national currency usually), choose a name for it and offer each other goods and services priced in these units. These offers and wants are listed in a directory which is circulated periodically to members. Members decide who they wish to trade with and how much trading they wish to do. When a transaction is completed, this is acknowledged with a “cheque” made out by the buyer and given to the seller. These are passed on to the system accounts administration which keeps a record of all transactions and periodically sends members a statement of their accounts. The accounts administration is elected by, and accountable to, the membership and information about balances is available to all members.

Unlike the first system described, members do not have to present property as collateral. Members of a LETS scheme can go into “debt” without it, although “debt” is the wrong word as members are not so much going into debt as committing themselves to do some work within the system in the future and by so doing they are creating spending power. The willingness of members to incur such a commitment could be described as a service to the community as others are free to use the units so created to trade themselves. Indeed, the number of units in existence exactly matches the amount of real wealth being exchanged. The system only works if members are willing to spend and runs on trust and builds up trust as the system is used.

It is likely that a fully functioning mutual banking system would incorporate aspects of both these systems. The need for collateral may be used when members require very large loans while the LETS system of negative credit as a commitment to future work would be the normal function of the system. If the mutual bank agrees a maximum limit for negative balances, it may agree to take collateral for transactions that exceed this limit. However, it is obvious that any mutual banking system will find the best means of working in the circumstances it finds itself.

J.5.9 How does mutual credit work?

Let’s consider an example of how business would be transacted in the new system. There are two possibilities, depending on whether the mutual credit is based upon whether the creditor can provide collateral or not. we will take the case with collateral first.

Suppose that A, an organic farmer, pledges as collateral a certain plot of land that she owns and on which she wishes to build a house. The land is valued at, say, $40,000 in the capitalist market. By pledging the land, A is able to open a credit account at the clearinghouse for, say, $30,000 in mutual money (a ratio of 3/4). She does so knowing that there are many other members of the system who are carpenters, electricians, plumbers, hardware dealers, and so on who are willing to accept mutual dollars in payment for their products or services.

It’s easy to see why other subscriber-members, who have also obtained mutual credit and are therefore in debt to the clearinghouse for mutual dollars, would be willing to accept such dollars in return for their goods and services. For they need to collect mutual dollars to repay their debts. But why would someone who is not in debt for mutual dollars be willing to accept them as money?

To see why, let’s suppose that B, an underemployed carpenter, currently has no account at the clearinghouse but that he knows about the clearinghouse and the people who operate it. After examining its list of members and becoming familiar with the policies of the new organisation, he’s convinced that it does not extend credit frivolously to untrustworthy recipients who are likely to default. He also knows that if he contracts to do the carpentry on A’s new house and agrees to be paid for his work in mutual money, he’ll then be able to use it to buy groceries, clothes, car repairs, and other goods and services from various people in the community who already belong to the system.

Thus B will be willing, and perhaps even eager (especially if the economy is in recession and regular money is tight) to work for A and receive payment in mutual dollars. For he knows that if he is paid, say, $8,000 in mutual money for his labour on A’s house, this payment constitutes, in effect, 20 percent of a mortgage on her land, the value of which is represented by her mutual credit. B also understands that A has promised to repay this mortgage by producing new value — that is, by growing organic fruits and vegetables and selling them for mutual dollars to other members of the system — and that it is this promise to produce new wealth which gives her mutual credit its value as a medium of exchange.

To put this point slightly differently, A’s mutual credit can be thought of as a lien against goods or services which she has guaranteed to create in the future. As security of this guarantee, she agrees that if she is unable for some reason to fulfil her obligation, the land she has pledged will be sold for mutual dollars to other members. In this way, a value sufficient to cancel her debt (and probably then some) will be returned to the system. This provision insures that the clearinghouse is able to balance its books and gives members confidence that mutual money is sound.

It should be noticed that since new wealth is continually being created, the basis for new mutual credit is also being created at the same time. Thus, suppose that after A’s new house has been built, her daughter, C, along with a group of friends D, E, F, . . . , decide that they want to start a collectively owned and operated organic restaurant (which will incidentally benefit A, as an outlet for her produce), but that C and her friends do not have enough collateral to obtain a start-up loan. A, however, is willing to co-sign a note for them, pledging her new house (valued at say, $80,000) as security. On this basis, C and her partners are able to obtain $60,000 worth of mutual credit, which they then use to buy equipment, supplies, furniture, advertising, etc. and lease the building necessary to start their restaurant.

This example illustrates one way in which people without property are able to obtain credit in the new system. Another way — for those who cannot find (or perhaps don’t wish to ask) someone with property to co-sign for them — is to make a down payment and then use the property which is to be purchased on credit as security, as in the current method of obtaining a home or auto loan. With mutual credit, however, this form of financing can be used to purchase anything, including capital goods.

Which brings us to the case of an individual without means for providing collateral – say, for example A, the organic farmer, does not own the land she works. In such a case, A, who still desires work done, would contact other members of the mutual bank with the skills she requires. Those members with the appropriate skills and who agree to work with her commit themselves to do the required tasks. In return, A gives them a check in mutual dollars which is credited to their account and deducted from hers. She does not pay interest on this issue of credit and the sum only represents her willingness to do some work for other members of the bank at some future date.

The mutual bank does not have to worry about the negative balance, as this does not create a loss within the group as the minuses which have been incurred have already created wealth (pluses) within the system and it stays there. It is likely, of course, that the mutual bank would agree an upper limit on negative balances and require some form of collateral for credit greater than this limit, but for most exchanges this would be unlikely to be relevant.

It is important to remember that mutual dollars have no intrinsic value, since they can’t be redeemed (at the mutual bank) in gold or anything else. All they are promises of future labour. Thus, as Greene points out in his work on mutual banking, mutual dollars are “a mere medium for the facilitation of barter.” In this respect they are closely akin to the so-called “barter dollars” now being circulated by barter associations through the use of checks and barter cards. To be precise, then, we should refer to the units of mutual money as “mutual barter dollars.” But whereas ordinary barter dollars are created at the same time that a barter transaction occurs and are used to record the values exchanged in that transaction, mutual barter dollars are created before any actual barter transaction occurs and are intended to facilitate future barter transactions. This fact is important because it can be used as the basis for a legal argument that clearinghouses are essentially barter associations rather than banks, thrifts, or credit unions, and therefore should not be subject to the laws governing the latter institutions.


December 15, 2009 - Posted by | anti-kapitalizm, kooperatifler vb modeller, ozyonetim, sistem karsitligi

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