Money is a tool to facilitate exchange.

Money follows, like everything else here on this physical plane, the principles of yin and yang. There is "hard" (yang) money and there is "soft" (yin) money. At this time, the world is dominated by yang money. My purpose with this article is to convince you that we need to find a better balance in matters of exchange and economics.

Do we need money at all?

There are two systems that have historically been used and that are - to varying degrees - still in use today, that allow us to exchange the fruits of our toil and those we appropriate from nature, without the use of money.

There is the gift, which does not require an immediate return. Actually, it's nuanced. Some gifts are freely given without any expectation of return, but if we are talking about a "gift economy", usually the expectation would be that everyone, in some way or another, plays ball. That means, you can't just be a freeloader. Even in a gift economy, there is some expectation for all participants to pull their weight, meaning to participate in the giving. People who only receive and never give will find themselves marginalized, and rightly so. Flows do need to be balanced. If you only inflow (receive) and never get to the outflow part (the giving), things tend to get stuck. The inflow will stop sooner or later. The point is that, even in a gift economy, the principle of exchange cannot be violated with impunity.

Then there is barter. In a barter economy, we also need no money. The exchange is direct. The needs of one are matched with the offerings of another. It is rather cumbersome at times to find a match, and it isn't always successful, but barter has been with us throughout history. It has served us well where money was not available or its use was not practical. Today, there are various initiatives to revive the barter economy. Computers allow us to provide better tools to match offerings and needs. Some of those tools merely let you choose from a larger number of diverse offerings. Others extend the barter concept from a one-on-one exchange to a circle of linked exchanges. A gives to B, who gives to C, who gives to D, who in turn gives to A. Circle closed. Barter has one big problem though. It generally has no time dimension. It is not easy, in a barter economy, to receive something today and to give maybe next week, or to provide your fruit to someone today when you actually don't need anything of theirs right away. That is where money comes in.

Money is a placeholder in the business of exchange. It is a little reminder to everyone that you have already given and that, tomorrow, you are within your rights to ask that the exchange be completed. Money allows us to add the missing time dimension to barter-type exchanges.

How did money develop?

At first, it was a little object, anything commonly available, not of great value itself, but sufficiently distinct so that it could be given from one person to another to signify there was an open cycle of exchange. Sea shells, pieces of metal, wooden tally sticks ... there are thousands of forms money could and did historically take.

As time passed, money was formalized. The form of money became different. The material used was something more scarce, and the creation of money was restricted to the ruler of the day, the king, the duke, the emperor. Gold and silver as money came into use when scarcity of the physical form of money became important. At the same time as money became scarce and its issuance became the prerogative of the ruler, a caste of assistants or "money handlers" developed who, at first, used to have their banks (tables or market stalls) in the places where people went to buy and sell, the markets. Gradually, money handlers became a respected profession and we had bankers.

"Hard currency"

In the hands of the bankers and over a period of time, money was transformed. What started out as a soft, rather commonly available means of exchange, became - without anyone paying much notice - a more and more scarce "resource". Money itself became a commodity. It hardened. It transformed, in almost imperceptible steps, from yin to yang. Today, money is highly controlled, it is scarce, and it is firmly in the hands of the bankers. Its control passed from the hands of the ruler, into the hands of the banks. We didn't really notice, because the central banks, which control the issue of money today, are a clever fig leaf. Politicians were fooled into a belief that the central banks are actually emanations of the governments. But nothing could be further from the truth. Every country has a central bank, but central banks do no longer respond to politics. They are independent, privately owned institutions that jealously defend their separate nature, their independence from political "meddling".

And with that independence came a price. Money all of a sudden had a price. Those who had money used the banks to defend their "property". Yes, money has become property. So much so, that today, economists tell us that that money has a dual function. It serves as a means of exchange, but it also serves as a "store of value".

The price of money

The price of money, you may have guessed it, is called "interest". If you want my money, you have to pay for using it. Every year, you have to give me a percentage of the money you are using, and unless you can repay me, that price of money is added to increase what I originally gave you. Not only has money turned into a resource, a property, it acquired a quality of life, it could now grow. And grow it did. It became one of the few industries that kept growing and growing. But of course it did not, by itself, produce anything. It only "allowed" us to produce - for a price.

Money's growth, like a cancer, started out slow but then it took off. The tumor got a life of its own. It started growing exponentially. And in the process, it changed our economy, that started out as a happy state of production and exchange between and among ourselves, into a war economy. It forced us into using ever more of our precious natural resources to chase a mirage ... continuing growth for its own sake. Economists today tell politicians that in order for everyone to survive, in order to avoid certain collapse, the economy must grow. And so here we are, in this present time, doing our darndest to "make the economy grow". But all we are doing is feeding the monster. We are feeding a vicious cycle of wars, of environmental destruction, and ultimately the destruction of ourselves as a species.

The arrangement is so clever and so pervasive that it is actually at the verge of destroying itself. Someone has likened the economy to a pump, a giant machine that is transferring both our resources and our products into the hands of a tiny moneyed elite. Here is how it works:

The wealth pump

95% or more of all money existing today is not in the form of cash. It is bank created "credit" for which interest has to be paid as long as it exists. Banks are credit mediators. Anyone who needs money first needs collateral. You have a house, a car, a regular paycheck, a factory. You go to the bank to take a loan. The bank takes ownership of your collateral and now calls that an asset of the bank. Against that asset, the bank issues a loan in the form of an account entry on your account. The bank has the asset, you have the money. You work. If it takes you 10 years to pay back what the bank gave you, you have just paid twice the amount of the original loan to the bank. The bank made a clean 100% profit on that loan in a relatively short ten years. Not bad for merely providing some digits. Remember, the bank had nothing to lose, it owned your house, until you finished paying.

Now apply that to a whole economy, a whole country's economic activity. As I said, and you can check into that, some 95% of all money in circulation is bank originated loans and it circulates not as cash but as digits in computer systems. Consider that 95% as one big mortgage. It is really made up of millions of loans that constantly get issued and re-paid, but for the purposes of a country's economy, we can say it is a loan from the commercial banks. Let ten years pass, and the economy-as-a-whole must pay to the banks that provided the loan a sum roughly equivalent to the amount of the loan. Do you start to see the wealth pump at work now?

As the economists are telling us, the economy must grow. That means, the economy's mortgage with the banks also must grow. That mortgage is our constant companion. There is no way to pay it back - ever - unless we want to shut down the economy, which clearly we don't want to. So with every per cent of economic growth, we are digging a larger hole. We must now pay more for the privilege of using money, or face disaster. We must cut more trees, extract more oil, grow more food, produce more consumer goods, all in the name of keeping going. It is the end stage of growth, brought about by our continued ignorance of some important facts about economic affairs.

And what if the banks get in trouble by giving "bad loans"? Don't worry. Our governments are ready to "bail them out" by putting a government-backed mortgage on our future... we have seen that in these last few years.

So what is the solution?

Clearly, "hard currency" has become an unsustainable proposition.

So - drum roll - enter ...

"Soft money"

We cannot change the situation overnight. There is neither the necessary political agreement nor the will to do so. We must continue to toil under the hard money yoke for some time. But do not despair. There IS something we can do. We must find a way to put the yin back into money and the economy - slowly.

With politicians unable and economists and the holders of all that money unwilling to change, it is encumbent on us to do that, any way we can.

Lucky for us, much of the change we are looking for is already well underway. A friend on facebook put it in a nutshell. His comment was in reply to an item, which says that continuing robotization of production will put us all out of work soon. It was introduced with the following quote:

The Item: Robots will steal your job, but that’s okay: How to Survive the Coming Economic Collapse

The comment which nails it, was put in these words:

We already have soft money - to a degree. There are a myriad of local exchange systems springing up, the reformers are busy. Yet, it is easy for all those efforts to be marginalized. For one, they are split into many small initiatives, none of them set to take on the juggernaut. So I think something is missing: a universal standard for soft money that allows us to all work together seemlessly, regardless of distance, regardless of what we are putting our efforts into in our quest to bring about that new world, and that new economy.

"Fuzzy" money?

When the hard (yang) logic of programming languages proved inadequate for complex jobs, someone invented a different kind of logic: Fuzzy logic. And it turns out fuzzy logic is much better suited to run appliances and a number of complicated jobs than the rigid logic of yes/no that came before it.

So the question arose: If fuzzy logic is superior to the yes/no binary type, could this same principle apply to money? Could fuzzy money with no fixed value be better suited to constructing a p2p world than our normal, government-backed "hard" currencies?

How can we put that fuzzy quality into money? So far, most of the efforts to make a local currency have tried to compete with hard money, capturing some of the transactions that fell by the wayside because there was no way to give them value in the context of today's economy. Most of them struggle to, in some way, emulate the "value" part of the hard currencies, even to the extent of fixing their own value in terms of a dollar, a euro or at least something similar like an hour of work's worth.

It seems to me that it would be best to get away from that kind of thinking, that we should let the value of our yin currency float freely. Let it be worth whatever we think it should be worth, in whatever local context we find ourselves. No fixing of value, as that would inexorably draw us back into the world of yang, of banks, of profits, of having to increase economic activity for its own sake. Not that we should not be busy, that we shouldn't produce. But that should be everyone's own decision, not one forced by the kind of money we use.

Whatchamacallit?

We need a name for our new money. I was thinking to call the units "fuzzies", being that the whole idea is for the currency to incorporate the quality of being many-valued. But I am not so sure about that either. Since most local currencies are made by people giving each other credit, there is a good case for just calling them "credits". There is also a precedent in some of the stories of science fiction, where credits were in universal use. So for now, I will use credits as a working name. A better one may come along, and there is no resistance to changing, if that is what emerges.

How to keep track of those credits?

There already is an emerging standard for keeping track of, and for easily exchanging ... credits. It is called Web Credits.

http://www.webcredits.org/

The initiators of Web Credits have joined in a W3C Community and Business Group.

Manu Sporny, one of the initiators of the Web Payments Community Group explains in more detail what the purpose and vision behind the initiative is.

http://www.w3.org/community/webpayments/2011/08/16/launch/

While Web Credits are not specifically geared to be a currency, they may well be the future infrastructure that is needed to make credits a workable reality.

Bad money

There is a principle in monetary economics: Bad money will drive out (replace) good money. The thought goes back to Sir Thomas Gresham and the principle is generally referred to as Gresham's Law.

How does this apply in our case? Sir Gresham said that "When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation." This means that money that is useless as a "store of value" (the compusorily overvalued money) will circulate, while the money that is correctly (exactly) valued will tend to disappear into the coffers of those who wish to use money to store value. Credits, having no fixed value, are the ultimate "bad money". They will circulate like crazy while the "good" money that is guaranteed by the government will be used for speculation and hoarding. Actually that is exactly what we are seeing today. The Euro (good money) is leaving the poor countries and in the absence of "bad" money to take its place, the economies of Greece, Spain, Portugal and to some degree Italy and Ireland, are in shambles, threatening to pull down the whole works with them. So it would actually be in the interest of the countries that are struggling economically to make their own "bad" money and let it circulate, at least the people would have jobs and food.

So the objective, with credits, would be to make real "bad" money.

How could credits work?

Here are my first thoughts, gathered from a recent email discussion, on how to do that. Note that I am not calling them credits yet, in those early exchanges.

and here another message, trying to expand on the argument...

Now that you have seen my ramblings on this, you can get the idea of where this is intended to go. Perhaps I am completely off my rocker. I don't believe I am. Perhaps we need to experiment. People could just send each other credits for what they received, with the idea that someone else, in time will give them something for that worthless thing. We have to take the dive into the unknown. We have been conditioned to think of money as value since the time Kings and Dukes and Archbishops issued funny pieces of metal with their faces stamped on them. We now think that money is a pre-condition for us to work at all. It need not be that way. We can make our own money, fuzzy as those credits might be. Let's try it out!

Oh yes, if you are a programmer and you are into open source, or as Stallmann says, "free" software, consider joining the effort at Web Credits

http://www.w3.org/community/webpayments/wiki/Web_Payments:About

to polish up that standard and put some meat on the bones of an actual workable payments system on the web.

And if you are into LETS or any other local or alternative currency, please consider whether the principles outlined here could perhaps be applicable to your efforts.

This needs to be a community effort.

And yes, I declare this work to be in the Public Domain.