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Concepts of the Gelre, or: What is ‘High Powered Working Capital’?

by on June 7, 2012
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It is not enough to say the Money Power controls our money supplies and that it is too powerful to break its chains. The reason interest-free currencies have not been able to compete in the market-place is simply because their design has been insufficient. The challenges, how to overcome small initial network size, difficulty of financing and liquidity have not been adequately addressed. There can be no doubt, however, that they can be.

By Anthony Migchels for Real Currencies

So that’s the question: why don’t we have interest-free currencies? On the Government level the answer is pretty straight forward: the Money Power has bought all the politicians and kills those that break through to the top without complying.

But how about the market-place? Is it true the Money Power has an unbreakable monopoly? We can immediately establish this is not the case: both in the US and in Europe there are free currencies. LETS, the Berkshares, the Ithaca hours, the Chiemgauer and other regional currencies in Germany, RES in Belgium and of course the WIR in Switzerland.

Nonetheless, except for the WIR none of these currencies managed to pose a credible threat to the Money Power’s de facto monopoly.

Why not?

The fact is: none of the mentioned units is good enough. Worse, they are all rather primitive. Each of them holds one or two keys, but all lack a comprehensive appreciation of the challenge at hand.

And interest-free currencies, starting from scratch, do face a major challenge. The main thing is to create a sufficiently large scale user base. Clearly, a unit used by only a handful of users will not add much value. To have a notable impact, in terms of turnover and percentage of total turnover for participating firms, a sizable numbers of participants is necessary.

For instance, the WIR has about 60,000 firms on board and this results in about 10% extra turnover for participants. This sounds like a big number for only 10% extra, but it must be kept in mind that the WIR circulates throughout Switzerland. On a regional level, a much smaller number of participants would be necessary to provide members with a similar boon.

So to overcome this challenge and to strike a serious blow at the MP’s monopoly, we need truly high powered units and here’s how to go about it.

0. All out focus on liquidity
Liquidity is what the unit will buy. Start up units, with few participants are weak because they have very limited liquidity. This is the basic challenge: how to provide working capital that is sufficiently liquid to have the necessary impact? All the measures below are answers to this basic challenge. The more successful measures to improve liquidity are in place, the more successful the unit will be.

1. Shedding naivety
The interest-free community, particularly in Europe, but certainly also in the US is actually quite naive about the backgrounds of the current order. They tend to think it is all just a wonderful accident. True, its leaders realize there is such a thing as a (central) banking cartel, but they are still handicapped by the ‘conspiracy theorist’ put down. Or they fear the ‘antisemitism’ label. Few of them will accept the depth of the rabbit hole. This is a major problem, because, as Sun Tzu teaches us, for victory to be assured one needs to know both oneself and the opposition.
This is the key reason why we have discussed the nature of the conspiracy at some length on this site. It is not to look for controversy or to defame people or religions, but because it is unsound strategy to go into battle without knowing who you’re up against. The more so if one is facing an enemy as relentless and powerful as the Money Power.

2. Combining interest-free credit (IFC) with convertibility
As discussed previously, the key challenge for the near future is offering units based on IFC, Mutual Credit, that are convertible to other units. At this point there are euro/dollar backed units like the Berkshares or the Chiemgauer that provide convertibility. This is a result of the backing with the national unit: because there is a dollar for every Berkshare, firms can convert them back with the issuing organization. However, because there can never be more Berkshares than dollars in the bank, there can be no credit based money creation as with Mutual Credit. The downside of Mutual Credit is that there is no dollar backing the outstanding money supply, so convertibility in the classical way is impossible.
Thankfully nowadays the way forward is known: the Mutual Credit based units should be traded in an open market-place, in a way similar to Bitcoins. Read all about it here.

3. Offering solutions for both Business to Consumer (B2C) and Business to Business (B2B)
This is the classic chicken or egg dilemma that the interest-free community has struggled with forever. Should beginning networks focus on B2C or B2B? However, this is fallacious or/or thinking. The solution is simple: and/and. New units should provide methods of payment for both consumers and businesses. B2C solutions include cash, which is the classical approach, also used by most German regional currencies. But also cards are possible, as used by the Belgian RES network. B2B basically means a telebanking system is necessary. Firms typically deal with businesses further away and often larger transactions are involved where cash becomes cumbersome.
Servicing both B2B and B2C simultaneously massively increases liquidity and paves the way for the next point.

4. Start promoting the payment of salaries early on
This is another breakthrough: usually salary payments in the free currency is thought of only in regard to mature networks. This is a mistake. By offering to pay a small fraction of salaries to employees, liquidity is enhanced drastically early on. It also massively enhances purchasing power and acceptability for the unit. Of course employees should not and cannot be forced to accept the unit, but if it is clear where they can spend the unit and why it is important for their employer that they start paying with it, many of them will comply willingly. Too much is at stake and good communication can make this clear, even just on economic grounds.

The benefits for employers is clear: more liquidity for their Gelre assets. They gain a new outlet for their income in Gelre and of course for their interest-free credit line.

The benefits for the network are incalculable: businesses send their employees to each other. They refinance trade amongst them with interest-free capital, freeing expensive and scarce euro’s for other purposes.

5. No transaction costs!
A common way of generating income in barter systems are transaction costs. This is a grave mistake. Everything should be focused on making transactions as cheap and easy as possible to maximize trade. Transaction costs, even when they are to be paid by the accepting party hinder transactions.

6. Those who pay are more important than those who accept
In the early stages of the Gelre our motto was ‘we accept Gelre’. We had stickers for the participants saying this. All our communications focused on acceptance of the Gelre. But after a year we had a hundred firms accepting the Gelre, but none paying with it.
In hindsight it is easy to see why: to pay is active, to accept is passive. To pay is yang, to accept is yin. Yang precedes Yin. Yang creates Yin. So building the network is about having people pay with Gelre. Businesses seeing their customers wanting to pay with a unit will quickly accept it, if they can plausibly pay (or convert) with them themselves. The unit should be designed with the payer in mind, not those accepting it. Everything should facilitate paying and if a choice has to be made affecting both the payer and the acceptor, the interests of the payers should precede.

7. Professional Management
All successful units have great management. It is THE crucial success factor, even more so than the architecture of the unit. Lack of professional management has relegated LETS to mediocrity and superior management elevated the WIR to the leading free market unit in the world. Even though they have a very similar Mutual Credit based design.

Professional management implies a good business case for the issuing organization, so that sufficient income is generated to pay staff decent wages.

The business case is pretty straight forward: the more firms participate, the more revenues the organization can generate. Firms should pay a fee for participation. This fee should typically pretty low, no more than a few hundred dollars per year. A mature network should see costs for exploitation at a maximum of about 1% of total turnover in the network.

Conclusion
So, what is “high powered working capital”? It’s more than just a cool label. It is a means of exchange that is specifically designed with only one purpose: to serve the community.
Most modern barter units are just cash cows for the issuing organization, just as the banking units themselves are. Or they are pleasant nice, completely innocent little play things designed by well meaning people to prove a point, namely that we can all make money.

High powered working capital aims at competing with banking units in the market-place, in such a way that the people producing the unit can sustain themselves with its proceeds, so that long term viability and stability are assured. It aims at taking away all obstacles for using it. It is provided by, preferably, not for profit organizations, emphasizing the public function that currency really should provide.

It leaves all the added value of production and trade with those producing and trading, taking only what is necessary to maintain the operation. It brings back economic power to those who work and produce, instead of ‘investors’ and ‘capital’. It does not redistribute wealth, as it leaves wealth where it is generated. It relocates the bottleneck in production from capital to labor, as there will always be enough capital, but the labor pool will be limited by nature.

High powered working capital will allow providence to function at its maximum capacity and will bring abundance to the many.

Related:
Mutual Credit, the Astonishingly Simple Truth about Money Creation
Mutual Credit for the 21st century: Convertibility
Regional Currencies in Germany: the Chiemgauer
The Swiss WIR, or: How to Defeat the Money Power
Please support the Gelre!

24 Comments
  1. Hey! Before this I have not gone accross the term High power working capital….you have used it greatly. Even you have mentioned the hole topic so clearly that a non commercial person will also be able to understand this.

    • good to hear Roger!

  2. Anthony Migchels: reason interest-free currencies have not been able to compete in the market-place is simply because their design has been insufficient. The challenges, how to overcome small initial network size,
    Jct: So the reason is not that the design of the LETS bicycle has been insufficient, it’s that not enough people know how to ride it.
    AM: LETS, the Berkshares, the Ithaca hours, the Chiemgauer and other regional currencies in Germany, RES in Belgium and of course the WIR in Switzerland.None managed to pose a credible threat to the Money Power’s de facto monopoly. Why not?
    Jct: A global union of small online LETS timebanks into one big UNILETS is a threat to the Money Power.
    AM: Combining interest-free credit (IFC) with convertibility
    the key challenge for the near future is offering units based on IFC, Mutual Credit, that are convertible to other units. At this point there are euro/dollar backed units like the Berkshares or the Chiemgauer that provide convertibility.
    Jct: No matter the national unit, it can be converted to an hour of skilled labor. Everyone can tell you what an hour of unskilled labor is worth in the national currency so it is automatically pegged to the UNILETS Time Standard of Money.
    AM: And interest-free currencies, starting from scratch, do face a major challenge. The main thing is to create a sufficiently large scale user base.
    Jct: You haven’t noticed large databases using interest-free currencies yet? Africa trading with mobile-phone minutes, Arabia trading with mobile-phone card credits, Hours traded in Ithaca NY, Health Care Hours timabanked in Japan, Greencredits being traded in LETS, Facebook’s Acebucks, Twitter, Google, Craigslist offering social currencies to their databases, each transaction with alternative currency means the banks got no interest. The movement to cut the middlemen out of their usury is growing. It’s a new game with new chips and the banks are going bust.

    • I sure hope you’re right John. It sure is encouraging to see all the new units, especially on line.

      I’m not against them: I’m trying to help make them better!

  3. herzmeister permalink

    Lietaer states that *any* alternative currency system does not gain enough traction because of governments demanding and accepting taxes exclusively in the official (national) currency.

    This creates a strong network effect [ http://en.wikipedia.org/wiki/Network_effect ], i.e. monopoly for that currency.

    I wholeheartedly agree.🙂

    • I don’t.

      Interest free, regional units should be able to finance up to about 30 to 40 percent of the national economy. Of course, the higher the percentage, the harder to grow further.

      But the first 10 or 20% should be easily obtainable: the interest free credit, if offered in the right way, like described in the article, is just too strong a proposition in the face of the disastrous banking units. Especially in times of a horrible credit crunch.

      When such a large part of the economy is financed interest free, it will be difficult for first local and regional govt, and later also national govt to not accept these units for taxation without losing credibility. Not only that, once such large percentages of trade are financed interest free, more and more people will start to wonder why we have these banking units anyway.

      I respect Lietaer, his work taught me a lot, but we should press further where he stops. Keep in mind that he presents the current order as ‘yang’ and basically viable. He does not talk about the Money Power in any way and presents the current nightmare as an accident caused by nature.

      • herzmeister permalink

        Nice comment, although I don’t quite understand what it has to do with mine. It’s a different aspect. It’s just logical that when governments accept regional currencies as taxes, they would become much more common, regardless of them being interest-free or whatever.

        That said, I don’t really care if the nightmare happened by accident or by conspiracy (which is human –or whatever– nature, so what’s the difference anyway?), I want to concentrate solely on the solutions.🙂

        btw Lietaer *has* alluded to certain things about money power (i.e. quoting Krugman that he in private told him you’d only get the Nobel Prize if you’re in line with the central banking system), but apart from that, maybe some people just choose a more defensive strategy and leave the front line to others.😉

        • You said: “i.e. monopoly for that currency.

          I wholeheartedly agree.🙂 ”
          My comment was to explain that I don’t agree this handicap stops regional currencies. It just describes the challenge. My answer explains how I think we may overcome this challenge.
          The network effect your refer to is real. But it is not the end of the story.

    • The real reasons alternative currencies (mutual credit) do not gain traction is because of following and in order:

      1) The majority do not understand that mutual credit is the only possibility for stable money (we prove that at http://www.bibocurrency.org
      2) Alternative systems all use their own individual design instead of a common technical specification (we provide a standard spec at bibocurrency.org that has zero impact on local autonomy and identify, is certifiably stable so that all adopting it will make them seamlessly interoperable. It is like everyone using the meter instead of everyone using their own measure of length.
      3) Irrational constraints/limitations based on inconclusive criteria like “local” and “community” and romantic ideas that have no technical significance.
      4) The fact that the current failing de facto standard is exponential and it locks up collateral exponentially leaving more marginal stuff to be traded by alternatives. This last point is the reason that the first three are so important because without them we don’t have a chance in hell.

      The question of taxes is the last consideration because if enough people were to implement Passive BIBO Currencies then the government would accept them to pay taxes and if they didn’t they would have a nightmare trying to prevent these systems.

      Finally, the real issue is that the current money system design has nothing to do with anything remotely rational, s systematically unstable. Anyone who is serious about changing the current paradigm cannot afford not to know and fully understand the science of money according to control system’s engineering and the math of measure. it is like the Pythagorean theorem once uttered end of discussion. There isn’t everyone’s personal way of doing money right, there is only one way and that is set out as an open standard spec at http://www.bibocurrency.org. This is not according to any fallible human being it is according to math.

      It all boils down to defining stability and that was done in 1884 by Alexandre Lyapunov and applying it to money systems is child’s play. Money has to be stable to have any functional value, mutual credit without interest is stable and chosing a common standard between all mutual credit system’s is the most powerful step towards really making changes.

      To end, let me just say we are running out of time fast there is no time for chit chat.

  4. Thanks for the interesting article regarding alternative currencies that are interest free. When you think about it; we rent our means of exchange from a private third party that adds nothing to the transaction while staking a claim on the collateral and collecting a fee (interest) in the process. Of course this notion is absurd and can only continue through force and ignorance.

    You mentioned:

    “2. Combining interest-free credit (IFC) with convertibility…Mutual Credit based units should be traded in an open market-place…”

    My concern with this approach is that you might open the currency to attacks by marauding “speculators.” We’ve seen this scenario repeated over and over as hedge and wealth fund speculators short local currencies to devalue them in international markets. Should the value of any currency be allowed to float based on fickle markets that can be easily manipulated?

    Wish I had an answer rather than a question.

    • Thanks Larry, good to hear from you.

      This is clearly a crucial aspect. I believe it can be well managed. The free market exchange should not be taken to its extreme: the managers of the system should be on the lookout and allow themselves the tools necessary. Some of them I explore in the article ‘Mutual Credit for the 21st century: convertibility’.

      the key paragraph is this:
      “2. It always offers 1 MC for 95 cents. In this way, businesses offering their excess MC can’t ask for more. The incentive for the public to buy them is maintained. This effectively tops the free market price for the MC at 95 cents and stops speculation or other destabilizing and unwarranted activities. Convertibility exists for one reason only: improving the scope and power of the MC, to service the public and free trade, not all sorts of silly ‘capitalist’ games.”

      Two other strategies are important: the Mutual credit facility should always allow itself to kick out participants without further ado. Of course it should do so with great restraint, but it allows them full control against speculators.

      The second is that it should monitor the acquisition of too large sums of money by individuals or firms. Nobody should be allowed to hold too high a percentage of outstanding capital. They should be forced to liquidate, or get kicked out of the system.

      So the free market is tightly controlled to further its aim: equitable exchange. It is no goal in itself.

      • Thank you for referring me to your “Mutual Credit for the 21st century: convertibility” as it directly spoke to my concern. While “pegging” the alternative currency is less than a perfect response, it seems to be a working solution that is needed to allow convertibility.

        We can debate the pros and cons of pegging a currency but from a practical viewpoint; it is needed as long as the fraudulent system continues. The very notion that currencies need protected is damning evidence that there is something very wrong. In my opinion, currency system managers have both the right and the duty to calibrate their medium of exchange so that it is a stable measure of purchasing power.

        You make a good point in suggesting that people should store their accumulated wealth in real assets rather than currencies. For example, instead of insisting that a currency be backed with precious metals, the gold and silver bugs should simply convert their money as desired, to owning precious metals – as an asset.

        To each their own. Some might prefer land, collectables, stocks, etc., with the concept being the same – conversion to real assets that decouple from potential currency fluctuations.

        I always learn something when I stop by your blog.

  5. We don’t stand much of a chance against the people behind this.

    http://explosivereports.com/2012/05/28/ancient-roots-of-bilderberg-reveal-prusso-teutonic-agenda-for-world-domination/


  6. IIEA1 (599vids) uploaded this 1.46m vid the 16th of nov 2011 – 947 views since then —- Steve Keen (bg is lovely green)
    After saying it’s better to pull out than staying in he goes:

    “you need to have a european central bank which actually is a central bank and funds the activity of it’s nation#, rather than funding the activities of it’s parliament which is all the actual european central bank is required to do. It’s an enormous reversal but focusing on sovereign debt is focusing on the symptom rather than the cause.”

    # – he means nationS i am sure and not the ‘inNer-‘ but ‘inTernation’ concerning traffic / clearing reqs.

    As such the EURO should have always been an ADD-ON and NOT a RE- AND DISPLACEMENT!

    furthermore, not from the quote (nor elsewhere in this very short take on prolific work) is it made obvious that parliament was hi-jacked, powned (pawned with sell-outs), infiltrated, taken over ‘con animus’ by the private fundfundies, he calls the equivalence’ “almost mechanically” (end of first quarter minute).
    I call it rewarding public servants for public betrayal of the public. The ‘market’ cornerers idea of glorifying themselves by violating what should be respected partners. Kind of reflects what goes wrong on the eco fronts eh?

    ps:
    aligzanduh mentioned local currencies in his last vid.
    i stuck it in my intello mishmush playlist:

  7. Hello People. You still have it backwards. Money is not scientific and does not come from transaction. Transactions come from money. Money is credit in circulation. Credit is an expression of mutual confidence shared by a people. A people from time to time invent tokens to express that trust. PS That trust should never pay interest. Thanks Rduanewilling.com

    • rduanewilling. You may believe that transactions come from money but you cannot support that comment with logic. Money can certainly be scientific and it should be because if ti isn’t then it simply is meaningless.

      Money only makes sense in the context of a transaction. When money is created in today’s world it is always in the context of some sort of collateral value. Even credit cards present a lean on the bearer’s holdings and when that is not the case on an individual basis it certainly is on the aggregate level. The lean on collateral value however calculated, is a transaction.

      All transactions generate units that are then canceled against positive and negative balances and all bank credit requires some sort of lean against collateral (a transaction) and loans create brand new money. So we don’t have it backwards

  8. Anthony,

    What you miss in your piece, is the value of an open standard technical specification for currency based on scientific and information technology principles that proves that not only is mutual credit stable, it is the only scientific option for a stable currency providing the following requirements are met:

    a) All units are generated from transactions
    b) All transactions are Passive BIBO stable.

    This is according to indisputable control systems engineering and mathematics of measure.

    The benefit of such a standard, is that it can be used to make all mutual credit systems automatically interoperable without any loss of any individual implementation’s autonomy or identity. Just as using a meter in Spain and Holland has zero effect on the autonomy or identity of each, so too the use of a common Passive BIBO Currency specification in different parts of the world has no impact on the autonomy of individual implementations. However, using a common technical spec for money makes all implementations interoperable.

    And that is powerful!

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