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More on Mutual Credit

by on February 14, 2014
Thumbs up for Mutual Credit

(Left: Thumbs up for Mutual Credit!)

We need credit and that’s why a credit based money supply is so attractive. It catches two birds with one stone. It’s probably its simplicity that makes it so hard to digest. It solves money scarcity, the boom/bust cycle, Usury and decentralizes credit allocation as much as is humanly possible. In short: it meets all requirements of comprehensive monetary reform.

Mutual Credit in its purest form is peer to peer credit by double entry bookkeeping. I think the phrase was first coined to describe LETS, Local Exchange Trading Systems, which were proposed by Michael Linton.

LETS was designed to facilitate exchange between normal people. It is Hour based, which is not something I’m overly fond of. Not because Hours are not a good unit of account, but because nobody at this point knows what an Hour is worth. This hinders price transparency. It creates complications for businesses, because they don’t know how to price their services in Hours, and because they need a second ledger to keep their books.

The problem of money is not its unit of account function. Yes, we need just weights and measures, in money too, but just weights and measures are stable and predictable. It does not matter what they are, as long as people know what they can expect.

At this point the Dollar (or Euro) provide a reasonably stable unit of account and everybody knows what they are worth. Therefore I suggest not complicating the issue and just settle for the ‘1 unit = 1 dollar’ agreement. This is how most regional currencies and professional barters work. On a national level this would also facilitate an as simple as possible transition. We can simply replace the current usurious dollar with an interest-free one.

In its simplest form, everybody gets the same credit limit and the money supply is always equal to total outstanding debt. No credit facility is necessary.

WIR Bank, providing Mutual Credit for 80 years now.

WIR Bank, providing Mutual Credit for 80 years now.

For this reason, some resist the idea that for instance a major unit like the WIR is Mutual Credit: there a strong central credit facility, the WIR bank, decides who can borrow how much and charges service and handling fees and nowadays, sorrily, even some interest.

But to me WIR is still Mutual Credit, because while the fundamental peer to peer nature of it is slightly obscured by central management, it’s more about the process of credit creation than anything else. It is low cost because of mutual acceptance.

As we have been discussing extensively, credit can be interest-free if it’s mutual. Nature unfolds as a process between two only seemingly opposing forces: the binary opposition of Yin and Yang. Debit and Credit are its equivalent in money. The one is not better than the other. By accepting the credit of the other today, we are allowing ourselves to finance our home and business ventures tomorrow.

Society is served by our well-being and we have a direct interest in the well-being of our brethren.

The Difference between Fractional Reserve Banking and Mutual Credit
While both create money by double entry bookkeeping, Mutual Credit is vastly superior, simply because it’s so much more simple. It does away with the need for reserves.

Fractional reserve banking was designed to hide the fact that the banks don’t lend deposits. It began as a scam, where goldsmiths lent out up to ten times more Gold than they actually had. Later the process was redesigned: every bank could lend 90 cents on every dollar in deposits, this seems to have been the situation when the Federal Reserve Bank opened up shop. Nowadays it’s very hard to get to the bottom of it all. It does seem that the banks just lend whatever they want.

They are officially ‘restrained’ by ‘capital reserve requirements’. This is then used by the Bank of International Settlements, which is the apex of the global banking cartel, to manage the global volume of money: if they raise the capital reserve requirements from 3% to 4%, the banks can ‘only’ lend 25 times more than they can ‘back’, instead of 33 times more. This chilling effect on their capacity to lend leads to a contraction of money, which in turn will lead to depression. This is the game they play, late 2012 BIS ‘expected’ (made clear that they were going to create) the next round of bank busts and a deepening of the depression. “But hey, we need stable banks, no?” The wide eyed banker/magician tells us.

It’s all complete baloney. We don’t need reserves. Management of the volume of money should not be based on the stability of the credit facility! Nothing could be more absurd, volume must be managed to safeguard stable prices while maintaining stable access to credit.

So this is the great beauty: we don’t need a cent to create all the money we will ever need. We don’t need ‘savings’ for investments. We can restart from scratch at any given moment.

The credit facility can never go bust. If a loan goes sour and collateral cannot be liquidated (an extraordinary situation) the debt just circulates as unbacked money and the credit facility can take it out of circulation at its leisure by passing on the cost for this in the service and handling charges it passes on the users in the system. Just like we have Mutual Credit, we have mutual insurance against default.

Credit allocation
Only one question remains: how do we allocate credit? In the current system, the banks lend as much as they can and demand is limited by interest rates. Low rates encourage demand and facilitate booms. Higher rates dampen demand and thus the volume of money and thus growth. High rates will precipitate depression. As for instance happened in the late seventies, when Volcker ended chronic inflation by driving rates up to 13%, plummeting the West into years of stagnation and decline. The economy never really fully recovered, although that was also to a large extent due to the neo-liberal (libertarian) policies that became the norm. This resulted in chronic lack of demand in the economy because of ongoing austerity and decline in real wages.

As we have discussed extensively in regard to Mathematically Perfected Economy, a highly advanced Mutual Credit system, 0% interest rates will lead to a demand for credit that is greater than the economy can handle: it would create so much structural demand in the econonmy that there would simply not be enough productive capacity in society to meet it and prices would start to rise. Asset bubbles are to be expected, both in commodities and real estate. A vicious circle of growing asset prices and growing demand would seem to guarantee this.

The interest-free crediters have not been able to explain why 0% rates would not see the same bubbles as the banks have been blowing for centuries through easy credit.

Credit allocation should be based on rights. We participate in the system and thus have basic rights to credit. I propose a truly radical solution to the question how to allocate the available credit: let’s share it equitably.

Equitably is not equally. Some people have a greater need for credit: not all of us are going to be businessmen, for instance. If we have greater income, than we probably will have a greater need for credit too: more affluent people will probably want to live in bigger houses, for instance.

We can create basic algorithms to facilitate fair sharing. A couple of parameters are important. The money supply must remain stable. It grows when new credit is allocated and shrinks when debts are repaid. It’s a dynamic process. Because the demand for credit is greater than what we can supply (given the need for stable money), it is in everybody’s interest that loans are repaid as quickly as possible.
Borrowing 300k and repaying it in five years has a similar impact on the money supply as borrowing 150k and repaying it over ten years.

Hence, people who can repay more quickly, have access to more credit.

Another rule should be that young people who are starting out in life, coming together to create a family, should have preference over people who already have had an interest-free mortgage.

It’s all not completely clear cut and it will have to be worked out in more detail, but the direction is clear: there is a certain amount of interest-free credit available, and we all have a claim to a part of it. Our individual rights must be balanced with the common need for stable money.

The Credit Facility
We all love peer to peer and personal sovereignty. We are sovereigns without subjects. This is the truth and our money must harmonize with that. Perfectly ideal would be private issuance. For instance the promissory notes of MPE. Wayne Walton is also strong on issuance by the sovereign.

But because of the need to allocate credit to manage volume (and to insure repayment), I think we cannot do without a credit facility to manage the whole thing. The books must be kept. Volume managed. Defaults handled. While there are many responsible individuals in society, we must also allow for the fact that we not all are completely capable of meeting our commitments without some gentle guidance.

But the understanding must be that the credit is ours. It is not the facility that creates credit, it’s our mutual agreement and the facility only exists to manage its day to day implementation. We are not going to face stern technocrats who are weighing us up to see how much they can get out of us. They are only going to check whether we can meet our commitments.

Credit facilities should have clear charters along these lines.

The credit facility covers its costs with real service and handling fees. A mortgage should cost no more than 10% of the principle and perhaps even less. A useful rule of thumb is that the financial sector should not account for more than 1% of total economic activity.

The Monetary Authority
In a major national economy, there will be plenty of credit facilities scattered around the country. The total volume of money must be managed centrally and this is then the Monetary Authority.

This central body indexes economic activity and makes sure the money supply develops accordingly. If the economy grows, the money supply grows equally and if the economy is facing a downturn for real, structural reasons, than the money supply must shrink accordingly.

The Monetary Authority oversees total credit allocation and makes sure individual credit facilities don’t overextend.

It should be independent from taxation and spending in Government. Otherwise a dangerous powerglut emerges and Government would have a strong incentive to subvert its operations for its own ends.

Considering the crucial issue of volume, there is well warranted distrust of any central control, but on the other hand it is very hard to see how all central coordination can be avoided.

As the wise men throughout the ages have told us, ‘the price of ignorance of public affairs is being ruled by evil men’. The dimwittedness of the masses and their blind trust in Government has been humanity’s bane for as long as there has been recorded history.

Therefore the Monetary Authority should also have the duty to make sure the populace is well educated in monetary matters.

As we can see all this is not brain surgery. Far from it. It is not the complexity of money that has made it such an elusive subject. It has been the Money Power’s subversion of public thought and its subtle manipulation of our greed and sense of insecurity, its exploitation of Stockholm Syndrome, that has made monetary reform so incredibly difficult to implement.

But now that the banking cartel has been exposed, now that a rational discussion of money is ongoing and a real chance at getting it right is slowly materializing, all the nonsensical ‘complexities’ are swept away.

Education is fundamental to achieve reform and it’s even more vital to secure it permanently. Every able bodied man should know the Monetary Authority’s charter and understand its basic operations.

All decision making by the Monetary Authority should be completely transparent. No oracles with bizarre language obscuring reality. No ‘need’ for ‘discretion’ to ‘placate markets’ and sundry nonsense.

We’re all grown ups, this our society.

Conclusion
Where we can talk endlessly about Usury because it’s so pervasive and this innocent looking 5% per year has such profound and unexpected implications, Mutual Credit is simplicity personified.

The reason that Mutual Credit is so incredibly attractive is that it is so close to our current experience. The only thing that changes is our perception: we don’t ‘borrow’ from the bank, we exercise our right to our fair share in the available credit. Therefore it is interest-free.

This familiarity also greatly helps the transition to a usury free economy.

This does not mean that Mutual Credit is the only way forward. The goal is the end of usury, not the implementation of Mutual Credit. But it’s hard to think of a more simple and understandable approach. It is immediately implementable.

Sure, the change will be profound and it’s difficult to fathom all the implications. But considering the stark choice we face, ongoing servitude and Plutocracy vs. freedom and justice, this is the most simple and straightforward approach available at this point.

It is the transition itself that is most risky and we will further discuss the implications of ending usury on credit in a future post.

Related:
Mutual Credit, the Astonishingly Simple Truth about Money Creation
How to Manage the Volume of Money in Mutual Credit
The Goal of Monetary Reform
The Difference Between Debt-Free Money and Interest-Free Credit

36 Comments
  1. Anthony: A great website we just got up running is http://www.credittothepeople.org Can you read it and comment?…especially on John Root’s PREZ, understadning money.

    Anthony…great writing on credit….More on Credit 2 when you get a chance…/thanks

  2. Our current debt based monetary system necessitates the lies, deception and corruption. Why? Because financial debt with interest (usury) is mathematically impossible to pay back in the aggregate. How? When homeowners or students or even businesses borrow money, they, are creating “NEW” money in the system/economy. Believe it or not, banks do not lend money, they actually “steal” through a deceptive contract, the “NEW” money created by the so-called borrower and make them sign a loan with interest. We are all guilty, including myself, of the pyramid scheme we have bought into. Best solution: Wake-up and understand money and begin to issue credit to the people, by the people and for the people.

  3. anony permalink

    Hi Anthony, great work. In Islam, usury/interest is called “Riba”, and there are some people working towards a “Riba-free” economy. Thought you might be interested in this: http://rifcon.net/

    • anony permalink

      And this too: http://www.akhuwat.org.pk/ – interest-free lending for small businesses. This is an existing and successful model of lending that is currently thriving.

  4. Erik S permalink

    Hello Anthony,

    I really enjoy your articles…

    I’ve read your articles and would like to join in the conversation.

    Are you familiar with State Charted Credit Unions in the United States?

    If so what are your thoughts on how they operate? They charge interest but are membered owned and operated whereas the profits are returned to the members.

    • well, they’re much better than BoA, that muchis clear. But I’d say they’re based on outmoded and faulty thinking nonetheless.

      We can do well without interest and even with the credit unions the usury redistributes from borrowers (the poor who need money) to the rich (who can save).

    • And thanks Erik, Welcome!

  5. Gary S. permalink

    Anthony, Interesting. Reminds of a film clip of greenspan–in response to waxman–“after operating for 40 years on the same assumption–I realized that there was a flaw in the system–the market is not efficient”. Which leads me to my money “utility” discussion–what’s is the intended use–what should be the intended use–it’s all about the community–money should be used to underwrite the community. The community is the antithesis of the NWO. Underwrite the community and the NWO [consolidation of wealth] goes away. GaryS

    • I’m not really sure what the utility discussion is all about Gary: that the money system should serve the community (and not the producers of money) is a given for me and underlies all my writing.

  6. “Mutual Credit” exchanges may provide a convenient way for individuals to accept the credit of others in a local system of special trade tokens but it is no substitute for a national currency.

    Nation states will never truly be free and independent unless they issue and control their own currency.

    • Why would ultra low cost and intrinsically stable credit creation be impossible for the national level Larry?
      Isn’t MC much better than fractional reserve banking credit creation?

      • Anthony wrote: “Why would ultra low cost and intrinsically stable credit creation be impossible for the national level Larry?”

        Hello Anthony – yes, I think a national currency should be stable and sustainable, unlike now.

        Mutual credit relies on the participants ability to repay/secure the loans but a national currency provides the added strength and power of sovereign credit. A sovereign state may deem that the money they create (sometimes indirectly through banks) must be accepted in the payment of taxes, debts, fees, etc. It is always in demand.

        Anthony wrote: Isn’t MC much better than fractional reserve banking credit creation?

        Both MC and “fractional reserve banking” will have some percentage of defaults and as part of risk management; both should keep a reasonable amount of capital on hand to absorb losses. This can also be done through insurance policies but again, they would keep some amount of capital available to handle defaults/failures.

        I suggest that it is best to have the borrower provide the needed capital to help build a secure loan in what I call “Borrower Provided Capital Banking – 0% Loans.”

        The term “fractional reserve banking” no longer holds any significant meaning. Banks simply do not require “reserves” to create loans. What they require is at least a minimum amount of capital on hand to weather storms and conduct transactions. The risk is calculated by the various jurisdictions including State and International Banking Accords and a lot of agencies between.

        Interest is not required by private or public banking. There are other ways for lenders to generate the needed capital, meet expenses and to turn a profit (e.g. service charges).

        • Let there be no mistake: the State should finance itself through this system also. But, as you know, I focus on interest-free credit for the commoner, as many proposals out there only save the State from interest-slavery.

          In fairness: in an interest-free economy, the State should be able to manage without debt. Let it just take what it needs through taxation, preferably on wealth.

          The current situation is that most sovereign debt is about the same as the nations have been paying in interest on the debt over the last couple of decades, meaning that there would be no debt, had there been no interest.

          I’m not concerned about defaults: they can always be completely comfortably absorbed, because the credit facility (public bank, if you insist, I propose doing away even with the word banking), can always take the no longer backed money out of circulation by passing on the cost for this to borrowers. A case could also be made that all the users of the system should help pay, even when not in debt, there is no need for a lower status of ‘debtors’.

          So there is absolutely no need for ‘capital reserves’. These are just a completely bogus tool that the banking fraternity uses to play the instability this creates.

  7. Mark R. Elsis | Lovearth.net permalink

    Excellent.

  8. Please check your co-relation between interest rates and investment. Evidence says periods of higher rates experience greater investment.

    • there is a correlation rduanewilling, but higher interest rates follow higher investment, not the other way around.

      CB’s raise interest rates during upturns both to get their piece of the action and to prevent overheating of the economy (because of excess credit). High interest rates precede recessions. The late seventies is a textbook case. German reunification another.

    • Richard, there is another point, I think you might have been referring to: if a country has high interest rates, it will attract a lot of foreign capital. In that respect high interest rates do have a positive effect on investment. Domestically though, high interest rates will disincentivize investment for those who need to attract capital to do so.

  9. A few questions/remarks for you, Anthony.

    1. You skirted around the unit of account/settling of prices issue and gave a hypothetical 1 unit = 1 dollar (or 1 euro). This is fine for hypothetical discussions, but it only works in the real economy if mutual credit coexists with the current money system. Personally, I think that any monetary reform should seek to coexist with the current money system because any attempt to undermine or abolish the current money system would create problems. (Specifically, it would rob those people who presently own dollars/euros, thus angering people and most likely leading to extremism. It would also almost certainly engender speculation against the current money system, thereby causing price instability.) Moreover, if the current money systems do fail, then I don’t see how the hypothetical 1 unit = 1 dollar/euro equivalency will help us. These are just my thoughts, now a question:

    You seem to prefer that the dollar/euro be replaced all together, judging by this remark: “On a national level this (1 unit = 1 dollar/euro) would also facilitate an as simple as possible transition. We can simply replace the current usurious dollar with an interest-free one.” Would this entail giving billions of units to someone who owns billions of dollars/euros at present? I can’t imagine that you could just replace the dollar/euro with another unit and just tell some billionaire: “Sorry billionaire, you only get a million units, even though they’re supposed to be equal to the dollars/euros that you once had.” (And if you did try doing that, then you’ll make powerful enemies for sure.) But if you did give billions of units to dollar/euro billionaires, then you will be giving tons of power over the new unit to the very people who probably liked the old way… That might be short-sighted too.

    2. Regarding paper/coin cash reserves. If you get rid of paper/coin reserves in order to simplify the new credit system, then you will see backlash among people who like paper/coin money. A monopolistic all-digital/all book-keeping money system would be a power grab that some people would oppose on principle, even if the new money system is designed to be benevolent. People can always trade commodity for commodity (there’s no preventing that), so I don’t think it’s a huge deal, but anyone attempting to replace paper/coin reserve banking with an all-digital/all book-keeping money system should expect strong opposition. That opposition will be rational and not immoral, so a lesser-of-two-evils justification simply will not do. However, if you can design an interest-free money/credit system that can successfully coexist with paper/coin reserve banking, then I would expect that much of the resistance would be mollified and disappear.

    3. Another issue is that the outright replacement of the current money system would cause a destabilizing upheaval of the present financial system. This would cost investors lots of money and cause increased unemployment among the many people employed by the current financial system. Moreover, as I alluded to in my first paragraph, if the present financial system is undermined, then the demand for dollars/euros would decrease and a lot of that money would be put to speculative purposes (buying up oil, gold, silver, etc. as fast as possible). (On a side note, if you would replace dollars/euros with demurrage money on a 1=1 basis, you should consider that indebtedness and usury have caused a large demand for dollars/euros, but the aim of demurrage money is to reduce demand for money… Perhaps having the same volume of demurrage money as there is presently dollar/euro volume is not wise. Perhaps demand for money is allowing the total volume of dollars/euros to be rather high, but the same volume of demurrage money would result in higher prices/lower purchasing power per unit.)

    You are very knowledgeable about this subject, Anthony, but I think that you should rethink your potentially destructive designs on the present money system. I have no doubt that you aim to help people, and you have expressed a love for Jesus/the Holy Spirit, so forgive me if I come off as condescending in any way (that is not my aim), but you should ponder these quotes:

    “You have heard that it was said, ‘You shall love your neighbor and hate your enemy.’ But I say to you, love your enemies and pray for those who persecute you, so that you may be sons of your Father who is in heaven; for He causes His sun to rise on the evil and the good, and sends rain on the righteous and the unrighteous.…” Matthew 5:43-45

    “Bring me a denarius and let me look at it.” They brought the coin, and he asked them, “Whose image is this? And whose inscription?” “Caesar’s,” they replied. Then Jesus said to them, “Give back to Caesar what is Caesar’s and to God what is God’s.” And they were amazed at him.” Mark 12:15-17

    • Thanks TR.

      I intend to write an article on the transition to a fully MC based economy, and I will go into some of the issues you mention here in that article.

      But let me give a few hints in what direction my thinking is going.

      1. No, I don’t squirt around at all: I’m fully committed to do away entirely with the current system, let there be zero doubt about that.

      Banking is the enemy. Banking is One and Banking and Money Scarcity and Usury are One. For as far as I’m concerned they’re all headed for a memory hole.

      The transition would basically simply be: refinancing all loans interest free. All circulating euros and dollars are debts to banks and would continue to exist, although the Euro must go too, of course, as it’s unsustainable, also interest-free, and an outright attack on national sovereignty.

      Theoretically nobody would get burnt. But in general in must be clear that the perceived ‘rights’ of investors play only a very small role in my world view. The idea of ‘return on investment’, which is Capitalism, is based on Usury and there will be hardly any financial sector left when we go interest-free. These people can go find a job doing something productive. The economy will boom, so that should not be a problem.

      The richer they are, the less I care about their ‘rights’. They are so rich because of Usury and other outright frauds and their gains are ill gotten.

      Normal middle class savers have very little to worry about.

      2. Nono, I’m all for cash! In an MC system there is always sufficient cash and all balances can be withdrawn in cash at all times, even all simultaneously, if needs be. Whether the money supply is paper or electronic is immaterial and they should be completely interchangeable. The credit facility should never face problems due to scarcity of paper money. If necessary, more can and must be printed.

      3. As I said in point one, the current system must simply go. I don’t talk about corruption in finance. Finance itself is corrupt. I’m not at all interested in the jobs of bankers, investors, traders and the like. Many of them are sociopaths and banks actually select candidates on sociopathic tendencies.
      However, you are absolutely right that a badly managed transition could cause short term upheaval on commodity and other asset markets. I will discuss this in more detail in the planned post.

      The goal is a complete transition to a Usury free economy, but obviously utter disgust for the current paradigm cannot excuse irresponsible behavior.

      • Thank you for your quick response. The only point I feel compelled to make in response is that if an interest-free money/credit system does its job right (i.e. is sound and charitable), then there will be less demand for loans (and debt) anyway. If the current money system coexists with an effective interest-free money/credit system, then people could choose to use whichever system that they want – or both. Coexistence of money systems gives people more choices and greater freedom, whereas monopolies reduce choices and reduce freedom.

        • Yes, very much so: abundant money will radically diminish debt. Also, money will start circulating much quicker, meaning the money supply will probably start collapsing in the early stages of the transition, to balance out at its new natural equilibrium. It’s particularly difficult to fathom the effects of this in the short term.

          I understand what your saying with the monopoly bit. There are two angles: when people have a choice between financing at 5% or 0%, I think it’s a fair bet the 5% option will find little traction. So it’s not an enforced monopoly, but a natural one.

          The second angle is, that good national money does not preclude other currencies. I have no desire for legal tender laws, for instance: national money becomes national because the Government accepts it, there are no further laws necessary. Other units are welcome. If they can survive vis a vis 0% national money, than why not?

          In fact: I believe there will always be a case for regional currencies; lesser competitive regions would face deflationary pressures if they import more than they export. This could be addressed with regional currencies.

          • Good response, although I still think that taking an antagonistic/confrontational stance towards the present money system is dangerous and unnecessary. (For example, statements like this are worrying: “The richer they are, the less I care about their ‘rights’.”) I say this because I care about the well-being of everybody, including: you and partisans on your side, partisans on the status quo’s side, partisans on any other side, and any innocents who might be harmed as collateral damage in a potential conflict. I’ve tried very hard to understand the merits and reasoning of all sides in these monetary debates. I’ve read arguments coming from every side I can find and I think that all positions (whether it be the status quo, Austrian economists, or the interest-free crowd, etc.) have merits and make some good points that should be taken into serious consideration. However, I think that all of those positions have dogmatic tendencies and potentially serious flaws, which is why I recommend against taking an antagonistic/confrontational stance towards your opponents (but I still encourage you to criticize your opponents and speak your mind).

            • Thank you TR, point well taken. In terms of perspectives, I tend to take similar approach: study all schools and synthesize into your own, taking what is good of each and leaving the not so good there. Even my favorite sparring partners, the Austrians have given me plenty: healthy distrust of the State and keen focus on volume, for instance.

              I hear you on the rich. I don’t want to hurt anybody, most certainly not physically. But I think the main intransigence will continue to come from their side. However: I’m all for a peaceful and respectful transition.

              • Agreed.

  10. Mighel, some points of fact.

    The term ‘mutual credit’ probably goes back to the 19th century mutualist/anarchist movement with thinkers such as Proudhon and practical experiments such as the Cincinatti Time Store.

    Michael Linton’s original LETS description does NOT link LETS units to Hours. He specifically advocates, as you do here, linking LETS accounting units 1 to 1 with the national currency.

    Hours are advocated as the base calculating unit in Time Banks, which also advocate equality of each participant’s time: one hour of work = one hour of work whatever the service.

    However, it is also theoretically possible to use HOURS as the unit of account for calculating differential prices. I do not know of any system in practice that does this. Also harder to account for value of goods although some Time Banks attempt to calculate the time taken in producing goods into the price.

    WIR Bank has been definitively proved NOT to be a mutual credit system. This is a widespread myth in the English speaking world. If definitions mean anything at all, mutual credit generally means “peer to peer credit by double entry bookkeeping” as you describe it. This means that any participant has the power to issue credit to other users at the point of trade. This does not happen in WIR Bank. WIR credits come into circulation as conventional bank loans in WIR currency backed by personal guarantees.

    • Interesting stuff, thanks!

      I don’t agree on the take on WIR: in a purely peer to peer mutual credit system, we don’t give credit to customers. When we buy, we simply use the credit we have associated with our account.

      This is also the case with WIR or the kind of MC environment that I propose in the above.

      WIR, over the years, seems to have become a little heavy handed and nowadays seems to focus more on regular banking. This is why Greco claims the Money Power has got its people on the board. So it is unfortunate, but it seems more historic than current example. Which is unfortunate.

      Still, it seems to serve a reasonable function in the community even today.

    • Some questions regarding using hours as a unit of account:

      1. Are all labor hours equal? (Is the labor hour of a skilled worker (ex. a doctor) or someone who does an undesirable job (ex. working in sewage) equal to the labor hour of someone with a cozy, easy, rather unskilled job (ex. cashier, waiter)?

      2. How many hour units would be in circulation?

      3. When would hour units be created and retired?

      4. Who would have control over issuing hour units? (Could someone get labor hours for working for themselves?)

      • Interestingly, the Protocols (great masters of the monetary) propose hours as a unit of account.

        In LETS and Time Banks, yes, all hours are supposed to be equal. But that also is a real problem, because the users do not really accept it. Yes, the poor do, but skilled people don’t.

        Hours are created by having people use their credit limits. LETS is not very mature in its development, so real volume issues have not occurred, for as far as I’m aware. The amount of credit is usually settled in the house rules of the network using them. Typically there will be a board organizing it and 1 person, 1 vote general council.

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