Ethical Markets Review publishes this highly-original, carefully researched paper by renowned Brazilian physicist-mathematician-technology assessor and cultural critic, Rose Marie Muraro, as a contribution to the widening debate on how to re-design money creation and credit allocation. Author of many books, Muraro was made an Honorary Citizen of the City of Sao Paulo, and in 2005 was declared Patrona do Feminismo Nacional. While Rose Marie Murao is celebrated in her native Brazil, we are honored to introduce her work to our international audience. The topic of reforming money creation and credit allocation has grown in urgency since the Wall Street debacles of 2007-8. Muraro’s contribution to this expanding debate is timely and expands our views beyond the narrow, obsolete horizons of central bankers and their minions in economics and their failed financial models. — Hazel Henderson, Editor-in-chief
By Rose Marie Muraro
Let us take as paradigms of social, political and economic history win/win, win/lose and lose/lose applying completely different criteria from those used by conventional economists. Following these criteria, only three types of modes of production exist. The first includes all of pre-history in which the paradigm for proto-human groups and later homo sapiens is win/win, that is, simple barter, and/or barter mediated by a type of object, or objects that serve as parameters to measure the value of these products. They might be shells, stones, cattle, foodstuffs, salt or metal money, but that did not bear interest. It was then a win/win economy in which no one lost or gained. It was a price assumed by the buyer and seller, or better, by those who bartered.
This lasted roughly two million years before the historic period began at most five thousand years ago. Gold and silver monies were invented by the Lydians in the sixth century B.C.E. They were monies that produced interest, and therefore inequality. So began a new relationship between human beings, win/lose where wars had a completely different sense from wars in search of territory or food during the phase of pre-history. Now wars are more frequent, and are made in search not only of territory, but of power and money. Power is more vertical than ever leading to the great empires of antiquity, including the Roman Empire, then the Middle Ages, and later the industrial period that greatly intensifies inequality among human beings and where states, laws and a new type of power based on money was created. Now the struggle is for money.
Or better understood, when one great period ends and a monetary period is born, all political and ethical values change. Relations are not those of sharing goods by the entire group, but of competition within groups that creates a different type of cruelty, that of greed and avarice. The state provides the legal modalities by which these are practiced. The win/lose period is a time in which man to man becomes a kind of errant wolf in a celebrated phrase of Thomas Hobbes. The principal difference between the two paradigms is that they are not born at the same time, but are in accord with the nature of invented technology. The technology of metallurgy dates from 10,000 years, along with the agricultural revolution meaning the capacity of humans to fix themselves on land thanks to their ability to cultivate it, especially with the plow that requires heavy labor. Thus is born slave society that did not exist in pre-history, and in different forms exists until today. In pre-history, there were not masters and slaves, but friends and enemies with much the same value of honor. This value we can call that of the warrior, but it now loses out to the competitive relationship win/lose, masters and slaves. The nature of the state changes and the most violent take control of it and become gods. They consider themselves gods or sons of gods, and later royalty by divine right.
Meanwhile, technology is becoming more sophisticated and no longer serves human life as in cooperative society. It is fatal for dominated majorities because it only serves those who can pay, and this continues today. There is a symbiotic relationship between technology and money. Those that are technologically less advanced always lose to those that control technology. We cite an example from recent centuries. The indigenous people who inhabited the Americas and the Africans were enslaved, and are still in a non-competitive relationship due to less advanced technology. In the first instance, they could not resist heavy armaments of the colonizers.
In this paradigm when one passes from one phase to another more advanced, those who have less technology always lose, including their own lives. And those who dominate technology always win. The nature of symbiosis between technology and money becomes ever more solid and accelerated. Here we can perceive clearly the place of acceleration among paradigms. The period win/win lasts approximately two million years. The acceleration of the agrarian period lasts almost the whole of the last 10,000 years when it is substituted by industrial power and the industrial state. This lasted slightly less than 300 years since the middle of the l8th century, but the relationship continues being the same of masters/slaves in the two subperiods of win/lose: the agrarian and industrial periods. Slaves finally became mostly free workers, and in the communist revolution in Russia the oppressed should also have been liberated, but were not because the revolution did not touch the principal relationship which is between money and technology.
The 21st century: a new win/win economy and a new kind of money
In the 21st century technology has made an enormous qualitative leap. No more is it the low velocity technology of the second half of the 20th century, but the technology of highest velocity (the speed of light) of computers and all the inventions derived from them. Now events that happen in one part of the world are known worldwide in real time. This radically changes human relations, and with them the nature of the economy and of politics.
Here we have to discuss the same problem that appeared when the first paradigm (win/win) was surpassed by the second (win/lose) which had greater knowledge of technology and therefore dominated pre-historic and other ethnic groups. Still today among these groups are some remnants of the earlier paradigm, but always among the lower classes. The great phenomenon that we now perceive is that these oppressed groups, and all the oppressed of the world are able to become conscious of their oppression and to react. As an example we take the Arab spring where a majority of the population reject tyranny and poverty which they suffer under cruel dictators. In general, oppressed people strive to prevail peacefully, demanding economic democracy, meaning money and wealth do not remain in only few hands, but circulate in the entire population beginning a win/win movement. In the United States and in Europe we also see signs of revolt. People go to the streets because they do not want to pay the costs of the financial sector binge in the crises of 2001/2002 and 2007/2008 as imposed on them by the IMF and other international institutions that control the world economy: fiscal austerity to the contrary of the old neoliberal slackness; cuts in retirement income, salaries and social services that make nations much poorer that were dominant during the win/lose period, but today appear in rapid decline.
What we now have is political democracy that has been developing during the last centuries, but not economic democracy that new generations demand. For this to happen, it is necessary to change the nature of money making once again a win/win money, and in doing this changing the nature of the state placing it in the hands of the great majority to the detriment of money masters.
In the second decade of the 21st century, people are on the streets in practically all the countries of the world, including South America that specialists have categorized as “miraculously” balanced. In 2011, more than a million people took the streets in Chile, principally young people, demanding greater resources for education and this protest became a demand for full democracy. In China, a similar movement began—the Jasmine revolution–but was ruthlessly suppressed although the media barely mentioned it.
The desire for liberty, equality, and fraternity finally begins to be spread widely thanks to Facebook and other tools of communication that cannot be controlled and are accelerating these movements. We cannot tell where this is going to end. But it has to stop because now the world is being transformed establishing either a win/win paradigm, or a highly violent lose/lose paradigm in which everyone ends up losing due to the excessive use of natural resources. Either we arrive at a new win/win paradigm equal to the pre-history period, but infinitely more sophisticated, or if not, we perish together.
Complementary monies and universal money
The first thing that is being done is changing the nature of money. This began to happen in the second half of the twentieth century. In all areas of the world, but principally where there is destitution, complementary monies are appearing that are controlled by the poorest communities and exclude the rich. In the first phase win/lose money and win/win money exist together. We can now see how these currencies that we call win/win monies or complementary monies function. The win/win monies will necessarily be local and managed by the local communities. From local they will spread to national and finally become a universal complementary money. We will call all these monies complementary. They appeared in the nineteenth century being invented by German economist Sylvio Gesell and upon learning about them, John Maynard Keynes said: “You will owe Sylvio Gesell much than you will owe Marx.”
The first truly important examples were those of the Great Depression of the l930’s in Europe and the United States. The first was in Germany still experiencing hyperinflation in which people were living in destitution and hunger. One German businessman, the owner of a bankrupt coal company, did not have money to pay the salaries of his workers, and made an agreement with them. He gave each a book with thirty stamps that could be used as money in establishments that made agreements to accept them. He called this money the wara. The workers accepted them and the stamps which were backed by coal began to be used. The first time a wara circulated it doubled its value, the second time tripled, and so forth. The population of the city exchanged each wara 300 or 400 times. In this way, they managed to build bridges, roads and to escape destitution. The achievement of this firm was so great that within two years more than 2,000 firms had adopted the idea though giving the monies different names. All these monies were locally delimited. But the German central bank feared that complementary monies might take the place of the official currency. Therefore, all were made illegal, and large numbers of German people fell back into poverty and unemployment. It was workers and women who elected Hitler in l933.
A similar example occurred in Austria. The mayor of a bankrupt town only had 40,000 schilllings, the Austrian currency, and put into circulation not his town’s schillings but instead 40,000 worgls backed by the schillings. The example spread, and Austria also enjoyed a period of prosperity until 1934 when the central bank moved to outlaw worgls also fearing that worgls might replace the official money.
During the early l930’s, complementary monies were also tried in a number of communities in the United States. Influential Yale University economist Irving Fisher championed them in his l933 pamphlet Stamp Scrip and urged President Franklin Roosevelt to approve them, declaring that they would end the depression in three weeks. While Roosevelt valued Fisher’s advice, and was intrigued by his argument in favor of stamp script, he opted to centralize monetary policy, and issued an executive order that prohibited “emergency” currencies. Instead Federal Reserve notes were issued.
However, complementary monies continued in some European countries. The best example may be Switzerland where the wir circulates to the present time, coexisting with the official money, and helped make Switzerland the most economically stable country in the world until recently. By the third quarter of the twentieth century, complementary monies were spreading throughout the world, especially in the “third world” where little by little they were helping to reduce poverty. Today approximately 5,000 complementary monies exist.
In Brazil in the l990’s, the first complementary money was created in an impoverished favela of 20,000 inhabitants called Conjunto Palmeiras, which at times during the rainy season was virtually uninhabitable due to high water. During a ten year struggle against everything and everyone, Joaquim de Melo, a one time seminarian influenced by liberation theology, managed to introduce the kkPalma backed by the Brazilian real where one Palma equaled one real and with 2,000 reais initially providing the hard currency backing. Little by little the favela was made more habitable, and gained the support of national and international organizations, even getting the attention of President Lula. The Brazilian central bank, instead of declaring the Palma illegal, encouraged its use and today there exist 154 community and local banks spread over Brazil in areas of poverty to help the poor rise out it. All complementary monies are backed by reais loaned to the community by the BNDES (National Bank for for Economic and Social Development). Conjunto Palmeiras has become a middle class community.
With the arrival of the 2008 crisis that is still with us and that has become a world recession, the value of the dollar is falling as the international reserve currency, and there is a return to thinking about creating a universal money somewhat similar to the Bancor proposed by Keynes at Bretton Woods that would be a universal money independent of all nations. But Keynes’ proposal did not prosper, and the United States dollar became the universal reserve currency. Thus began the history of a hegemonic great power that possesses a hegemonic money that was the money of exchange for all international trade.
Today this order of things is changing as the world’s people fear being gripped by a deep and lasting recession, or even a second great depression. International monies denominated in euro or yen and especially gold whose quoted value has exponentially increased, and become the highest in its history, are being purchased. But this is only a palliative. Economists who reject conventional wisdom are thinking about an internationally sustainable complementary money, independent of all countries.
Universal money and the future: the third paradigm
As we affirmed before, violence and pacifism are coexisting in a win/win third paradigm. Starting with social money, the lowest classes are become conscious of their oppression throughout the world. Community meetings are leading to a new awareness of their dignity which they did not have in the second paradigm. The principle characteristics of the third paradigm (win/win) are the consciousness of inequality and of concrete struggle against it in practically the whole world, many times sacrificing many thousands of lives as has been happening in the Arab world. What needs to be emphasized is local social money must be complemented by a universal money that changes the parameters of international trade. If the contrary occurs, the efforts of the poor to rise out of poverty will require more time. What follows is based on the book “Universal Money” by Geraldo Ferreira de Araújo Jr. (Rio de Janeiro, 2011) to which we add our comments.
Universal money is the second item of the third paradigm. This money would be more or less an expansion of the Special Drawing Rights (SDR) of the International Monetary Fund. At present, this SDR is a comprised of four monies: the dollar, the euro, the yen and the pound that are the backing for loans made to nations. Each country puts a small part of its reserves in one of the four monies that back the SDR. This is to act according to the second paradigm that privileges rich in detriment to poor countries, since the more expensive monies are those that determine the value of the cheaper currencies.
In the third paradigm, the new universal money that at the moment we will call criterium-conceptum would be a bundle of monies of the first thirty or forty countries, and after an initial phase, of the 192 countries of the world. It would include a completely new form of reserves for the Reserve Value for Sustainable Development (RVSD) that would not have the dollar in the lead, and instead be an average of all the world’s currencies. It would no longer be based on GDP that is only a adding up of the riches and services of the country, but a much larger spectrum that encompasses all human needs. Some of them will be referred to later. Before this we have to be aware of the profound change that the sum of all these values and their average based in the new RVSD money, that we are calling criterium-conceptum, will have. For example, the countries with the greatest GDP might have a ranking inferior to poorer, but much more balanced countries. The principle values are the following:
• Embracing a pledge to reject war;
• The extent of a commitment to environmental preservation, including the search for sustainable energy sources, and their use;
• Dissemination of knowledge and of the relations between people within their own national borders and with others (issues of civil war and terrorism);
• Investments in new ways of promoting solidarity in overcoming hunger inside and outside their own borders (humanitarian aid to nations threatened with famine);
• Implementation of programs of digital inclusion;
• Development of studies that aim to expand the idea of quality housing for masses of people, and including improvements in this housing;
• Financing studies on improving public health, and concrete actions taken.
Also elements of GDP integrated to these principal values: industrial productivity, banking liquidity, commercial aptitude; percentage of people employed; the capacity for national self-financing, the size of the internal market, the size of GDP and per capita income; the Gini index of inequality.
Obviously, when this consensus takes hold and involves all nations of the planet, other items will appear. For example, a nation may win points for robust national output (GDP), but lose points for not showing respect for established ecological principles. Following the same line of thinking, a low per capita income loses part of its negative dimension when investments are made to improve education at all levels. Better understood, the Reserve Value for Sustainable Development ceases to be represented by pieces of paper or by precious metals and will be the capacity for adjustment of each nation in each of the items established for RVSD. The RVSD sum, and the weight given to each item will be placed on the internet available to any citizen who wants to know them, and the center of control for them will be similar to the IMF, or rather a new IMF and will act on these new values as we will discuss later.
Before proceeding, let us see the changes made in the old system. First, the most important of all will be a new concrete reality, and a collegial style of world governance that up to now has only been in the thinking of some visionaries. Second, this will end the system of monetary reserves that today does not mean anything other than a piling up of standby resources such as budget surpluses and international reserves that every country has in dollars, but without any productive use in the country that produces them. There will no longer be need of them, and they can be used for the work of progressive betterment due to people within a country.
Third, hegemonic monies will end and their consequences will no longer exist. The poorer countries will no longer win and lose according to the caprices of the dollar that today are making the whole world pay for the economic crisis we are experiencing. Local monies, and the new international money will be necessarily anti-cyclical, and the crises produced by money masters will cease to exist. Their character as fabricated, not natural crises will be clear for all to see.
Another important factor is that nations become qualified only by the scale of their internal achievements. The ruin of one nation will not as now happens bring the ruin of others. The domino effect will end, and a new type of globalization will enter in strength.
Also, the new international organization will have various specialists who in itinerant missions will aid governments that solicit help for the making of plans that seek to achieve plausible goals of sustainable development without, however, exercising any coercive role in the implementation of the suggested measures.
What in reality is criterium-concempetum?
Now let us see what in reality is RVSD or criterium-conceptum.
It is only a virtual money, and therefore no one can buy or sell it. It will serve only as a parameter for international trade, avoiding all its distortions as, for example, the payment of dollar percentages in buying and selling. The vexing daily, and even hourly quotations that calculate the value of a group of monies to the dollar will end. The criterium-conceptum is not subject to any speculation. It is only a modern mechanism for adjusting third paradigm exchange relations.
In other words, the currency of each country will be just this: the American dollar, the Canadian dollar, the French euro, the Greek euro and so forth for all the countries of the world. Blocs of nations will be transformed into a collegial and democratic world bloc. This is true globalization, absolutely necessary in order that the third paradigm may develop.
If from the start of the period of conversion these reserves begin to help countries adapt to the parameter guarantees of the “new money”—the RVSD—countries will increase considerably their chances of fermenting them and consequently of making them worth more than they represented in dollars at the beginning of the process, this obviously varying with the qualitative results of investments achieved in their respective internal economies.
This period of adaptation will be long but very important for international dialogue. For example, each value once converted into criterium conceptum will have value X worth 30% of 1 criterium-conceptum, Y worth 78% e Z worth 13%.
Increases in value will depend exclusively on the internal performance of each nation face to face with established factors, these being the universal goals to be pursued.
With all these considerations we also observe how money of the first world is reaching its end. Some of these countries owe more than their GDP. All this can be changed when there is implanted the full use of criterium-conceptum, the only Reserve Value for Sustainable Development possible.
How will it work?
Operationally the new money will differ little from the models that are in force today, that is exactly as foreign exchange credits are made in dollars today. What changes as we already saw is the mode of calculation of the value of each national money given this new model that is entirely free of crisis issues of the present moment of the “model nation”, in this case the United States. There is also added a strong shield so United States cannot continue spreading its inflation throughout the world or tie its mega speculative market to the productive forces of other nations. Thus, the criterium-conceptum is an interest free virtual credit card that provides immediately money to another country in accord with the values attributed to each in RVSD by the collegial committee of all countries.
The contact between one currency and another occurs through the intermediary of virtual accounting. And the value as much of one as the other does not depend on a situation of the moment be it of the US economy, or the economies of the rest of the first world—Japan and the European Union—but of the specific individual internal performances of each country in the face of the parameters of the RVSD.
Of course, an individual or corporate Japanese investor will be able to continue putting their resources into the New York or London or São Paulo stock market. Without doubt, this will continue. However, as it is an action that begins in Japan and ends in the United States, England or Brazil, the only way to operationalize this transaction is via yen that counted in criterium-conceptum arrives in US dollars, pounds sterling, or Brazilian reais. There is no chance of that investor engaging in an operation originating in some other country that is not the territory from which the investment originates. A future remittance of all or part of this quantity obviously will follow the same route: US dollars, pound sterling, or Brazilian reais to criterium/conceptum to yen.
In the same way, there is no possibility that the target country of a remittance will not receive the value credited in a money that is not its own. The US dollar will circulate exclusively and specifically in US territory, the pound sterling in the United Kingdom, and the real in Brazil. The same thing for the yen relative to the Japanese islands. No one, neither an individual nor an entity can plan to use within territories in which they operate a currency other than that of the nation itself.
It’s obvious therefore that the cited Japanese investor—or any other person or entity—can have an account in US or Canadian dollars or in Mexican pesos, for example, provided that they are deposited in some financial institution based in the territory of these nations. And if beyond Japan, the United States, Canada and Mexico this investor also might have an account in a bank in France and has decided to make an investment in Germany, the process will be exactly the same: French euro/criterium conceptum/German euro. In the case of the common tourist, just as happens today with the use of credit and debit cards and withdrawals, observe that the only thing that changes is the currency of conversion ceases to be the American dollar. Meaning one applies the criterium-conceptum to all operations.
The criterium-conceptum has as a paramount outcome two main purposes: to eradicate from the collective planetary conscious the notion that money is something different from a mere model for exchange, and to define territorially the value of each regional money that will be determined as a function of the performance of in-house duties that must be done, specifically, by each country for itself. At the same time, in order to raise the value of a currency, nothing will prevent a country from copying the behavior of others that raised their value, for example, by providing greater protection for forests, or reducing poverty.
As now can be seen, this money is anti-cyclical, that is, it ends financial crises, bubbles, or the situation where monies must yield to the caprices of hegemonic money, for example, to inflation because the dollar has to meet obligations beyond its buying power, thus being devaluated, and so forth.
Therefore we can affirm that the criterium-conceptum means the end of hegemonic money, and that money will occupy its true place. It will be the US dollar in the United States, the Canadian dollar in Canada, the pound sterling in the United Kingdom, the real in Brazil thanks to the existence of criterium-conceptum as the Reserve Value for Sustainable Development.
The entry of Brazil into international organizations together with other emerging nations broke the decrepit G-8 until then the planetary economic executive committee, redefining the hierarchy of power and contributing greatly to the strengthening of the G-20 as the center for global economic articulations. The G-20 directly taking part in the process of decision making for the global financial system in practice signifies nothing more than a new international order.
In April 2009, the first reunion of the G-20 took place in London. The main topics examined focused on regulation of the international financial market, including so-called zones of fiscal paradise, and revision of thinking about the entire banking system, notably in relation to Switzerland, Austria and Luxemburg, long known as great stimulators of tax evasion funds that obviously do not belong to them. And while the United States and the United Kingdom were joining forces in defense of fiscal stimulus as a main source of economic revival, Germany and France countered and demanded greater regulation of the international financial system. Is it not therefore, the place and the time for the idea of universal money to be presented, and seriously discussed?
If we do not get local monies and also a universal money different from the present, and that does not generate interest, things will always be as they are. There will be more of the same. Only they will become exponentially worse each day until we are lost in the violent paradigm lose/lose. Which do you prefer?