Mutual Credit Confederation

So years ago I was talking to my dad about Milton Friedman and other “free market” “libertarian” economists, and I said that I thought it was kinda funny how a lot of these guys want government intervention in every aspect except the economy. My dad responded, saying that if anything he takes the opposite perspective, basically that all the government should do is regulate the economy. Now Years later, after reading Proudhon, understanding mutualism, and realizing the inevitability of a mixed economy, I keep coming back to this idea. Maybe this is what libertarians have gotten wrong since they became capitalists. Now I don’t fully take my dad’s perspective, as I do not see a bureaucratic state as trustworthy (in any regard). Though here I will sort of defend this perspective and explain how a government of sorts could operate in this regard and the advantage of such a system. Now I’m an anarchist, so I oppose coercion, monopolies, and centralized power. And so, as stated, a centralized monopoly of violence coercing economic actors into “playing nice” is not a stable, reliable, or trustworthy way of doing this, however a mutual credit confederation might just be. First I will have to explain some key concepts, so we can all be on the same page.

In economics there are four models for an economy. These are; Traditional economies, where production and distribution of resources are determined by social customs or traditions. Market economies, where production and distribution of resources are determined by supply, demand, and competition or market forces. Command economies, where production and distribution of resources are determined by the decisions of an authority, or commands. As well as Mixed economies that are a mix of elements from the other three. Traditional economies do not alienate producers or consumers from their products, however cannot function without an homogeneous culture, which makes scaling up impossible. Market economies are prone to alienation, however get better as they scale up, and are excellent at producing and distributing elastic products (products where demand is heavily affected by price) but are not great at accounting for inelastic products (products where demand is not very affected by price). Command economies are good at accounting for inelastic products, but fail at accounting for elastic ones, are very prone to alienation and scale just fine. So as all these systems have their clear advantages and disadvantages it should be easy to see why mixed economies are the best and therefore inevitable, assuming a society's economy progresses as tends to be observed. Now Tripartism is a mixed economy structure where negotiations between three social partners, which usually include governments, corporate interest groups, and trade unions negotiate and come to operational agreements.

    Mutual credit is a system of exchange that uses credit accounts and ledgers rather than physical or centralized currencies. Lines of credit can be open at time of service, recorded on a ledger, and cleared later through transferring from accounts above zero (positive) to accounts below zero (negative) till all accounts close at zero. A process known as credit clearing. Mutual credit allows for creditors and debtors to be the same people, money to be created at time of service, and debts to be cleared without chance of default. I think this makes it the most ideal medium of exchange. The primary purpose of a bank is to facilitate exchange, exchange ideally is beneficial for all parties involved. In this sort of system coercion would not be required for people to be a part of it, for the same reason there is no law saying that all (or even most) sellers need to accept Visa and/or MasterCard, nor is there a law requiring all (or even most) buyers to have Visa and/or MasterCard, but all (or at least most) sellers accept them and all (or at least most) buyers have them. You won’t get arrested if you don’t, but it is in your own best interest to. Incentives working better than deterrents, as they usually do.

    A confederation is an organization of independent persons or groups. They are generally formed through contracts and/or treaties for the purpose of trade, collaborative effort, representation and defense. In contrast to a federation, independence is maintained through the right of succession and decentralized establishment. Federations tend to have a central authority that grants authority to involved entities. Confederations, on the other hand, are made up of independent authorities collaborating on the basis of common interest. Consider a web for a moment, A federation is a web built from the center out (inside out centralization) and a confederation is a web built from the edges in (outside in centralization). In a confederation centralization is a result of independent entities collaborating. This inside out V. outside in distinction I prefer to the bottom up V. top down distinction, as top down or bottom up are still hierarchical pyramids and most pyramids are already built from the bottom up, and I prefer equality to hierarchy. A web is more equal and an outside in construction results in less concentration of power allowing all involved entities to maintain their independence.

    A Credit Union is a mutual organization, owned by its members, operating for the benefit of its members and not for profit. They usually result from interest groups pooling their money and moving it around but cannot create money like banks. An example of a credit union is BECU (Boeing Employees Credit Union). BECU was originally created by Boeing employees, for Boeing employees. It has since expanded, and now almost all residents of Washington state can become a member (and part owner) It is still however a non-profit owned by its members. It is currently the largest credit union in the State of Washington and the fourth largest in the United States of America.

    A mutual credit confederation would be more like a credit union that could not only move money around but create it like a bank, through some sort of mutual credit. Interest rates would likely be low or negative, if existent at all. In my (and my dads idea) this could replace the government in any regard. Consider for a moment the federal reserve. The federal reserve moves money around to incentivize certain activities, it insures banks for financial security, and regulates inflation through quantitative easing and I see no reason they could not do more. Like a universal basic income, stock trading, or even facilitating exchanges and mediating negotiation of economic actors in a voluntary tripartism economy. Now one may respond that the federal reserve is a central bank controlled by the government, and currently this is true, however historically it is not. The federal reserve resulted from independent banks collaborating for the sake of financial security. Since then the state has gotten more involved than I would like, but with its origins in mind there is no reason to think that it could not arise and function voluntarily in a stateless, decentralized society. And if you still think this is contradictory to the ideas of anarchism, then I would just point out that it has precedent in the ideas of none other than the father of anarchism himself, Pierre Joseph Proudhon.

    The establishment of a mutual bank was one of Proudhon’s biggest goals. He raised a lot of capital for it and even more interest in it. Unfortunately he was exiled from France and had to return the invested capital, before it could be built. Nevertheless the idea of establishing a mutual credit bank of the people has been one of the most popular strategies for implementing mutualism by those who would seek to do so. When I talk of a mutual credit confederation, this is what I am talking about. Proudhon sought, in his day, to reform the national bank of France through his mutual bank of the people. And I seek, in my own day, to reform the federal reserve through my mutual credit confederation.

    Let us consider companies or corporations, their proprietors, their laborers and their consumers. Shortage in one usually results in more value to that one. Let’s think about a situation where a proprietor owns five dollars of capital, pays a laborer five dollars to produce something of value, and sells it to a consumer (who would pay twenty dollars for it) for fifteen dollars. Each of the three parties got five dollars worth of value but the company got fifteen. Now let’s imagine that the annual profit of said company averages one hundred dollars. The proprietor could likely sell this company for five hundred dollars, money could be made back in five years and doubled in ten, pretty solid investment. Now let’s say one year an extra item is sold, the profit is then up to one hundred and five dollars, but the company could, at that point, be sold for five hundred and twenty five dollars. So as you can see the company gains more value than any individual involved, but the proprietor owns the company and therefore gains it’s value as well, which he may liquidate through sale of either the whole company or parts known as shares or stocks, which is what I would say is the best store of value. Though that seems a bit unfair as the proprietor gets more value than any of the other parties. A solution for this could be a fee on the trading of stocks to be distributed to the other parties. Now I use the term fee rather than tax, to keep voluntarism in mind. As I stated above no law requires sellers to accept credit cards like visa and/or mastercard, but most do even though they are charged a fee in the transaction. But because this opens up opportunities for greater distribution they are happy to pay it. In a similar way I do not think state coercion would be required for the fees in the trading of stocks, as this would open up access to greater value.

    Now I do not trust the state and the only acceptable governance is self governance. Once any sort of hierarchy is established, people will be in a position of power and those people will seek to maintain and likely even expand their power. This is not conspiratorial thinking, it is just human nature. I have very little power, but I have no desire to lose the little bit of power I have if anything I would want more. And although I may seek to expand my power and you may seek to expand yours, as long as we are on equal footing neither one of us will be able to expand our power more than the other. But if I start out in a higher position of power over you, I have a head start and will almost certainly be able to expand more than you. Picture for a moment a ladder, most people are at the bottom rung, but a few are at a rung or two above. Now we all start to climb that ladder. The people at the higher rungs have a head start and can kick the people below in the head, keeping them down and furthering their own advantage. The typical proposed solution is a constitution of sorts, basically making the people on the higher rungs pinky swear they won’t climb any higher or kick the people below in the face. Then they always do anyway, as stated, that’s human nature. Now to bring this back for a moment to reality let us consider the history of the United States. The US. was started with a very minimalist government approach, attempting through the constitution to limit the powers of government. And since day one the government has been expanding those powers slowly but surely. So it seems clear to me the minimal government approach does not work. So my solution is equality, or monkey bars to go back to my previous metaphor. I want to flip the ladder into a vertical position making that ladder into monkey bars instead. Now there is no way to climb higher as there is no higher to go, and nobody below to kick in the face, people beside to shove but they could shove back, putting us on equal footing, no one has a head start or greater chance of beating the other. One organizational example of this is Narcotics Anonymous, and Alcoholics Anonymous, ETC. There is a line in these texts that says “our leaders are but trusted servants they DO NOT govern. Now in liberal democracies we may call our leaders “civil servants”, but they DO in fact govern.      

    Oftentimes libertarian candidates for president are asked what government institutions they would eliminate if elected. Now as a libertarian I have asked myself this question, and the answer I come up with is, all of them, except for the federal reserve, then I would reorganize the federal reserve in the style of a credit union. Why? Because, to paraphrase my dad, "take care of the economy and it will take care of everything else”. And as a class reductionist I couldn't agree more. But we don’t need a state to do this, the federal reserve already does, and to paraphrase my favorite philosopher, Pierre Joseph Proudhon, "anarchy is the reduction of politics to its economic functions". And that is exactly what I am advocating for here.