Episode 83 – Mutual Credit and the War on Cash with Brett Scott

This week Brett Scott brings us a report from the war zone. He’s based in the UK but the war on cash serves the same global interests and employs the same sort of weapons in the US. The interview begins with Steve asking about the role of COVID19. Brett tells of the huge British supermarkets, at the start of the pandemic, blasting the message that cash is dangerous; warning that passing cash from hand to hand is likely to carry the virus along with it. The CDC as well as major financial institutions have published that there is evidence to the contrary. They say, in fact, that credit cards and pin pads are far more likely to transmit the coronavirus. But the message persists: cash is dirty. 

The mainstream narrative has it that the move to a digital economy is happening organically, from the bottom up. As if people are simply drifting away from cash and migrating towards digital payment systems. In reality the opposite is true. You could say the war on cash is a war on class, from the top down. Working-class and poor communities are highly suspicious of banks and digital finance. Once you have your dollars in your pocket, nobody has to know what you do with it, where you go, how you spend it… which is why the banks hate cash. 

Clearly then, the extension of that mainstream bottom-up narrative is also untrue. This is the part bemoaning the fact that certain marginalized communities have been left behind. (“If only we could plug them into digital payment systems, everyone would be on the same level.”) Cash is a public utility. Brett calls it a nonjudgmental form of money in this potentially dystopian brave new world. Without physical forms of money, you’re absorbed into a panopticon banking system which we have reason to mistrust. 

It’s not just the finance sector that’s waging war against cash. Huge companies like Facebook need to sell ads. How can they prove to advertisers that the ads are effective if they don’t know what you’re buying? How do they know when they can stop flooding your pages with ads for certain products? Behemoths like Amazon and Uber profit from being automated and efficient. When big tech marries big finance, they seamlessly integrate on a huge scale. This is why they are able to annihilate small businesses and independent operators. 

The international aid community has usually handed out cash in disaster areas. It not only helps the refugee or survivor, it typically gets spent in the local community, serving as a boost to the economy. Now they’re moving to digital transfers of funds via prepaid cards. Digital payments are designed for web commerce, not local development. 

Brett has spent the past 18 months working on a book that will be published late next year. We expect it to be full of the kind of insights about cash and class he has shared with us today. The book will also look at cryptocurrency (if you’re still unsure about bitcoin, you won’t be after this episode) and another area of Brett’s expertise: alternative monetary systems. 

In the rest of the interview, Brett teaches Steve, and the rest of us by extension, about mutual credit systems and ripple credit systems. It’s rare that a guest talks about something that’s completely new to us. We found it exciting and we know our listeners will too. 

Brett Scott is a journalist, campaigner, former derivatives broker, and author of The Heretics Guide to Global Finance: Hacking the Future of Money. 

@suitpossum on Twitter 

Subscribe to his new newsletter: BrettScott.substack.com

Macro N Cheese Episode 83
Mutual Credit and the War on Cash with Brett Scott

Brett Scott [music/intro] (00:03):

What Uber wants is for each person to be fused into a bank that they can then deal with, right? They don’t want to deal with the people they want to deal with banks.

Brett Scott [music/intro] (00:18):

So if you’re interested in, like, local economic development, digital money doesn’t necessarily help you, right? So you get surveillance, you get a whole sort of change in who’s actually getting to spend, as it were. But digital, in general, always helps bigger players rather than smaller players.

Geoff Ginter [music/intro] (00:33):

Now let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

Steve Grumbine (01:34):

All right. And this is Steve with Macro N Cheese. I’ve got Brett Scott joining me. Some of you all have heard Brett on the show before — we’ve interviewed him at Real Progressives. Brett is a really sharp guy on the international space, especially as it pertains to fintech and alternative currencies.

Brett is a journalist, campaigner, former derivatives broker, and the author of The Heretics Guide to Global Finance: Hacking the Future of Money, in which he covers the inner workings of financial institutions, including the cultural dimensions of the financial system. He works on finance reform, alternative finance and economic activism with a wide variety of NGOs, artists, students, and startups, and writes for publications such as The Guardian, New Scientist, Wired magazine, and CNN.

So without further ado, let me bring on my guest, Brett Scott. Welcome, sir. Thank you so much for joining me today.

Brett Scott (02:30):

Hey Steve, it’s great to be back. How are you doing over there?

Grumbine (02:34):

I’m doing okay. It’s a little bit of crazy times. I imagine it’s probably pretty crazy in the UK as well.

Scott (02:41):

It’s pretty crazy everywhere. I’m actually from South Africa, I’m based in the UK, but… Pretty crazy in South Africa. Pretty crazy in the UK.

Grumbine (02:50):

You just recently won citizenship there in the UK too, as well. Did you not?

Scott (02:56):

Yeah, I did. Yeah. Which makes traveling quite a lot easier. Not that traveling helps pretty much right now, eh?

Grumbine (03:03):

Well, at least, you know, when it kicks back in, you got your papers, right? So last time we talked, we touched on bitcoin and we touched on some blockchain type stuff, some basics of fintech, and it was really powerful. But with the situation we’re in now with this COVID-19, particularly in the location where I work right now — just as a microcosm of the larger issue.

We saw 500 union-based toll collectors get laid off, lose their job as a push to cashless tolling kicked in, and also quite frankly, the effects or the perceived ill effects of the pandemic. And what happens if cash is transferring hands through a turnpike where individuals could pass the disease, so to speak, through handling money, physical money.

And this brings me to a point where we had talked about the war on cash previously and how pernicious it is and the underlying political scene. And it seems like this pandemic could possibly be a real stealth moment here for this war on cash to really take hold. What do you see happening right now?

Scott (04:13):

No, you’re totally right. I mean, it’s undeniable that the cash system, which is the physical incarnation of state money – the physical government money – is taking a huge hit, at least in perceptions, you know. And as you mentioned, there’s been a whole previous, prior to COVID, a whole sort of what I tend to refer to and what you refer to there as a “war on cash.”

This concept of the war on cash basically is designed to counter the mainstream narrative, which if you ever go into like normal mainstream media or normal conferences, or you hear people speaking about the decline of cash, they normally speak about it as if it’s a bottom-up process.

It just organically happens because people are just choosing to use digital systems and they always never talk about the huge institutions and powerful parties that have a very strong interest in seeing the decline of the cash system, in particular the banks, payments companies, and also various state actors who actually want to destroy the cash system sometimes, sometimes overtly, you know.

So the war on cash refers to the sort of a top-down push from powerful actors to degrade the cash system and make it harder and harder to use. That’s what we refer to as the war on cash. But of course now COVID has come along and has dealt a further blow to this. And some of my recent work has been looking at the dynamics of that and how to counter this process. And one of the biggest, maybe, first things to note about this is that the actual scientific evidence of cash being a significant transmitter of COVID is very weak.

The German central bank, the Bundesbank, came out saying cash poses no particular risk of infection to the public. One of the big infectious disease institutes in Germany also said exactly the same thing. They said, virus transmission through bank notes is not significant. Bank of International Settlements, which is the big bank that works the central banks, they said exactly the same thing. Actually, they said more. They said that credit card terminals and pin pads, you know, the things you push to type on those terminals are more dangerous than cash.

Alright. So it was a bunch of scientific evidence that suggests that there’s a very low transmission via cash, but nevertheless, the public perception has been somehow that… Well, I mean the whole physical world is under suspicion right now, right? So physical versions of money are also under suspicion and in places like the UK, I don’t know what it’s like in the US. But in the UK, for example, when lockdown first happened, they only let some of the big supermarkets stay open and all those supermarkets were broadcasting anti-cash messages over their loudspeakers, as people walked through those stores.

So the entire population of the UK was being pushed through these stores being told that cash was dirty. So of course the banks and payments companies who run the digital system are absolutely loving it. Totally loving it.

Grumbine (07:17):

So let me ask you then: obviously the fear is real. I mean, we’ve got people wearing masks everywhere we’re going now. Maybe that’s really good sanitary practice, but it’s definitely – outside of the Asian world – a new thing for the Yankees over here, the US, the idea of submitting to a central authority, telling us to do these things is counter-cultural, to the US freedom of spirit, so to speak.

And you look at cash and you think this is the one thing that everybody, their vision of what money is, is a piece of paper so for them to not have cash would be crazy — just culturally speaking. This is a much larger issue, it seems, than just a technocratic discussion. There’s a whole social component to this that, I think, that plays into a lot of the battle that we’re about to face.

Scott (08:12):

Absolutely. I mean, even when you look, if you say, if you page through the Financial Times, when you have the big financial newspaper and you ever look at what visual imagery and what pictures they use to show money, they always show cash, right? Because it’s what people think about mentally when they’re thinking about money. And of course, a paper like the Financial Times, most of the transactions they’re talking about are these huge corporate transactions, right?

Which all take place by the banking system and digital money, right? So the corporate world works on massive bank transfers. They don’t use cash. The people who use cash are often the most precarious people in society – the sort of the little people as it were. But nevertheless, even when we’re talking about massive corporate transactions, the visual image that we use, we still use the cash imagery, right? So there’s a whole sort of psychological element to how people think about money.

People have no idea how to conceive of what digital money looks like. Well, I can tell you what it looks like — it looks like huge corporate data centers, right? That’s what it looks like, right? But you don’t ever get to see those. So, most people don’t know what they look like, I guess. So there’s no visual imagery for digital money — and by digital money, I mean just the ordinary money in your bank account, you know, that’s all digital.

And so there’s that, but there’s also all these like cultural elements. And I also want to say class elements. Sometimes in the US there’s a slightly different debate around class — slightly different meanings. In the UK where I am here, class is like this very strong ancient thing. You know, there’s like the working class, the middle class and the upper class, you know, and there’s very strong cultural associations.

And in the UK, for example, cash is very heavily associated with the working class – people who basically often don’t trust the banking sector and the banking sector has historically ignored, right? So there’s this whole sort of element around the fact that cash has often been the sort of, uh, you want to say like a kind of public utility accessible to anybody, and has often been a friend, as it were. It’s a very nonjudgmental form of money.

It kind of goes wherever. So this new sort of world, this dystopian potentially brave new world, without those physical forms of money you basically get sucked into this panopticon-like bank system. That makes quite a lot of people uneasy – from all sorts of different parts of the political spectrum.

Grumbine (10:37):

Absolutely. Rohan Grey was working with Congresswoman Rashida Tlaib, and they came up with this concept of the Boost Act. And it was founded on minting the coin, depositing a coin into the Fed, but giving people prepaid debit cards, basically, that were just money cards that could be recharged without any issue. And the concern was, you know, well now we can track where all these ne’er-do-goods spend their money.

And so, okay, we got to anonymize this medium here. And ultimately most people in the United States have access to banks, but the class structure here is such that there is a tremendously large under-banked community, not just under-banked — completely unbanked community of people that are poor, homeless, ex-cons that have been released without any hope or prayer of being part of the quote unquote American dream.

And now you see this push for using digital bank cards, digital notes, digital means of transfer, et cetera. How do you think something like that would play out culturally? It seems like such a challenge to get people to think that way. Is that a complete departure from protecting them? Or is that a possible way of getting them into the system without giving up who they are?

Scott (12:03):

Well, there’s lots of issues there. I mean, maybe just a very brief comment on that very first thing you started off with: the debit cards or the prepaid cards. Anonymous prepaid cards would hypothetically be one of the ways you could do a private form of digital money, right? Sorry I have to sound a bit technical, but whoever holds the card has the ability to command units of money in a bank account.

But the banks don’t know who’s holding the card. All right. So they can see these orders being made for like movements of money, but they don’t know who’s doing it. So actually those prepaid cards are a way for you to preserve privacy, but it’s still again playing into the overarching idea that the banking sector – the private banking sector – should take over complete control of the movement of money, right?

Because right now, what the cash system is, is essentially a way to move money around without the banks being involved. Right. Actually, you know, it might come out of the ATM, it comes out of the reserves in the banking system, but once it’s out of the system, it can move around autonomously. The banks are no longer involved, which is one of the reasons why the banks hate the cash system — amongst other reasons.

But the prepaid idea is definitely something that Rohan and others have been working on. There’s definitely a potential and stuff. And certainly better than some other ideas. Well, maybe one of the key things to flag up in this debate is that the mainstream way of speaking about the problem is that they say, “Oh, there’s going to be a whole bunch of people who are quote, unquote, left behind if we go to a digital system.”

Okay. So for example, here in the UK, when a sort of well-meaning person is concerned about the digital payment system and the bank system, they say, “well, the reason why I’m concerned is that it will leave behind a bunch of people who don’t have access.” To some extent, it’s a legitimate concern. Of course, if you find yourself excluded from a system that’s increasingly taking over, that is a big problem.

But the problem with that story is that it assumes that the only reason people are not using digital money is that they lack access. That, ‘if only they could get access, they would, they would use it.’ But there’s many people who actually do not want to use the banks, that’s part of the point, right? That they do not actually trust the banks. They do not culturally feel like banks represent them.

They often feel like banks are the preserve of elite, you know, wealthy people. And actually they like cash. They want to use cash, all right? Now, this is like a slightly different thing to saying, ‘Oh, I would use digital if only I could, but I can’t, therefore I’m going to keep on using cash,’ you know?

And the way that the media reports on this, they always put this idea that like, ‘Oh, well, everyone obviously wants to go digital, but some of them are just left behind and are unable to do it.’ And to use a sort of like transport, like kind of analogy it’s a little bit like, you can imagine somebody hitchhiking along the road and some fancy car goes zooming by, and then some reporter, you know, they’re like, ‘Oh, the person wanted to get this lift, but they’re left behind,’ and like, not going to get to this destination everyone else is going to, right?

But actually what’s happening with many parts of the society is they want to go in a different direction, you know, there authentically are people, especially in the lower socioeconomic classes that actually like the cash system, who actually find it’s very flexible, resilient. It doesn’t rely on having to have some fancy. like, mobile phone. It’s just like, it just works, you know?

So this whole idea that like, well, if only we can just make the digital systems a bit more inclusive, then everything’s gonna be fine, is very problematic because in the end, what the overarching process that’s happening is that the money system is essentially being privatized. You’re having all these commercial banks…

Often in the UK, the state, the public sector, is helping the commercial banks to onboard people, right, under this idea that like, ‘Oh, well, it’s inevitable that we’re going to have to all use this digital system. So we better like, you know, essentially help Barclays and HSBC,’ (which is, you know, the equivalent of Wells Fargo and these other players). We better help them get customers, you know, which is like, you know, a very classic example of the state working on behalf of powerful capitalists.

Grumbine (16:16):

Neoliberal, and corporatism all wrapped in one.

Scott (16:18):

Yeah. But you know, for sure, I mean, like if we’re like defeatist and say, well, look, we accept the power of these network effects and these huge players that are taking over. And if you’re a small business owner and you’re being screwed because you can’t get access to the system, then sure, your immediate impulse is, ‘Oh, I wish I had access,’ but politically that’s very problematic.

Grumbine (16:38):

Yeah, absolutely. We talked a little bit offline before we got started today about the Uberization of the financial system. And what I’m seeing is because in the United States on a more political level, you see wages stagnant, you see people being forced into gig economies. You see people taking on second and third jobs within these one-off Uberized-type roles.

And you’ve made the point to me offline that there’s an automation of finance that is the desire of these Uber groups to have a seamless transition within this automated banking industry or financial industry. Can you set the stage for that? Can you talk about that a little bit?

Scott (17:24):

Yeah, sure. I mean, if you go to, say, Kenya, which I was in Kenya three years ago, so there’s a lot of, let’s say Uber — Uber’s arrived in Kenya, okay? But a lot of Kenyan drivers, the type of person who’s gonna say, I think Uber is the way for me to go. A lot of them actually use cash. Okay. And actually, so Uber in Kenya will allow drivers be paid in cash. All right. But notice what happens when that occurs?

Basically Uber loses control. All right. They’re relying on some external process happening that the passenger’s going to hand over cash to the driver. Then the driver is going to like report it. And then the driver is going to then pay them a cut somehow. Uber hates this. They hate this. This is like fragmentation in an automated system. It’s not automated. Right? It’s analog. There’s an offline form of money being used between two independent human beings that they can’t control. All right.

This is like the nightmare for a large automated company. And when they speak about it, they’ll of course speak about it as some kind of like dark age technology. They’re like, ‘Oh, you’ve got these people using this offline type of money out there in the dirty world. What Uber wants is for each person to be fused into a bank that they can then deal with. Right? They don’t want to deal with the people, they want to deal with banks.

Okay. So then the whole point of like this massive big-tech-meets-big-finance is that they want to seamlessly integrate with each other, to create all these kind of interlocking automated systems, which when you’re operating at huge scale, which is what they want to do, that becomes a lot cheaper for them. All right. So Uber does not want to be having to deal with cash transactions. It wants to select thousands of MasterCard or Visa initiated data center operations. Okay. That’s what they want.

So basically big tech hates cash. And it actually in the U S for example, when there was pro-cash legislation being passed in cities like Philadelphia, Amazon was one of the companies that threatened the lawmakers there, saying they’re going to pull out if there was pro-cash legislation put there because essentially cash stands in the way of automation. Alright? And Amazon specializes in super large scale automation. So of course they hate cash.

So this is one of the sort of structural elements people often don’t think about with the war on cash. It’s like, okay, fine. We know that the banks and the payments companies like Visa and MasterCard have an obvious commercial interest in trying to push people towards using their digital payment systems. But it’s not only the banks. It’s also all these big platform companies that want to see that.

I would also argue that big companies more generally. So for example, in the UK here, I mentioned the fact that all these big supermarkets were telling people, please use the card systems rather than the cash systems. And they were claiming that the reason why they want people to do that is because they’re trying to protect them for their health because of COVID.

But when you go back and look through what is the actual interest of these massive retail chains, actually, they also want to automate everything. All right. So actually they would also prefer to deal directly with the banks than to have to deal with cash as well. So often this COVID stuff is now being used to try and accelerate stuff that these guys wanted to do anyway. And were trying to push people towards anyway.

Grumbine (20:43):

Wow. So this is not something I expected to ask you, but in looking at this it’s clear that the Elon Musk’s of the world are fans of the Universal Basic Income and the idea of giving people just digital cash to go ahead and spend on these things.

And what I’m understanding from a combination of understanding the push with Facebook for Libra and others is here’s a great way once again for them to grab all kinds of personal PII type information that they can sell and use for marketing purposes and drive up the cost of selling ads on their space and drive up cost of being able to do business on their medium. And it’s a great way of tracking literally everything.

And you look at the way that people have been exed out of society by making criminal activity follow you forever. Even after you paid your debt to society, you leave prison and you’ve got this permanent invisible cage you’re in. Add in the tracing of your financial activity and I see this being like part of that Silicon Valley, this technocratic approach to things is, “here, let’s give you a UBI, we’ll watch what you spend that money on, come spend it with us, and then we’ll sell that data, and then we know what’s going on with you.” Am I paranoid? Or is that a legitimate framework by which to put some skepticism toward this?

Scott (22:08):

That’s a very legitimate framework. Yeah. The actual day-to-day technicalities might be more complex, alright. Different countries have got different data privacy laws, and there’s different situations in which data can be shared and so on. But the overarching intuition that if you move people towards a digital payment system, that there’s going to be a huge data bonanza.

I mean, that’s totally true. And the type of data that’s going to be made available through the proliferation of digital payments is extremely sensitive. It’s a very, very powerful data. So for example, the big tech companies, their big source of revenue is advertising historically, at least, you know, Google and Facebook, that’s the big thing, right?

Well, how do you prove to advertisers what they’re getting was worthwhile buying an ad? Well, you can show them that this person saw an ad, and look, I can show you that they made a payment for something later that is correlated to them, looking at this ad. This is a huge thing. If you can show these types of conversions, because obviously you’ll know this phrase ‘put your money where your mouth is.’

Like a person might have a bunch of aspirations and they might be like browsing through Google, say, a holiday to the Bahamas or whatever, like thinking about like daydreaming about stuff, right. But what do they actually act upon? Right? That’s where the payments data shows you, the payments data shows you what you actually end up doing rather than what you might just be, you know, showing your mate or something. Right.

And you know, of course the key question is who ends up with this data because there’s a whole bunch of – in modern digital payment systems – there’s a whole bunch of different players who can insert themselves into the picture. If you look at it from the sort of the core, I mean, you’ve got the central bank in the middle, right. But often the sort of retail transactions don’t happen at the central bank level. They’re happening between the banks between bank accounts.

And it’s only, you know, the net clearing and stuff that goes through the central bank. So the central banks don’t see, you know, the sort of nitty gritty data necessarily – rather the banks do. Okay. But also the big payments companies that facilitate movements between those bank accounts like Visa and MasterCard, they can see stuff, but of course, if you can then plug new players into the banks like PayPal, and what essentially Libra was trying to do is to sort of plug in the banking sector, well, now you’ve got a new layer between the person and the payments system.

So now you’ve got new ways of looking at who’s doing what, and of course, there’s all these data brokers as well, who will take data from one party and sell it to another party. And so there’s a whole bunch of these systems where they can get access to this kind of stuff. That’s yeah, it’s a massive area.

And of course, historically digital payments were like big things, you know, like, yeah, I bought a fridge or something like that, which is, you know, useful information. But like, as it gets smaller and smaller transactions, you get more and more fine-grained ideas about how a person acts and what’s going on with them. So yes, it’s a massive data issue.

Grumbine (24:57):

The profiling that comes with that, I mean, it’s amazing just to put it in perspective, just the other day, we were joking around about a different email marketing platform that we were looking at integrating with a webinar platform we’re moving to.

And when we reviewed that, all of a sudden, every Facebook post we were looking at the ads were suddenly for email marketing. It was all of us. We laughed. We were like, oh my God, they literally saw everything we were just doing and immediately customized instantly.

Scott (25:29):

Yeah. Well imagine for example, you know, like you got, and I’m not an expert, I’ve got friends who specialize in looking at the dark arts of like data brokers and these big ad aggregation companies and stuff. But you know, like you see somebody looking at something, maybe you don’t know if they’ve actually ended up buying the thing or not, you know, but imagine you can now see that they’ve actually gone and bought the thing.

And now you’re going to stop those ads because they’ve already bought the thing and they’ve already acted upon the impulse, right? So there’s all a bunch of this kind of data stuff, a whole new world of like data exploitation.

But just quickly on the sort of UBI and these ideas like just to connect those two things is that, of course, when people promote new social initiatives that involve giving money out to people, whether that’s in the form of a UBI or whether that’s, you know, refugees who are going to be given some kind of card to make payments somewhere, anything that involves giving digital money out can simultaneously become a surveillance technique as well. So in the international aid community, this is a big thing, right?

Historically they would do cash transfers. They literally give people out of cash when they’re going into disaster areas, it’d be like, here’s, you know, a hundred dollars for you to go spend and it’ll help to boost the local economy. So this is what they prefer to do. And that was a big sort of thing in the aid industry. If I just give out cash transfers to people it’ll help to boost the local economy.

But then increasingly they’ve been moving to try and get people to give these digital transfers. Of course, if you give refugees and stuff, digital systems, now you can actually track more what they’re doing, but also it starts to like move away from the local economy. Because the thing about digital payments is that they are designed for, like, web commerce and sort of long distance transactions.

So if you’re interested in like local economic development, digital money doesn’t necessarily help you. Right? So you get surveillance, you get a whole sort of change in who’s actually getting the spend, as it were. So digital in general always helps bigger players rather than smaller players.

Grumbine (27:30):

Wow. Yeah. I definitely did not think about that, but that is exactly right. You get the appearance of, Hey, it’s right here right now. But in reality, that payment could have been processed in Dubai. Anywhere.

Scott (27:43):

Exactly, yeah. Well, they all work in huge network effects. So they have like large single players rather than many small local players. That’s the general point of anything digital. They create these huge nodes in the middle. They always imply greater inequality.

Grumbine (28:00):

Wow. I should’ve thought about that, but I didn’t. Wow. Oh my goodness. The implication.

Scott (28:12):

Oh yeah.

Intermission (28:17):

You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube, and follow us on Periscope, Twitter, and Instagram.

Grumbine (29:04):

So you have recently taken, what, 18 months to write a book. And I’m just very curious, you being off the grid like that, really focusing on that. Tell us a little bit about this book you wrote.

Scott (29:20):

Sure. Well, it’s kind of being a bit delayed because of all the publishing disruptions. Basically the publishers all got hit by a COVID and stuff. So it’ll probably only be out later next year. But basically it’s at a very broad level: big tech meets big finance. But zooming in a bit more, it looks at the war on cash.

So essentially what we’ve been talking about before, about how people are increasingly being pushed into the private bank, digital payments system and how that’s in turn facilitating this much bigger process or potentially being as a result of these huge automation processes that these big companies are seeking, right? So there’s always structural pressures in an economy to sort of move towards digital payments.

And then as a sort of second part, I look at the cryptocurrency world, you know, the cryptocurrency world got a lot of press and there’s a lot of, like, hoo ha about it. And one of the, sort of the big claims made by cryptocurrency pundits was that, Hey, there’s this huge panopticon system being created in the normal money system, and we’re going to provide this antithesis or this alternative, which is going to combat all the problems that you find in a normal monetary system.

And in particular, it’s going to combat the centralization or the sort of oligopoly nature. And it’s also going to like combat – and this is where the very conservative part of crypto comes in – this expandable and contractable money supply. So they want this sort of fixed money supply. So this is what the crypto world is all going for.

And I sort of point out how there’s all these sort of failures about this, a lot of weaknesses to that approach. And then the sort of the third part of the book is looking at almost hybrids between those approaches. So the types of like interesting things that are emerging at the intersection of the ordinary money system and these, like, more decentralized tech alternatives. That’s at a very broad level.

Grumbine (31:10):

Well, how does it work? I’m curious about this. Cause obviously, you know, we just had Scott Ferguson and Ben Wilson on a few weeks back regarding their Uni, which is sort of a digital currency. It’s a currency that could be used by university systems, leveraging the land that they have as kind of an ability to leverage assets and to be able to create a payment system for tuition and food and housing and other such things.

So in this case, they are still tied back to some degree to the US monetary system. However, it is a secondary thing. It is a separate thing and it would be used within possibly even the state of New York as a complimentary currency. To the extent that I understood what they were talking about, help me understand how a private currency operates within this future space – the two parallel universes where one is state currency and one is private currency. Help me understand that.

Scott (32:11):

There’s probably a few different angles in on this. So de facto, in general, across most of the world’s countries, there’s this dual money system in the sense that there is both the state in the form of central banks and treasuries, and there’s also the commercial banks. So there’s public-private partnership that issues the money and sort of presides over the monetary system, in very blunt terms.

That’s what all countries have. And like you have the Eurozone, like in France and stuff, it gets more complicated because you’ve got this meta-state type thing, but this is the basic lay of the land. And then of course, prior to cryptocurrency, there was a whole world of what’s called alternative currencies, which were people who are trying to build things in the shadow of the state bank money system.

So little local currencies, little TimeBanks, little sort of community exchange systems, which were actually detached from the existing monetary system and operated at very small scale. And so that’s what I tend to refer — maybe I said the pre-cryptocurrency alternative currency world, if that makes sense. Historically those types of very small localist forms of money have always struggled because they’re operating against the network effects of the large scale state currency. Okay.

I always look at money systems as network systems, right? They’re huge networks. So the larger the network, the more powerful it can become often. So these are very small and you’re trying to build a local currency. It’s very hard. You only have 150 people, and it’s very difficult to get enough energy into a network like that.

The crypto people came along — this is, I guess, 2008 — the cryptocurrency world came along and I guess it sort of took both the original alternative currency world and the normal fiat world by surprise because it sort of came out with this totally different monetary design that seemed to be able to actually operate at scale, which is why it took so much of the public attention.

So actually the original alternative currency world suffered because people kind of forgot about them and kept fixating upon Bitcoin. So every time I go to a party, for example, and I say, ‘Hey, I’m involved in alternative currencies,’ The first thing somebody says to me is like, ‘Oh, Bitcoin, you mean Bitcoin don’t you?’

It’s like, no, actually do you realize, like for hundreds of years prior to Bitcoin, there were people attempting to do all sorts of other things that often had far more advanced monetary design than Bitcoin. Bitcoin has got very advanced technological elements, but it’s very crude from a monetary perspective. It’s very questionable whether it’s money at all.

So that’s to say that there was this kind of crypto invasion, as it were, but in reality, what’s actually happened – so I’m not answering your question entirely yet – but, like, what’s happened is that if you had to imagine that the Bitcoin invaders as being like, you know, barbarians charging towards the Gates of Rome – at least this is what in their heads, they like to think this – what’s actually happened is that they sort of just settled on the outskirts, in the fields outside, and actually do large amounts of business with Rome.

Actually, I’m mostly interested in getting the Roman currency, right? That’s what most crypto trading is, is that you try and buy it and sell it for US dollars. So the whole idea that there’s revolution occurring is, like, slightly bullshit. It did create a lot of excitement and interest around the idea of an alternative, but actually failed to authentically do that.

And one of the reasons why is that the monetary design of Bitcoin is so crude. I mean, all that the system does is enables people to issue tokens and move them around. Right. But you have to ask yourself like, what are the tokens? The tokens in the Bitcoin system are literally just blank objects. They have no characteristics. It’s literally like taking a blank piece of paper and issuing it out and then hoping that it becomes a monetary system. And it might be a very advanced technological way that they’re issued out and moved around.

But at a monetary level, it’s super crude, which is why it hasn’t succeeded. So the interesting thing right now, going forward in the alternative currency space is, okay, can we take some of the strong elements of the crypto movement, some of the technological advancements, but then borrow from the other alternative currency movements – like mutual credit systems and stuff like that, which I can explain – borrow from them the monetary designs and actually come up with these really interesting types of alternative currencies that would potentially authentically be quite empowering to people.

But in the end, the normal monetary system is also a totally legitimate place to try and create social change. So for example, I know you guys, you’re very involved in MMT. MMT type thinking and policy proposals or descriptions are all related to the normal monetary system and how you can use the normal monetary system for positive social change. So you don’t have to be doing alternative currencies.

Grumbine (37:01):

Right? Let’s talk about that. I’m going to butcher this, but you said mutual, what was it? Okay, so within mutual credit, talk to me about, this is my first passthrough on this concept.

Scott (37:15):

Okay. I have the impression that the listeners to the show have probably been involved or have heard about the sort of MMT movement, [Steve: absolutely] chartalist money theory. Right? So, but if you zoom out, chartalism and MMT are part of a broad paradigm of money theory. I just called it credit theories of money. Okay. It’s the idea that you can pay people by making promises essentially, right?

That money is an accounting system, but it’s also issued out in the form of essentially promises, right, or IOUs. This is a very crude simplification, but in a lot of old school commodity thinking about money. So credit theories of money are often contrasted to commodity theories of money. In commodity style, thinking about money, it’s assumed that the money has to be found somewhere. And once you find it, you can then dangle it in front of somebody to induce them, to give you something, right.

This is how normal economists speak about money. It’s like you’re holding this value in your hand and then you will dangle it in front of somebody, then they will give you value in return. All right. Whereas of course in credit theories of money the idea is that, well, I don’t have to have anything; I can just issue promises to get somebody to give me something. Okay.

And if they trust this promise, then that becomes a unit of money. Well, at least it’s a proto- form of money. And when you get into stuff like chartalism then the idea is that you have extremely powerful players who are very good at issuing those promises, all right. People like states have a very high chance of having their promises accepted. But going to mutual credit systems, now, it operates under the same intuition that you can issue promises to pay for things, but it tries to do it in a different structure. It says, well, we don’t need a large state to be doing this.

We can do it as a community, right. We can set up a shared ledger between ourselves, you know. I mean, you can just set up an Excel spreadsheet for example. I can even give you a very simple example. Imagine it’s in a shared house – there’s a student house, alright – and people are doing different chores. They’re doing different things in the house. And rather than keeping an informal tally in your head of who’s done what you just set up an Excel spreadsheet.

And as somebody does something for the house, they get given a positive credit and everyone else goes a bit negative to reflect the fact that they’ve received something from somebody and that this person at some point has the right to claim stuff back from the house. Okay. That would be a very simple mutual credit system, but these systems are basically set up such that people can go in, offer their labor to other people and in exchange, get given a positive credit while the other people get negative credits.

And then the person can take that positive credit back into the system to redeem it for goods and services at a later date. So these are mutual credit systems and they’re one of the most ancient forms of monetary system. Arguably like the commercial banks and stuff operate a very large scale mutual credit system between themselves. I hope that made sense – they’re like essentially systems that are issuing promises and moving around between people.

Grumbine (40:25):

If I hear what you’re saying, it also kind of pulling me to Marx momentarily, as people have the value of their labor translating into credit within the system. And I have a feeling there’s some people out there, especially in leftist anarchist circles that would really like this quite a bit.

Scott (40:45):

Sure. Yeah. Mutual credit systems tend to be associated with mutual aid and mutual aid sort of comes in under the anarchist tradition.

Grumbine (40:53):

Sure. Absolutely. Is this a speculative thing or is this happening in any incubators or is this happening in real life anywhere?

Scott (41:01):

Oh, well, I mean, it’s happened for hundreds of years. I mean, it’s one of the most…

Grumbine (41:05):

No, I mean today in our current system, I don’t see too much. Everybody’s kind of been in plantation. They’re all stuck in cities now and so I’m interested. Are there successful uses?

Scott (41:18):

Sure. One of the most well known ones in the European context is a system called Sardex S A R D E X, which is actually run by a friend of mine, Giuseppe Literra. It’s based in Sardinia and it’s a big mutual credit system that runs between small businesses in Sardinia.

If you think about this idea that you can pay people with promises, especially with small businesses, this is very useful because – think about a small business that’s got cash flow problems where, you know, you have to have a certain amount of money before you can get an inventory that you can then sell to others. Right? So traditionally, what small businesses would do that they’d go to a bank and they say, please, can I borrow a bit of money so that I can buy my inventory so that I can then go and sell and then I’ll repay you.

Scott (42:02):

Okay. But when there’s financial crisis, these small businesses are often the ones that get hit first by banks retracting credit, saying, ‘no, we’re actually not going to finance you.’ That’s why, you know, small businesses are very susceptible to being hit by these big crises, but systems like Sardex essentially enable these businesses to issue IOUs. Issue promises to other people in the network to say, ‘Hey, can I get stuff from you? And here’s a promise.’ And then those promises circulate as a unit of money. All right.

So interestingly, and this is where you have to get really familiar with credit theories of money, which I think you are, but a lot of people are not used to thinking like this about money. In the first instance, money is actually created as credit, alright, it’s actually created through issuing these promises. So actually you can have a small business lending system and a monetary system combined into one.

Actually this is like one of the big sort of reasons why these mutual credit systems start up – to give small scale credit to small scale businesses. But yeah, that’s a good example. Right now there’s a whole bunch of interesting new ones being designed based on a slightly different concept called rippling credit, which I can explain if you want me to.

Grumbine (43:13):

Yes. Absolutely. I’m loving this.

Scott (43:17):

It’s quite hard to sort of like explain the system sometimes. I’m also aware sometimes when I’m describing them that the people listening, unless you’ve been sort of trained to think in credit terms, it can sound quite strange, but let me try. So the rippling credit idea is, so let’s say I know you and you know me and we actually might be prepared to give each other credit.

So, you know, you say to me, ‘Hey, can I borrow something from you? Or can I take something from you? I’ll give you something back later.’ And I say, ‘cool, you can do that.’ That’s like a credit line, alright? And you might be prepared to do the same thing for me. Okay. So we have a bilateral credit line between us though. You might call it a trust line.

Okay. It’s between party A and party B – that’s one trust line. But imagine now, you know five other people who you also have a similar relationship with and you have trust lines with all of them. Now through you, I can use my trust line to access somebody else who you know. So it can like ripple like a domino through people, these lines of credit.

So I make a promise to you, you make a promise to another friend on behalf of me. So these new systems now, which are around this like rippling credit idea, this sort of domino credit idea, which means networks of people can start to issue credit between themselves and create money, as it were. The reason why this is different to the normal monetary system is in the normal monetary system there are powerful issuers of credit money like the state and banks. But we as ordinary people simply use the credit that they issue.

We ourselves do not ever issue the credit. We are mere users of the money. We are not issuers of the money. So actually, you know, obviously in the MMT world, this is a big point, right? A money issuer does not think like a money user. The money user keeps on imagining that a money issuer is like a household or something, right? It’s not right. The money issuer is on the other side. Whereas if you get involved in mutual credit systems, you can actually become a money issuer. So you start to understand this idea that like the promises I issue out, I can use to pay people, which is how a state thinks, you know?

Grumbine (45:36):

Yeah, no, this is really interesting because I’m envisioning a society where people have shared beliefs, shared interests, and are just fed up with being starved by the currency- issuing government that is not serving their needs, but is serving the needs of a different class of individual. And these folks say, you know what, I’m going to offer my services based on this credit system. And you can offer yours back to me in this credit system and we can work mutually together to avoid being taken advantage of by this other system that isn’t there really to serve us.

Scott (46:11):

Yeah, absolutely

Grumbine (46:13):

That certainly makes an incredible amount of sense. And I can see how it ties to mutual aid as well

Scott (46:18):

Often actually, there’s an interesting interaction though, between these mutual credits. So these rippling credit systems and the normal monetary system. So let’s say the US dollar system – in the federal reserve and the banks and stuff – has an existing pricing system within it. Okay. So all those units, you know, when you go down to get a coffee, you got a certain idea in your head about how many units of money is a legitimate amount to part with, for a coffee. Okay.

And you kind of intuitively have worked it out over time. The network has worked it out and there’s various processes for pricing. But now if you’re starting an alternative system on the side, you can actually borrow the pricing from the mainstream system. So actually you can start a mutual credit system. When you’re deciding on prices, you just use the US dollar system, you say, well, in the US dollar system, this would cost $3. So we can have three units in our system will be how you get a coffee here. So actually that’s quite interesting. Also, you can invent an entirely new unit of account if you want, but that gets more complicated.

Grumbine (47:25):

Yeah, absolutely. But doesn’t that kind of play in, I mean, if I was being cynical or not even cynical, if I was being gracious, actually could Bitcoin not serve as a medium for this mutual aid? It just as the token for that mutual aid, could it not serve in the same fashion?

Scott (47:44):

No, but you’d have to really be like hacky about it. It’s like forcing a square peg into a round hole. You’d be trying to use it for something it’s just not designed to do. Bitcoin comes from the completely opposite monetary paradigm. I mean, it’s essentially an object that you issue out and it cannot be destroyed. The way I think about the Bitcoin system is like, I almost imagine it like – I have an active imagination sometimes – I almost imagine like a sort of static sculpture in space that you can kind of like fly to and sort of look at.

You’ve seen like the alien films and stuff where there’s this, this huge, like wreckages in space just sitting there, you know, or something like that. Bitcoin is like that, it’s like a huge static system. It’s not really connected into the real world and, fine, there’s units you can move around, but they very unconnected. They’re very, like, I want to say like disassociated from the world. All right. And you can’t destroy them once they’re issued. They’re kind of there forever,

Scott (48:44):

Which should tell you something, it should tell you that it’s not a living system. All right. Like true living systems are like organic and breathe, you know, they sort of move and they expand and contract and stuff, whereas Bitcoin just stays the same and gets bigger. Very inelastic. Yeah. So like, there’s something about it, which is fundamentally not very good at responding to organic human action.

Whereas these mutual credit systems, what would tend to happen as you’re issuing promises out, so it’s expanding, but then the promises come back and they get destroyed. So it’s always going from zero and then expanding and then contracting, expanding, contracting, breathing. So actually, the system..

Grumbine (49:23):

I’m sorry. I want to interrupt. There’s no limit to promises. I can do as many promises as I want.

Scott (49:28):

No, no, no. So one of the key design principles, when you designing mutual credit systems is what the limit will be. And this is how you can also limit inequality in the system. Because if you have, for example, a hundred people in a mutual credit system and you say, well, we’re going to give you a credit limit of 10. Okay. And let’s say everybody uses their credit to give to one person, one other person, let’s say one person gets all the credits of everybody else.

The system will then like lock in and stop that accumulation, right? There’s only a total number of like a thousand units that that person can accumulate before the inequalities stop. This far, this is quite abstract, but like, in our normal monetary system it’s operating at such a huge scale.

The reason why Jeff Bezos and these people can get $215 million a day is that there is like billions of other people were like a hundreds of millions of other people using huge scale money systems that are presided over by huge scale institutions, such that actually a single human being is able to obtain 215 million of them in a single day. Right? You need like a mass scale money system deal to do that. Whereas in these mutual credit systems, there’s a sort of like natural locks or sort of limitations on inequality, depending on how high you set the credit limits. But this is also why they struggle to take off,

Grumbine (50:57):

Right.

Scott (50:58):

They’re already a fascinating like area of innovation, especially when you combine them with some of the decentralized technology systems, because there does become this potentiality of saying, Hey, a huge network of people let’s say 10,000 people might actually be able to start legitimately creating a sort of organic money system between themselves and sort of become like a central bank in and of themselves somehow, which is very interesting. Whereas in Bitcoin, that’s not the case. You have a sort of robotic system that issues of tokens and the people can just use them. There’s no presence of the people themselves saying I issued to you for some particular thing.

Grumbine (51:36):

Well, the reason why I said it the way I said it, and I hope for our listeners that have heard us talk about crypto and Bitcoin in the past, for those who maybe haven’t heard that, I know that these are the sorts of things you dream of Bitcoin doing, and you fancy it doing. And by setting the stage here to show the obvious shortcomings, if you will, or limitations of it, you can clearly see that it cannot do that which a sovereign currency can do.

Or in this case, even these mutual systems seem like a great way of augmenting, possibly, inaction from the currency issuing authorities, if you will, in the current state system. I do have a question for you – and it comes back to the credit that you were just talking about in terms of setting those limits. There has been discussions about digital currencies, not necessarily the crypto style Bitcoin style currencies, but they would actually have like a built in timer.

Like if they’re not used within so much time, they die basically, they time out, they vanish. Is that something that could be tied to this? Or is this something that’s completely unrelated or is this concept here just me trying to bring something unrelated to the conversation?

Scott (52:50):

Like central bank, digital currencies, you mean?

Grumbine (52:53):

Yeah. Well, I’m looking more at your mutual rippling credit.

Scott (52:57):

Absolutely. So that system is called demurrage. That’s what people in the alternative currency world historically use to refer to this idea – essentially decaying money – and the idea, it’ll sort of disintegrate in your hand if you don’t use it. Historically, that’s thought of as a way to stimulate economic activity because the money becomes like a hot potato, right? It’ll burn you if you don’t get it out of your hands, you better throw it to somebody else so that they can, you know, it was a burning potato.

I mean, I don’t know if it’s the best metaphor, but you get the point. Demurrage has a very interesting idea. There’s different ways of implementing it in an alternative currency system. If you’re starting from a credit theory of money, which you assume that money is a promise issued out, what a demurrage system means is – it either means that promises that you hold are going to be taken away from you and given to somebody else. Okay. If you don’t use them.

So that’s like a welfare version of demurrage to say, like, if you got these units sitting in your account and you’re not doing anything, the system will take them away and redistribute them to others. Okay. That’s like a welfare version, a redistribution version of demurrage. There’s another version, which says, okay, if you got these promises sitting in your account and you don’t use them, the actual promise will just weaken. It’ll just get less, less than we promised to you.

So the person who issued them out will be let off the hook. Um, the basic idea is like, you know, if you have to imagine it as a bilateral relationship between me and you, and let’s say I did something for you and you issued me a promise thing, I recognize that you did something to me and I owe you something. And then I never choose to redeem that back to you. What the demurrage was basically saying is that at some point you’ll just, we’ll no longer have a debt. Okay. It’ll just disintegrate.

Unless I actually go back and demand something from you. So there are ways in these mutual credit systems to say, ‘Hey, if you’re just sitting on tokens, you’re sitting on promises and you’re not using them. Actually you lose your rights to use them.’ It’s controversial, of course, because if you’re trying to be a saver, you’re trying to save, this becomes a political issue, but it’s definitely a way to stimulate activity in a mutual credit system.

Grumbine (55:16):

I love it. Thank you so much. And I appreciate you bearing with me because I spend so much time in the MMT land that expanding into some of these other things is a real joy to hear, you know, some of the alternative views and you are just such a wealth of knowledge. Let me ask you one final thing before we get out of here. You have been obviously writing this book. What are some of the things that you’re going to be working on in the future? You’re always involved in such really neat stuff.

Scott (55:45):

Yeah. Well, right now I’m currently involved in helping to try and campaign around protecting cash in the UK. That’s one project. I’m also helping to try and start up this new alliance of next wave mutual credit systems. So the kind of stuff we’ve just been talking about or rippling credit systems. So we’re trying to start an alliance of different people who are interested.

Let’s say people who are fed up with the original cryptocurrency systems, but who want to forge a new, positive direction using that technology. So there’s a lot of fed up developers who are tired of the old rhetoric of Bitcoin and stuff who actually want to do something interesting, but are looking for a new direction. So that’s a new alliance we’re bringing together with some of the old gurus of alternative currency. I’ve also started this new newsletter on Substack, which is around.

I’m really, really fascinated by drawing pictures. My mother is an artist and she’s a drawing teacher. And so I always grew up in this kind of artistic family. And I’m like, I love the idea of visually representing finance and money to actually make it visible to people so that we can start to be less abstract about it. So this new newsletter, that’s what I’m going to start doing.

I’m gonna start slowly drawing out monetary systems and then getting artists and professional illustrators to start coming in and nuancing out my pictures. I’m quite excited about that one. You can find that one if you’re interested, it’s brettscott.substack.com and that’ll be launched soon.

Grumbine (57:12):

Well I just subscribed just now, buddy.

Scott (57:15):

Yeah. And that’s going to be a work in progress. I think it’s going to start out fairly rough, but then over time, you know, maybe some really interesting stuff could come out of it. I’m quite interested actually to see what happens.

Grumbine (57:27):

No, thank you so much. So Brett, I really appreciate you taking the time to meet with me today. And as you know, I mean, you look at our inboxes. We’ve been playing tag now for almost a year. So this was a real joy for me to have you on. And I really appreciate it.

Scott (57:44):

Thanks so much for having me. It’s great.

Grumbine (57:46):

All right. Well, look, you stay safe in this COVID-19 world. I wish you the best of luck with your blog and the efforts you’re undertaking. And with that, I’m Steve Grumbine with Macro and Cheese, my guest, Brett Scott, we thank you all very much. We’ll talk to you soon. Have a great one. We’re out of here.

Announcer [music] (58:06):

Macro N Cheese is produced by Andy Kennedy. Descriptive writing by Virginia Cotts and promotional artwork by Mindy Donham. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.

Subscribe to his new newsletter: BrettScott.substack.com

Check out his book The Heretics Guide to Global Finance: Hacking the Future of Money.

Follow our guest(s) on Twitter:

@Suitpossum

• Download Audio (mp3)