Mutual

"It only requires that we each take control of our own credit and give it to those individuals and businesses that merit it and withhold it from those that do not." - Thomas Greco

It’s a means of trading, of exchange, that doesn’t require conventional money, doesn’t incur interest and doesn’t involve banks. It’s based on networks of businesses, traders and individuals who get to know and trust each other in a geographical area or business sector. Each member gets an account. They go into a directory so that suppliers and customers can find each other. When a purchase is made, the buyer’s account goes into debit, and the seller’s account goes into the same amount of credit. But these are just numbers in an account - information, not money that can be hoarded. There’s a limit to how far you can go into credit or debit – and that’s basically it.

Mutual credit is not barter. You don’t have to find someone who has what you want and wants what you have – you just get credit or debit in your account. It’s not a swap. You can then use your credits to trade with anyone else in the network.

There are similarities with local currencies. The main differences (as outlined by Tom Greco) are:

1. Mutual credit involves a trusted network of traders; local currencies don’t.
2. Local currencies are bought and redeemed for conventional, bank-issued money; mutual credit isn't.
3. Local currencies can still be hoarded and made scarce; mutual credit can’t – it’s just a means of exchange.

Mutual credit has a fine pedigree. Pre-money, villagers everywhere traded with each other in credit – you help fix my roof, I give you meat when I kill an animal; you help me harvest my crop, I help you bring in firewood – and so on. The accounting was done informally, in people’s heads, and no money changed hands.

In the 19th century, William Greene, Lysander Spooner and Pierre-Joseph Proudhon championed mutual credit and mutual banking#Mutual_credit) in the US.

During the 1930s depression, various scrip currencies were used, and the mutual credit Wir Bank was born in Switzerland.

After the Second World War, at the Bretton Woods conference, John Maynard Keynes proposed a mutual credit scheme between nations – the International Clearing Union – but it was rejected.

The large-scale, for-profit barter industry (actually mutual credit) has developed since the War, overseen by the International Reciprocal Trade Association (IRTA), comprising 400,000 businesses and trades valued at $14 billion in 2019.

LETS (and time banks) are community-based, non-commercial exchanges in which local people exchange favours and hours of work. However, LETS schemes were usually comprised of individuals rather than businesses, and it's hard for individuals to obtain credits unless the company they work for is in a scheme and pays some wages via credits. Mutual credit networks can involve individuals, but for real economic impact, they have to be based on networks of businesses.

On the island of Sardinia in the Mediterranean, a group of arts graduates launched a mutual credit scheme called Sardex in 2009 – after the financial crash when money was very scarce. However, skills, tools and infrastructure were the same as before the crash, and so Sardex allowed businesses to trade without money. There are now 4000 businesses involved, with trades approaching 50 million euros per year. Here’s an FT article with more information about Sardex.

Grassroots Economics are building mutual credit networks in poor areas of cities in Kenya. They currently have over 50,000 participating small businesses, with thousands joining each week. We interview their director here.

The software now exists to link all mutual credit groups together into a global trading network. It's called the Credit Commons, and we interview the founder, Matthew Slater, here.

• Mutual credit provides a parallel purchasing / accounting system that means businesses don't have to rely entirely on pounds, dollars etc. This insures them against cashflow problems and wider economic downturns.
• Networks of businesses give each other interest-free credit (credit is difficult for small businesses to obtain from banks, and expensive via credit cards).
• The network provides new leads / customers for members.
• Businesses can pay suppliers without money, and customers can buy from them even if they have no money.
• Allows businesses to sell surplus stock / spare capacity.

• Unlike conventional money, mutual credit is not an exchange medium that can be sucked out of communities and accumulated in tax havens.
• Builds trusted networks of businesses, which can improve and increase community connections, interactions and trust.
• A community with a strong mutual credit network will have more protection against wider economic crashes. Trade can continue even when money is scarce.
• A local mutual credit network of committed traders can help start new small businesses, as gaps in the local economy are identified.

• Conventional money is scarce; mutual credit is not – it’s available to any network members who want to trade with each other. To paraphrase Alan Watts: to say that it’s not possible to trade because of a lack of money is like saying that it’s not possible to build a house because of a lack of centimetres.
• This means that mutual credit enables trade in areas of extreme poverty.
• Mutual credit is a means of exchange, but not a store of value – it can’t be accumulated and hoarded by billionaires.
• Because there’s no interest to be paid, and no impetus to hoard, there is no ‘growth imperative’ that causes overconsumption and damages nature.
• Provides a refreshing alternative to debt-issued, bank-controlled money.
• In a well-run mutual credit system, inflation can’t happen.
• Mutual credit has no divisive ideology attached. It’s just a practical tool that has multiple benefits, whatever your political position.
• It doesn’t require any mining – of precious metals or of digital coins.

The Covid pandemic provided the stimulus to bring together a group of specialists who have formed Mutual Credit Services (MCS) with the aim of setting up mutual credit groups (or ‘clubs’). They realised that lockdowns will mean that many small businesses may close because of lack of money in their communities, and so the ability to trade without money may be exactly the safety net that can help keep them alive. They're approaching existing business networks, social enterprise networks and local authorities.

Clubs can be in a geographical area - so there could be a club in your town - or they can be clubs of interest, for example in a particular industry, with members in different parts of the country, or even in different countries. The most important thing is that these clubs contain businesses that already trade with each other, or that could switch suppliers and get new customers so that could happen. Active trading loops or circles need to exist, so that popular businesses don’t get stuck at their credit limit with no-one to buy from, or that other businesses end up at their debit limit with no-one to sell to. Trade needs to flow in loops around the community.

MCS can help business networks set up and run a club quickly and cheaply, but with something new - federatability - i.e. the ability for businesses in a particular club to trade seamlessly with businesses in any other club. As this network of clubs grows, existing mutual credit schemes will be able to join, and it can develop towards a global Credit Commons.

Two other developments:

1. Mutual credit schemes can develop from 'credit clearing' networks, where debt is cleared / cancelled out between a group of trading businesses. More on credit clearing here.
2. Savings and investments: instead of equity or debt, businesses can raise finance by offering vouchers for future production, at a discount. So, say for example a community energy company wanted to build a wind turbine, they would sell future energy vouchers at, say, 10-20% discount. The same can be done for a restaurant, office block, haulage company or any kind of business. Local businesses can obtain funding without going into debt with banks, without having to pay interest, and without giving part of their company away. Local people can save surplus cash and feel secure, knowing that they can obtain energy, housing, food or any of the essentials of life in future, without worrying about inflation (because a kilowatt-hour is always a kilowatt-hour etc.) or bank failures. The vouchers can be either redeemed or sold. More here.

MCS are talking with business networks in Lancashire, Yorkshire, London, Devon and in other parts of the world, from India to Scandinavia. You can get involved:

• First, it might be an idea to learn more about credit clearing and mutual credit: we recommend Thomas Greco’s book, _the End of Money and the Future of Civilisation;_ or you can watch some of our interviews with people working in / interested in mutual credit.
• Contact us if you're part of a business network - you can talk with MCS with a view to setting up a local trade / mutual credit club. This also applies if you're part of / associated with a local authority, social enterprise or any other group that might want to host a network.
• A small transaction fee could provide an income for a club convener - obviously this income will rise, the bigger and more active the club becomes.
• Contact us too if you think you might like to volunteer for MCS, or the Credit Commons Society, whose aim will be to raise awareness of and to ensure good governance of mutual credit networks worldwide.
• If you know someone who might be interested, or if you want to help spread the word, please share this information. We’ll keep this page updated as things develop.

Matthew Slater develops software for complementary currencies. He co-founded Community Forge, which free hosts software for collaborative credit schemes; he co-authored the Money & Society MOOC, a free masters level multidisciplinary online course. He co-drafted the Credit Commons white paper, a proposal for a global solidarity economy money system, based on mutual credit principles.

Date on Lowimpact:2013-04-09