Commons Economy

Our current financial system, rather than helping markets with financing, which is its role, has turned money itself into a commodity traded on the financial market. This leads to asset bubbles that are not backed by real value. (Amato and Fantacci describe this process well in their 2011 book The End of Finance.)

A local commons economy is a counterbalancing force. It uses money in a way that supports value production.

This ecosystem itself cannot be designed, but we can create organisations and networks that foster healthy relationships between its members, embodying characteristics desirable in the wider economy.

Two concepts stand out here. Both have working precedents, and they take care of two different functions of the economy — one providing a medium of exchange, and the other a means of savings and investment.

Multilateral obligation set-off helps to cancel out debts in a network of businesses trading whith each other. Merchants in the middle ages already used it to great effect.

We mention more historic and current examples in the article about network clearing.

Allowing settlement with potentially much less money than if done bilaterally, we see network clearing by multilateral obligation set-off as a great tool to apply at the level of small and medium enterprises (SMEs). We use it in LocalLoop Merseyside. When trust builds in a network, we can take further steps to enable more cash savings, like liquidity injection or mutual credit.

Multilateral clearing helps money circulate and avoids payment gridlocks. It is not a tool for accumulating money and storing it. This would hinder its purpose of facilitating trade.

Use-Credit Obligations (UCOs) on the other hand, allow investment into local businesses or communities that provide tangible value. The business issues the UCOs in the form of vouchers for a future product and sells them at a discount.

If the investors trust the business to deliver the product, this model enables the business to receive funding without having to take up a bank loan. For the investor, the UCOs can function as reliable savings, as the UCOs are denominated in units of the product delivered (for example kWh in case of energy) and won’t lose in value.

Island Power has been pioneering this model, and in Stroud a housing commons and a climbing commons are just starting up.

Underlying both these models is an old idea, that of sharing risks and rewards between debtor and creditor, between producer and investor.

In our complex systems, the debtor-creditor relationship has often become anonymous, and a commodity that can be sold off for profit. Building trust between members of a local economy who share an interest in producing something of quality, will counter this development. There will still be profits, but maximising them will not be the prime motive, rather it will be to enable the production of something valuable.

Clearing and UCOs/pre-paid vouchers can act as two planks and a bridge into a new, collaborative economy. This is not an easy path, as we live immersed in capitalist logic, and the legal and financial systems it has shaped. But it is possible to build systems that don’t follow this logic.

On a legal level, this could be unincorporated partnership agreements or more formal unlimited company structures (which pre-date all other types of companies).These protect and create flows of use value towards shared, beneficial outcomes. These structures will always need to adapt to the specific circumstances and in our work at MCS we will co-design them with the interested local parties.