Rethinking Money Part 9: Social-Purpose Currencies

Specialty currencies can solve social problems without raising taxes, redistributing wealth, increasing regulations, or going into debt.

If you dive into economic theories, you’ll find that they quickly get very hard to understand. Some have even claimed that economists deliberately make economics hard to understand so that people won’t pay too much attention to it.

Today, we’d like to look at one simple aspect of virtually every economic theory. But we want to keep things as clear as possible.

Money is not Value Neutral

Here’s the concept: Almost all economists think that money is value neutral.

Value neutral? What does that mean?

This is actually a simple idea. It means that the features of money do not affect how people use it, save it, and spend it.

This concept is absolutely false. The reality is that the features a currency has very profoundly impact how people use that currency.

For example, businesses are finding that money is not value neutral in their customer loyalty programs (airline miles, cashback bonuses, discount coupons, etc), which are just specialized currencies. The features of a business’s customer loyalty currency very directly affect the currency’s success or failure.

Our money has three primary features. Our money is:

  1. A unit of accounting.
  2. A store of value.
  3. A medium for exchange.

Most people think that ALL money has these three features. That is false. Most people also think that all money MUST have these three features. That is false as well.

In fact, there have been multiple currencies used for literally thousands of years that did not have all three of these features.

I'm not particularly suggesting that we should change the features of our money. That's not the point. The point here is that there have historically been other currencies that did not have these three features. And as a result, people in those times used money differently than we do. The features any currency has can and does influence how people use it.

Interesting Historical Note

The currency of ancient Egypt did not have all three of these features. In particular, it was not a store of value. As a result, people did not horde it. They spent it rather quickly on buying, creating, and improving income-producing assets. They were very prosperous for literally thousands of years as a result. Why did they stop using their form of money? They were conquered by the Roman Empire, which invented our form of money to enrich the aristocracy. The Romans forced our kind of money on them and their civilization completely changed (not for the better) as a result.

Another Interesting Note

Two of the three features our money has are at odds with each other. In particular, if a currency is a store of value, that encourages people to hold onto it and to never spend it. But if it's a medium of exchange, that encourages people to spend it and not save it. We have schizophrenic money.

Specialty Currencies Can Solve Social Problems

Because money is not value neutral, it is possible to invent currencies to solve otherwise intractable problems. Here are some examples from Brazil.

The Brazilian Saber

Economist and currency expert Bernard Lietaer (one of the creators of the Euro), designed a currency for the Brazilian educational system  to help it increase the effectiveness of the money the government spent on schools. At the time he created the Saber, the Brazilian government was looking for ways to do more for its children without adding pressure to its already strained economy.

The program that Lietaer came up with was surprisingly simple.

  1.     Create a complementary currency, called the Saber, that is backed by a grant from a  national educational fund.
  2.     Give the complementary currency to 3rd graders.
  3.     The 3rd graders pay 4th graders to tutor them. A teacher records the transaction.
  4.     The 4th graders use the currency they've received to get tutoring from 5rd graders.
  5.     This continues on up through the grades until the complementary currency ends up in the hands of the high school seniors.
  6.     The seniors can use the currency to pay college tuition to participating colleges.

In general, the colleges that participated in this program were running at less than their capacity of students. The program requires them to charge Saber students 50% tuition. Colleges participated because receiving 50% tuition was better than receiving 0% tuition. Once a student was into the college, the colleges were required to continue to accept Sabers for that student's tuition until the student graduated.

There are a lot of reasons why this innovative program is so effective. First, it propagates the value of the actual money through the entire educational system without actually spending the money itself. Until the children graduate from high school, the money remains in the bank. But in the meantime, the value of that money is being used over and over again through each grade level until students actually apply it to their college tuition.

Second, it adds very little overhead on the part of the school to derive the value of the program. Essentially, it's one teacher or staff member sitting in a room with the students while the students give or receive tutoring. That one adult keeps order and records transactions on a computer when the tutoring is complete. The overhead is slight relative to the massive value being received.

Third, the Saber educates children in ways that are far more effective than traditional means. Here's why.

Our modern school system was invented by the Prussian military and used to educate boys (because back then it was uncommon to educate girls) in a way that would produce good soldiers. Specifically, it was designed to increase what we now call left-brained activity in students. It depended heavily on rote memorization and absolute obedience.

At the time, soldiers marched in formation across open fields and shot at each other, stabbed each other, etc. These formations were an extremely effective method of fighting given the weapons of the time. But they required soldiers to move in complete and absolute lock step with each other. Innovation, creativity, or questioning orders would result in the whole formation falling apart. That in turn usually ended with the deaths of all involved. So the school system the Prussians designed was specifically formulated to crush innovation, creativity, or free thinking out of students.

As a result of modern entertainments, most especially video games, students' brains have been undergoing a fundamental shift over the last few decades. We're seeing a profound shift from left-brained thinkers to right-brained thinkers. This is neither good nor bad. It just is.

The change from left-brained thinking to right-brained thinking is most extreme in boys (boys tend to play video games more than girls), and it has corresponded directly with a massive drop in educational success for boys. Our left-brained educational system can no longer effectively teach our right-brained children. This is one reason we have more gifted underachievers than gifted overachievers.

For right-brained children, one-on-one teaching is the best way to learn. The worst way to learn something is to receive a lecture about it. In a lecture situation, only about 5% of the material presented will be remembered. Things get slightly better with material that you read. You'll remember about 10% of that. If there's a demonstration of the concepts taught, recall will go up to about 30%. Both discussion groups and practice by doing also increase retention. But the best way to learn something is to teach it. In that case, retention goes up to 90%.

What makes the Saber and programs like it so appropriate for modern children is that it first makes their learning process easier by providing one-on-one education. Then it solidifies what they learn by making them the teachers. In this way, students make massive gains in their educational successes.

One last benefit of this program is worth mentioning. One of the best features of the Saber system is that it teaches students the basics of free markets. In particular, it teaches them the value of work, the value of consistent effort, and it gives them the understanding that they can better their situation through effort, education, and the workings of free market economics. Of course, they wouldn't articulate it this way, but that is exactly what they're learning.

The Curitiba Experience

The city of Curitiba, Brazil had a problem. It was growing rapidly. Most of the growth was in the form of shantytowns around the edges of the city with dwellings made of wood frames and cardboard. The lanes between the shanties were very narrow, so the garbage trucks couldn’t get in. As a result, garbage began to pile up. As you would expect under such circumstances, disease broke out. There was no money in the city’s budget for new streets, fresh water, and sewers.

However, Curitiba did have assets. Curitiba is a lush area and so there was lots of cheap food available. Also, the city’s bus system was underutilized because much of the population had no money for bus rides.

The city's mayor decided to use some very unconventional means to use the resources at hand for solving the problems that confronted the city. The city started giving out bus tokens to people in exchange for presorted, recyclable garbage. It also gave out plastic chits for paper and cartons. The plastic chits could be redeemed for inexpensive seasonal foods.

In essence, what the city government did was use bus tokens and plastic chits as complementary currencies to get the citizens of the shantytowns to clean the towns themselves. These currencies matched unused supply with unfilled demand in a way that solved massive social problems without taxes, transferring wealth, or going into debt. And it was all accomplished through custom-designed currencies.

The program was so successful that they decided to expand it. The schools had kids bring in cardboard and paper from the shantytowns and exchanged them for school supplies and school lunches. This was important because the lack of school supplies was what was keeping many kids out of school. Also, the lunches that kids got through the program was often the only real meal that had during the day. The kids responded by picking the neighborhoods clean.

On the whole, the city’s recycling efforts are estimated to have saved 1200 trees PER DAY.

People in the shantytowns used the bus tokens to ride the busses downtown to find and commute to jobs. Employment among the general population went up extraordinarily. Over the course of a single generation, more currency-based programs were used to finance the restoration of buildings, create parks and other green areas, and build affordable housing.

Removing the garbage from the shantytowns increased health, decreased disease, and improved the quality of life.

The increased economic activity that resulted from the rise of employment created new jobs, decreased poverty, enabled more people to move out of the shantytowns, and increased the tax base.

With food and school supplies available to even the poorest kids, the city improved educational levels, improved upward mobility, and decreased crime.


In both of the examples from Brazilian efforts to use currencies to solve social problems, it's important to remember that:

  1.     No handouts were given, no dependency was created. Everyone worked for what they got.
  2.     Few, if any, new taxes were levied. The education fund, from which the Saber was created, was financed by a 1% tax on cell phone use.
  3.     There was no redistribution of wealth. It was not needed. Indeed, it would have thwarted both of these efforts.
  4.     No bonds were issued, no loans were obtained.
  5.     No charity was needed.
  6.     No federal government intervention was required.

With imagination and creativity, we can design currencies that solve massive and seemingly intractable problems without growing the government, going deeper into debt, or creating dependency.

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