Bristol Green Deal

The election of an independent  mayor in Bristol offers opportunities for truly creative policy-making. In this guest post Chris Cook, a former market regulator in futures and petroleum markets and now senior research fellow at UCL, suggests a novel financing mechanism for funding a rapid expansion of Bristol’s renewable infrastructure as one step on the road to what he calls a ‘natural grid’.

One of the key objectives of any 21^st century political administration – and Bristol is no different - is how to achieve energy independence and energy security by becoming as self sufficient in energy as possible. Energy independence for Bristol can be achieved in two ways: firstly by investment in Bristol renewable energy, and secondly, by massive investment in energy efficiency.  21^st Century problems cannot be solved with 20^th century solutions, but the irony is that the radical funding solutions leading to energy independence may be found prior to the advent of modern banking in1694.

Prepay 1.0

It has been long forgotten, but for many hundreds of years British sovereigns financed their expenditure though issuing undated IOUs – at a discount enabling a profit - to creditors who provided value in exchange. These IOUs were returnable in payment for taxes and that part of the wooden 'tally stick' record issued to a creditor as a token of the IOU was known as the 'stock'.

Interestingly, the phrase 'rate of return' describes the rate at which the creditor could generate his profit by returning his IOU/stock to the Exchequer for cancellation.  The more tax he was due to pay, the quicker was the rate of return of the stock.

Now, while the idea that the mayor's administration might fund itself by issuing prepaid rates 'stock' at a discount in this way is a fascinating one, it happens to be illegal, and this proposal is rather more pragmatic, being achievable immediately, with no change in any law.

Prepay 2.0

Both renewable energy and energy efficiency are free.  Clearly, if renewable energy or energy savings can be packaged and sold to investors at the right price, then necessary capital investment can be funded. But there are several problems with conventional sterling (£) funding of renewable energy.

Firstly, compound interest on bank borrowings: a debt doubles in 10 years at 7% compound interest.  Secondly, electricity is sold at a low price to a wholesaler, who makes as much profit as the regulator permits when selling to retail customers. Thirdly, the high rates of return demanded by investors in respect of shares in Victorian vintage 'Joint Stock' Limited Liability Companies. 

Then, to add insult to injury, because most renewable energy development is by foreign owned companies, most of these fat profits from UK renewable energy are hoovered out of the UK. So, let's put renewable energy investment to one side for the moment and look at the low-hanging fruit: massive investment in energy efficiency – or a Bristol Green Deal.

The Gas Pool

The Gas Pool will be a fund, administered by an ethical and competent provider of financial services such as Triodos Bank. The proposition for Investors is that they may buy units in the Pool, and that these units will be denominated, like their gas bill, in MMbtu's of heat energy.  So investors may invest directly in the value of natural gas. However, in addition to only being able to sell units conventionally (or unconventionally)  to other investors they will also have the 'stock' choice of returning their units in payment for gas bills.

Note here that in the US there are billions of dollars invested in natural gas and other energy funds by investors who observe zero% interest on Treasury Bill investment, while the Federal Reserve Bank prints new dollars massively.  These risk averse 'inflation hedger' investors do not seek a return on their capital: they simply seek a return of their capital.

Gas Loans

The Bristol Gas Pool will invest – alongside the existing Green Deal and complementary to it – in 'micro' level energy saving investments in homes and the resulting 'Gas Loans' will be repaid as occupiers buy back units in the Gas Pool at the gas market £ price via their gas bill.

The conventional bank debt funded Green Deal suffers from two flaws: firstly, compound interest at perhaps 7%, and secondly, the behavioural problem that even though people may save £ there is no guarantee they will save energy. However, with Gas Loans, there is firstly no compound interest, since the return to investors is in the energy value of gas, and secondly unless occupiers use less energy then they will not save £. With the right legal and financial structure, such a Bristol Green Deal could be introduced tomorrow.

A Natural Grid

But of course, investment in homes addresses only part of the problem.  The UK needs a least energy cost 'Natural Grid' which is complementary to the 'least £ cost' National Grid currently festooning the country's beauty spots with pylons. Denmark leads the way here, both with retrofitting 'macro' infrastructure (eg Copenhagen's 150km hot water grid) and with massive 'bottom up' investment in community level heat infrastructure, such as combined heat and power, and heat storage.

Such macro and 'meso' level investment in Bristol – such as a network of community level modular Combined Heat & Power installations- may be funded using similar techniques. But exactly how that works would be - like resolution of unsustainable Bristol property debt using similar investment techniques – for another radical Bristol policy story.

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Render unto Ceasar

Now that we are officially in Advent perhaps it is inevitable that your mind turns to Jesus, or perhaps I am just trying to make up for the fact that we have a Toy Story 3 advent calendar in the house this year and I want to believe there is something more meaningful about our foremost national festival. Whatever it is, I thought I would share my growing suspicion that Jesus may have been a green economist.

Of his many quotable quotes perhaps my favourite is 'Consider the lilies of the field, how they grow; they neither toil nor spin, yet I tell you, even Solomon in all his glory was not arrayed like one of these.' This message, like John Ruskin's 'There is no wealth but life', seems redolent of the awe for life's abundance which guides a green approach to the economy. It is also a message against the Protestant work ethic and in favour of a relaxed approach to provisioning that is necessary for the sufficiency economy we are seeking to build. And the beards, long hair and sandals were an obvious clue.

But what about the harder edges of economic life? Did Jesus have anything to say about those? I am partial to the bits of the bible where Jesus ceases to be the rather effete, kindly 'new man' emblazoned on so many Sunday-school walls and really loses his rag. When he rages against the money-changers for example, or berates his friends for dropping asleep when he was in his hour of soul-searching crisis at Gethsemane.

I think Jesus might have been rather smarter about money than he has been given credit for. Remember, 'Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s', Jesus's response when asked whether his followers should pay their taxes to the Roman authority. Last night we had Mary Mellor here in town and she adeptly explained why taxation and money issue are two linked roles of the state, and why Jesus was quite right to say that taxes should be paid back to the issuing authority.

As Mary explains it, you cannot start an economy unless you have something to circulate: issuance of money must precede deposit. The history of money is a history of political authorities from Croesus through Medieval kings right down to the Bank of England issuing money and then taxing it back. The problems we are facing today result from the failure to understand the role taxation plays in enabling circulation, and the privatisation of this right to issue currency (the right of 'seignorage') so that it now belongs to the banks.

Because money now originates in the private sector the public sector cannot exercise the seignorage function and so has to rely on taxation alone to fund expenditure. If the state issued money directly then taxation would be used to prevent excessive circulation and the resulting inflation, rather than being a means to acquire money for investment. Since the UK state will not widen quantitative easing to encompass this function, it can only initiate monetary circulation and enable economic exchange through going into debt itself. Osborne's ideological resistance to this basic economic fact and his determination to eliminate the deficit means that he will choke off limit monetary circulation and destroy the economy.

The other biblical story about currency was Jesus's outburst in the temple, when he attacked the money-changers. Here he was rather less on-message, since temple money might be seen as skin to a local currency. It was exchanged for the national currency but could only be spent within the temple precincts, much as the Stroud Pound can only be spent in Stroud. However, Jesus's objection seems to have been to the inflated prices that were charged for what the temple traders were selling - mainly animals doomed to unpleasant, sacrificial deaths - so as long as pounds sterling and Stroud Pounds are exchanged one-for-one we should stay on the right side of doctrine. Somehow, though, the thought of the advent of Jesus to the Stroud Pound stall, upturning our tables and throwing a wobbly in the middle of town is a peversely appealing one. Tweet

For local readers

Mary Mellor is coming to Stroud on 2nd December to talk about what went wrong with the money system and how we could redesign a system where money works for us and belongs to us. For local blog followers this will be a useful opportunity to learn and feel empowered.

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Capitalists Defend Capital Against the Banks?

Now here is something you didn't expect to see: a link from my blog to a Conservative one. Although, given the recent suggestions that I am incapable of using the word 'capitalism' in a critical way, perhaps you wouldn't be surprised. Although this post on Conservative Home begins with a childish and laughable indication of the blind hegemony of the pro-market ideology, this is to reassure readers who may be shocked by what follows.

The interesting news you can read between the lines of what follows is that the debate on monetary reform is on the move. This is one of those issues where the old left-right, capital-vs.-labour argument gets thrown into disarray, because those who own the capital appear to be becoming disgruntled about those who 'create' money undermining their holdings. Clearly, I have wildly different reasons for wishing to take the power to create money from banks, and in fact I doubt many Conservatives would agree that this right should lie with the people. But, as this Carswell makes clear, a minority are resuscitating arguments for a return to the fractional reserve system.

On a less cheery note, the policy motion on monetary reform to this year's Green Party conference was not passed, and cannot now be brought back for another two years. The US Greens, by contrast, have included in their policy platform for 2010 a full commitment to monetary reform and for political authorities to reclaim the power over money from the banks.

After the large number of responses to my last post, some of them rather forceful and a little unfair, I wonder whether I dare encroach onto this territory. I will be responding to the interesting debate that ensued in a later post. In the mean time perhaps I should take Harry Enfield's advice and 'know my limits'? Tweet

Don't be fooled by the credit window

The private market banks have failed and the function of banking has moved into the public sector. But, taking one step bank, we see that the function of creating money in the private market has also failed. Reducing interest rates, i.e. making money cheaper to borrow, has not managed to stimulate the money creation system that is privately operated, and relies on debt for its existence.

So this monumental market failure requires the public authorities to pick up the pieces again. As all existing money disappears into bottomless pits of commercial debt, governments are considering exactly how they are going to put more money into the economy. Now is a useful time to learn, because the fact that governments can do this proves the case that has long been made by monetary reformers: that we do not need to go into debt to create money to pay for public services or a citizens' income scheme.

The money that will be created by public credit is plainly and unquestionably our money which gives us an unarguable right to decide precisely where the metaphorical helicopter is hovering when the balding and over-excited economist starts shovelling crisp notes out of the side door. No doubt the bloated beneficiaries of government largesse in the construction and arms industries are gesticulating wildly for attention. My choice would rather be using this opportunity to introduce a Citizens' Income scheme. The money would be much more likely to be spent than saved, and therefore achieve objectives other than simply keeping the capitalist economy afloat.

The image of the economist at the helicopter door is particularly appealing, since I have always believed that most economic theory is analogous to the window that was pushed out of aircraft during the war to mislead radar systems tracking their movements. For those with alert antennae this is a time when the real workings of a capitalist economy show themselves especially clearly. Tweet

Time to Stir it up

My friend Barbara Panvel posts weekly at The Stirrer: 'campaigns that count in Birmingham, the black country and beyond'. Her latest post is addressed to Helicopter Ben - Ben Bernanke of the Federal Reserve who is now following up on Milton Friedman's suggestion that dropping money from helicopters might be a way to deal with deflation.

Nothing could better illustrate the desperation of policy-makers than such an arbitrary and aimless dumping of money into the economy. The language of strategic injections has been abandoned. There never was any attempt to direct the money towards those who might need it.

As Barbara points out, why not simply create money for public projects, along the lines of the proposal from Robertson and Huber? This would allow governments to invest in all the services their citizens need without the need to pay back the debts.

There have been a whole string of Early Day Motions calling for money creation in this form. Such a monetary reform could also pay for the shift towards a low-carbon economy that we so urgently need. It appears to be implicit in the Green New Deal proposal, which is perhaps why that has not gained the attention it deserves.

As Barbara identifies, a key mover in favour of this radical revision of the money creation system has been Austin Mitchell MP. For this he was given the Thomas Atwood Award earlier this year. The reason this proposal is not taken up is purely political, and the political consensus rests of public ignorance. The financial crisis has lit the fuse under this debate. Tweet

Money, money everywhere

I had another horrendous train journey yesterday - I was facing the prospect of a two-and-a-half hour delay on a two-hour journey when I took direct action and cadged a lift. The explanation was 'incidents in tunnels' which has made me think about 'leaves on the line' and, more relevantly, 'the wrong kind of snow'.

Perhaps this is what Marx meant by the contradictions of capitalism? During the floods, which were our local learning experience of last year, we found ourselves deluged and yet short of water. This year our economy is short of cash because of an excess of credit. The recession that we are jointly embarking on has been the result of the uncontrolled creation of the wrong kind of money: debt money.

The link between rail disasters and monetary disasters is that we should not allow control of the most fundamental structures in our economy to be in the hands of privateers. Railtrack, at least, is now back in public hands; the money creation system should follow. This is not to argue for the abolition of private banks, just to suggest, as James Robertson and Joseph Huber do in their excellent book Creating New Money, that they should perform a standard retail function rather than being allowed absolute power over the extent of credit in our economies.

Such a system would not only stabilise the money system, it would have the added benefit that the value of the money created would be in public, rather than private, hands. It would be available to be invested in public projects or used to pay off the national debt and generate tax cuts, depending on the preferences of the government in power.

The debate is now focusing on whether or not the carnage we see around us representss capitalism working or failing. All I can say is that if this is a system working, it just isn't a very good system. Tweet

Credit Crunch or Debt Swamp?

The much-discussed interview with the Chancellor published in this morning's Guardian is intriguing. It is so unusual for a politician to be this honest, or for anybody involved in the neurotic world of finance to say anything even slightly negative, that his assertion that this may be the worst economic crisis for 60 years is very unusual indeed.

The first question is, why on earth did he say that? Rapidly followed by the second: why choose the post-war period to compare with, when the economy was on its knees because of over-exploitation and exhaustion rather than a long debt-fuelled binge. A devastated economy is not a problem, so long as you have able and active people and sufficient resources to rebuild what has been destroyed. An over-indulged, greedy, wasted economy, still leeching off a munificent but abused planet is another matter entirely.

Honing our skills for reading between the news might help to explain what the Chancellor is up to here. Is this the first step towards a 'we're all in this together' approach to economic management, which will involve us all tightening belts, accepting a reduced standard of living, and co-operating rather than competing for once?

This is just the sort of approach a Green chancellor might have to adopt. However, it will never work unless the Chancellor has the courage to reclaim the power of economic management, and especially the finance sector. This power was ceded by the Thatcherites, with New Labour joining in to prove to the City that they were no threat. In the austerity scenario Darling may have in mind, the reduced standard of living would also have to take us to a future of equality--so no good the ordinary employee living on less while the elite can still sup champagne and enjoy foreign holidays.

Most interesting of all, perhaps, is the Chancellor's admission that he did not expect the bubble to burst, or, in his words, 'No, no one did. No one had any idea'. Well that isn't strictly true. In the circles I move in the crash had long been predicted. Could it be that what the Chancellor had not understood is how money is made as debt and how insecure this makes us all? Has he learned that lesson now? Is there any prospect, then, of not only banking reform but even monetary reform?

For those who have been wondering where I have been for the past month, I can let you know that I have been enjoying an enforced absence from cyberspace, thanks to the utter inadequacy of BT, the telecommunications monopolist. While I don't use them for either phone or internet services, they can still manage to make it impossible for my ISP to restore my Broadband. This post has been made via a dial-up connection--hence no pictures. Normal service will be resumed whenever BT can be persuaded to wander to the local exchange with a screwdriver. Tweet

A Common Treasurer

I am the Green Party's economics speaker. In some of my wilder moments I imagine this might put me in some position to be the Treasurer in the first green government - if only I could live that long! More realistically I think it does give me a responsibility to think about green policies as though they were going to be implemented and to take the economic implications seriously.

If, as Greens, we believe the earth is 'a common treasury', what would a common treasurer look like? What role would we play in allocating the wealth from Nature's cornucopia. Surely we would have to conclude, as green economists do, that the wealth must be fairly shared.


All natural bounty would be viewed as 'commons'. Those who enjoy the benefit of it would pay tax and that would allow us to share the wealth with those who do not or cannot access it directly. The foremost example is land - the primary wealth of any nation and the source of most government income in a green economy.

The planet's atmosphere is also a common wealth. At present this is being greedily hoarded by the Western nations, who use it up with their industrial pollution, especially carbon dioxide. The Contraction and Convergence response to the problem of climate change takes the idea of commons seriously and assigns the right to pollute the atmosphere on fairly between the world's citizens.

How should we share this wealth? Richard Douthwaite proposal Cap-and-Share - we all receive licences to pollute which we can sell to generate our citizens' income, or give to companies we would like to support, or destroy if we want to support the planet at our own expense. Other variants of the policy suggest national governments should receive the licences and do the selling, passing the money on to citizens equally.

Perhaps most important of all is to take control of our own money. A common treasurer would, I am sure, have no objection to this. As in the 19th century local authorities would issue legal tender and invest the benefit in local infrastructure projects. How else would they have paid for the civic buildings and sewers we are still using - because since the privatisation and centralisation of money creation we haven't seen the benefit of it as citizens.

We are planning a monetary empowerment in Stroud. One thing holding us back is coming up with a good name. Others are so lucky. In Llandovery they have the Black Ox Bank, the progenitor of the black horse, set up as a drovers' bank by one Mr Lloyd. Fishguard are creating the Bluestone Bank, named after their famous rock which was so valued that it was transported to Salisbury Plain to build Stonehenge. We haven't come up with anything so resonant yet. Or even something funny. I am so envious of Transition Scilly folk, one of whom I met last weekend - their money will be a blast won't it? Tweet

Transition Towns Make Money!

In spite of my advanced years I have recently embarked on a new career as the face that launched a thousand community currencies. Well, ok, just one so far with another coming soon and an open invitation to Brixton for something exciting in the near future. Next week on 24th I'll be in Lewes launching the community currency associated with the Transition Lewes process. In terms of Transition currencies I'm hoping to keep my 100% record, so invitations are welcome.

You may be wondering why Transitioners have the creation of a community currency as one of their top priorities, alongside growing carrots and eco-building. Why should such practical folk consider the effort involved in launching and sustaining a community currency to be worthwhile?

The disasters at Northern Rock exemplify the most important reason: the global financial system is, if you'll excuse me, rocky. Yes I know I'm an economist and so money is my bread-and-butter in a way it isn't for you (and you would not believe how difficult this makes decisions about mortgages and so on) but if you begin to think what life would be like without a functioning monetary system you may come to understand this sense of urgency.

In fact there is no need to imagine it because this situation happened, just a few years ago, in Argentina. The default of the peso led to a monetary vacuum into which commodities such as grain and soya became sucked, to become useable as currency. But the local currency that environmentalists had established a few years before was more flexible and soon became the main medium of exchange. You can find out more about this and its implications for local currencies in this country here: http://www.uea.ac.uk/env/ijccr/contents.html

In numerous other communities from Hungary to New Zealand and from South Africa to the USA local communities have decided to extract their labour and their lives from the global financial system and its inequities. In the case of the Transition Towns the impulse is predominantly about increasing resilience and ensuring that, if climate change brings financial meltdown on the Argentinian pattern, we will have a functioning shadow currency system to turn to. Peter North describes the adventures of these various pioneers in his book Money and Liberation (http://www.upress.umn.edu/Books/N/north_money.html)

There are quite a few questions for community activists seeking to launch their own currency. Should it have decay built into it by imposing demurrage, a sort of reverse interest that means money is gradually worth less over time? The mechanism was invented by German economist Silvio Gesell to increase the velocity of circulation of money, thus increasing economic activity during the 1930s recession in Europe.

But is this idea compatible with the green economist's wish to reduce economic activity? Perhaps the two motivations could be made compatible if the economic activity stimulated in the local economy displaced the more destructive global activity?

Should you deposit money in the bank to back the currency and allow convertibility? This certainly encourages confidence in the currency, but limits creation to the amount of sterling you can spare. Jonathan Dawson, Co-ordinator of the Global Ecovillage Network and a key player at Findhorn, told me that their currency, which is backed in this way, is acceptable at the rate of 100% in their local pub. Now that might get the punters interested.

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Schemes and Dreams on the Mosquito Coast

Over the past couple of months I have been posting intermittently about money and have had some interesting comments. I understand that reordering your understanding of this issue is hard to take. As Galbraith so eloquently put it: ‘The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent.’ But as is so often the case in economics, as well as home economics, the proof of the pudding is in the eating. So for those who are not yet convinced by this account of the nature and instability of the money-banking system some examples from history can be used to illustrate the theory in practice.

Such periodic disasters are inevitable, indeed symptomatic of capitalism as an economic system. They are the boom-and-bust cycles that are generated because the capital that lies at the heart of the system is created in such an illogical and unstable way. In the words of Galbraith again: ‘As banking developed from the seventeenth century on, so, with the support of other circumstance, did the cycles of euphoria and panic. Their length came to accord roughly with the time it took people to forget the last disaster’. One cautionary tale follows. I'll post more over the next month or so.

The establishment of the Bank of England was the other side of the coin of the creation of the national debt called a ‘fund for perpetual interest’, rather like a perpetual motion machine. Initially the Bank was established privately by Scottish entrepreneur William Paterson who persuaded the government to raise £1,200,000 by selling the national debt to citizens who would redeem their share with interest in a fixed number of years. The scheme was accepted in 1694 and from then until the following year Paterson served as a director, when he fell out with the other members of the Court (or board) and was sacked. Paterson was an entrepreneur and the Bank of England was merely one of his many schemes to create money from thin air. He is probably most famous for the subsequent disastrous Darien project.



In 1693 he set up the Company of Scotland Trading to Africa and the Indies, which sold shares of a proposed colony on Darien on the Panama isthmus. The Scots were keen to see their own advantage from expanding international trade and so there was no shortage of investors: about half a million, half Scotland’s national capital, was invested. Darien was in fact the original Mosquito Coast and most of the settlers died within the year. The scheme was also sabotaged by English traders and the English governor of Jamaica who did not want any competition. Thanks to Paterson the Scottish economy was nearly bankrupted preventing Scottish entrepreneurs from competing with the ‘British’ empire, and we have lived with the national debt for the past 300 years and more. In its weakened state Scotland agreed to be subservient to the English Crown under the so-called Act of Union just a few years later in 1707.

Galbraith’s conclusion on banking seems most apt: much discussion of money involves a heavy overlay of priestly incantation. Some of this is deliberate. Those who talk of money and teach about it and make their living by it gain prestige, esteem and pecuniary return, as does a doctor of witch doctor, from cultivating the belief that they are in a privileged association with the occult. (Galbraith’s Money: Whence it Came, Where it Went, p. 5). Tweet

Thinking about money

Money is one of the most marginalised issues of our time. Most people never ask themselves or others questions about where money comes from, what it is, or who controls it. This is a shame, since money quite clearly lies plum at the centre of an economic system that is not called capitalism by coincidence. As David Korten said, ‘Capitalism is the use of money to make money for those who have money’.

This question has become even more pressing in the post-globalisation version of capitalism, where money no longer operates as a tool facilitating trade in products, but is used to make money directly by various confidence tricks in a system which is now commonly referred to as ‘the casino economy’. The creation of money by banks was originally intended to facilitate the exchange of goods. However, from the start a range of financial scams have been perpetrated which remove this need to get your hands dirty making things.

It is no coincidence that globalisation as represented by the vast expansion of trade in goods occurred simultaneously with the liberalisation of financial markets. Countries which had once attempted to maintain political control over finance through setting interest rates, controlling the activities of banks, and through credit and exchange controls were persuaded that further capitalist progress required the market to take on these functions. Money can now be used merely to generate more money for those who have it, leaving not production but finance to play the central role in the global economy: ‘Of the total international transactions of a trillion or so dollars each day, 95 per cent are purely financial.’

Money is useful for the obvious reason that it enables you to pay for a luxurious lifestyle, but more importantly to those who control capital, money gives them a claim over future production so that over time they are enabled to accumulate an unfair share of a community’s resources and power.

There are few subjects in modern life about which so many lies are told and so many misunderstandings encouraged, both politically and personally, than about money. It is, in fact, neither the root of all evil nor what makes the world go around. It is a neat but deceitful political tool that enables those with power under a capitalist system to exercise that power to generate an unfair advantage for themselves. This is why I am launching a strand of this blog to present the issues surrounding money in bite-size chunks.

Readers who have not delved into the inner workings of the financial system should be warned: you are in for an exhilarating but bumpy ride. You should not be surprised to find yourself thinking ‘I just can’t believe it’. I have frequently felt that way myself when embarking on a similar journey. The disbelief is similar to that experienced when watching a confidence trickster, but be assured that, just because the show is good and you have believed it for a long while, that does not mean that it is true. Tweet