Money is polarizing and destructive – let's fix that!

14. Feb

At least since the 2008/9 global financial crisis, it would always strike me as very odd why "financial innovation" would nearly exclusively mean derivatives, high-speed trading algorithms, automatic stock speculation techniques etc. … or in other words: improved mutual exploitation. Because it's obvious that even our most basic financial tool – money – has big usability issues and unintended side effects. Here is the list of what I see as the biggest flaws and design problems for money – if the goal is an inclusive, sustainable economy and a society with no extreme inequality:

  • Interest benefits the already-rich and increases inequality. Nearly all money today is "fiat money", created "out of nothing" in the process of mortgaging securities. So for money to exist, somebody has to go into debt and pay back this debt with interest. That interest is passive income for some, and increases economic inequality in a society. Because that kind of income is a percentage of current wealth, so significant for the already rich, and insignificant for those with near-zero wealth.
  • Interest imposes unhealthy perpetual growth and consumption on economies. Of course infinite growth on a finite planet is impossible, but still it is the goal in a debt-fuelled economy where every indebted business has to strive hard to make more profit to pay its interest. From that follow decades of relentless advertising and a wasteful, consumption-driven mainstream lifestyle, and environmental exploitation of the planet. While many may accept that as a given in a "human vs. nature" ideology, just imagine for a moment: What if the global economy would incentivize building up ecological value, for example by large-scale ecosystem restoration?
  • Money is too hard to obtain for small and new businesses. Fiat money as we know it fulfils both the "medium and exchange" and "store of value" functions. That makes it as useful as possible, and very desirable to be hoarded ("saved"). Now saving alone does not mean that money is hard to come by for economic exchange and investment, because it is usually saved in bank accounts and thus available for lending by banks. However, only credit-worthy individuals and businesses can borrow. Small and new businesses are not among them. So in effect, money puts small and new businesses into a structurally disadvantaged position. With money as we know it, starting a business out of a situation of unemployment is very hard or next to impossible.
  • Money-based purchases support unfair and unhealthy production. Money suggests that everything has a price and that of two equivalent goods, you should always buy the cheaper one "because it has better value for money". However, that is an illusion that leads to long-term issues on the scale of societies. By buying something, the buyer supports the practices involved in its production. So by always buying the cheapest items, more often than not we support low wages, non-existing worker rights, ecologically unsound production techniques etc.. And since money is a completely anonymized representation of value, it hides the way production happens. So when money is scarce (as for everyone at the bottom), people will buy based on price alone, perpetuating their collective fate as low-wage workers.
  • Money can move globally, putting labour at a disadvantage. That's not just an attribute of money, but money and economic globalization of the wrong kind: since profits and investment money can move quickly between countries but people can not, the negotiation position of workers is weak. They will have to accept low wages as "better than nothing".
  • Money-based economies are prone to deadlock. When buying based on price alone, there is no regard for the future of how the buyer will ever be able to earn the spending back. In a purely technical sense this is legit, since the buyer saved up the money in the past, so can spend it for anything in the present. But on the larger scale, money has to flow in circles for the economy to work. If, in an extreme case, one company produces everything at the cheapest price due to full automation, and so everyone buys from them but they have nothing to spend the money on, the economy quickly grinds to a halt as everyone else will run out of money to spend. It's quite similar but less extreme whenever buying something from big business: profits of big business will never benefit small businesses again. This creates huge unemployment and bullshit jobs even though "the unemployed" can be productive. Their only fault, in a monetary "winner takes all" economy, is that they can't compete with the prices of big business, and if only by a few cents.
  • Money makes people and companies suffer from exchange rates they did not cause. Exchange rate of free-floating currencies result from the market-based desirability of the different currencies. For example, if there is a high global demand for German cars, that maps to a demand for the currency to pay them in (Euros), increasing the relative price of this currency. Conversely, currencies of economies that produce very little that is wanted internationally have a low price. That difference means that members of these economies have to pay a very high price when buying "internationally desirable" goods in other currencies. Even those few exceptional companies producing international desirable goods in an otherwise uncompetitive economy are slapped with that penalty, which is obviously unfair.

Now with this huge list of money's flaws in mind, here's the list of how our new development "pay coupons" avoids nearly all these shortfalls. What you have to know about the inner workings of pay coupons is, at this point, only this: Your pay coupons are value vouchers denominated in official currency (like Euros) that others can use to pay for your (and only your) products and services. Pay coupons of different types are not interchangeable (they are "different monies") even though they share the same denomination. Pay coupons are created by automatically detecting "coupon order cycles" in a network of coupon orders. So for all coupons received in a transaction, a user pays by issuing own coupons of the same amount to those who ordered them. And a detected "cycle of coupons orders" is equivalent to a self-sufficient economy (limited to a certain transaction value of course) that will unfold gradually and over time as the exchanged coupons are used to pay for products and services.

  • No interest. Technically, a coupon represents debt payable to the coupon holder, but in a coupon economy the coupon holder is happy to have obtained the coupon at all because it is meant to be used for a purchase. There is no expectation that a coupon will "grow on its own", since coupons are short term debts within a transactional economy, not unlike a "30 days payments term" on invoices, which is also without interest. And with interest out of the way, the predominant way how money currently serves the rich is also gone. Also without interest, there is no need for economic growth just to keep indebted businesses afloat.
  • Self-issued. While money can only be obtained by credit-worthy (i.e. wealthy) businesses or individuals by mortgaging securities, pay coupons are much easier to obtain: you just issue them when obtaining coupons of others. It's like printing your own fiat currency, in a reasonable amount that can be backed by your promises of products and services. This is especially interesting for small and new businesses, as they can now pay others for essential services when setting up a business.
  • Prices do not compete globally. With money, global "winner takes all" competition about prices is what perpetuates exploitative production conditions. With pay coupons, it is different: If you start from a situation where everyone, including the most competitive businesses, only order from the most competitive businesses, the "economic loops" where pay coupons are issued will include only the most competitive businesses. This forces the less competitive businesses to add alternative orders. So they will order from less competitive businesses this time, which will include them in the next coupon transactions. In a pay coupons economy, there is no "winner takes all". The less productive participants are not forced out of the market and left unemployed, but end up creating a market of their own. Even better, with pay coupons the most competitive businesses are forced to order their inputs from less competitive ones if they want to increase their turnover! There is no global competition about price any more. With pay coupons, the competition is not just about price (that is, incoming orders) but about both incoming and outgoing orders. Only when you have both, you get coupon turnover in the circular exchanges where pay coupons are created! And creating outgoing orders is easy: just order more, even from those who don't offer the best prices.
  • Little hoarding. Pay coupons discourage hoarding, as they are not universally useful but split into many types, each of which can only be redeemed at one person or company. And without hoarding, one reason that can cause economic slack is gone (namely, savings without investments).
  • No capital flight. The little hoarding that is possible in coupons is also not empowering any wealthy elites, as they cannot even threaten to move their wealth off-shore to weaken workers rights. Pay coupons are not "universal token of rights" that could be moved around and spent globally, but they are tied to be spent at one person or company for each coupon type!

It may be that the wealthy created fiat money deliberately in a way that benefits them. But we're not forced to keep using their money, to keep them rich and us poor. If fiat money is the money of the wealthy, then pay coupons is the money of the common people.

Five use cases where PayCoupons is a better tool than money

17. Sep 2016

PayCoupons is a powerful tool for economic exchange, just like money. But it is different from money, so it has different use cases. In earlier projects, we made the mistake to try and replace money everywhere with a new tool – but no tool is a perfect fit for all purposes, and trying to force it would obfuscate what was great about our new tool. So this time, we leave money to do what it does best: spontaneous purchases; purchases for immediate needs (in "emergencies"); and purchases from people you do not know before (like when travelling).

That said, money is also a limited tool itself, and we believe that PayCoupons is a better tool in at least the following five areas. Essentially, PayCoupons works well wherever you currently do not spend money because it is too difficult (or potentially even impossible) for you to earn it back. This assumes you have a monetary income, but it is limited, and potentially unreliable (like when you are self-employed or job-hopping).

Let's see:

  1. Trading DIY items. Handicrafts platforms (like Etsy and DaWanda) have become a trend, but still, the so-called maker economy has not really taken off in terms of sales values. We seem to have the time to produce maker products, but not the money to purchase them from others. This is clearly a deadlock situation. Because imagine everyone would commit to spend 100 EUR plus all the profits from selling their own maker products on others maker products. That would permanently provide liquidity to the maker economy, and it would just work. In practice, makers opt too often to use their profits from selling maker products and spend them on industrial products "because their value-for-money is higher, and money is scarce". That drains the maker economy of liquidity, and causes the current deadlock. The trick with PayCoupons is that it can solve this deadlock without liquidity: when you order the coupons of maker A, who orders the coupons of maker B and so on until maker Z orders your coupons, the PayCoupons system can fulfill all these orders at once, breaking the deadlock. Effectively, you get rights to the products of maker A in exchange for giving maker Z the same amount of rights to your products. Like this, the maker economy can go on and on, without being killed by a drain of liquidity. In the future, PayCoupons will support existing maker economy platforms by being available as a payment option to them.
  2. Trading favours. Villages used to have a strong favour economy. Say, your neighbour would help you tile a floor, and you would know you have to return a favour of approximately that size in the future. So when the opportunity comes up, you share the sausages and canned meat you were making with her. This informal system has been nearly phased out in industrialized countries due to multiple reasons: paying money is more flexible and versatile (when it is available), villages are more anonymous now, and there are less DIY activities than there used to be. However, since money is often not available to pay for activities like childsitting, dogwalking etc., different groups try to revive this system with time banks and mutual credit currencies. These are isolated currencies that work on personal scale (groups where everyone knows everyone), but not beyond, due to the collective trust issues involved: you have to trust the group that you will be able to spend your saved-up credits for useful services in the group, and you can only trust them if you know them. For this reason, there is no mainstream acceptance of these tools. PayCoupons seems to be a much more adequate tool here, since technically, everyone issues their own coupons currency, so there is no collective trust. At the same time, the value units are the same for all these currencies (namely, simply Euros), so it "feels" like a single currency, not like a mess of hundreds as is the case if one would set up a currency exchange to make all these alternative currencies convertible.
  3. Donating. There are probably many more crowdfunding campaigns, charitable causes and open source projects (like Wikipedia, Firefox, OpenStreetMap etc.) that you want to support than those you have the money for. And while volunteering is sometimes an option, it is a larger effort to get started with it, so you can't reasonably volunteer the equivalent of 20 USD for a project. With PayCoupons, you can. You use the "Account Menu → Send Coupons" feature to issue your own coupons as a donation to a recipient, who can then re-trade them for any product or service they need. In turn, you eventually provide a product or service you offer to whoever ends up being the holder of your accounts.
  4. Collecting funding. Up to now, running a successful crowdfunding campaign meant a month of hustling for advertising your campaign, and even then success was not guaranteed. The people with unallocated money to spend are simply quite rare. And in regions with a large subsistence economy or just a poor economy, collecting cash money is even harder. With PayCoupons however, people effectively "issue their own money" as coupons, and donate these. There is no theoretical limit to how many coupons they can issue (just a practical limit since people can only redeem a limited amount of their coupons with their future products and services). So it's much simpler to collect coupons than money. Think about a non-commercial project you always wanted to do but did not have the resources to? It might be possible with a PayCoupons campaign now. You can just tell people to use the "Account Menu → Send Coupons" function to donate to you, or use the "Donate" widget which PayCoupons will publish shortly.
  5. Collecting investments. While not an officially intended use case for PayCoupons, we welcome your experiments. (Just be careful to abide by the legal rules re. crowd-investing.) It is quite simple to collect people's coupons as investments into a new company, and to pay them back later from the profits of that company. Essentially, you create a PayCoupons account for the startup company and a website explaining the investment scheme. People invest by transferring their own coupons to your startup's PayCoupons account, using the "Account Menu → Send Coupons" feature. You use these coupons for product and services to build up your startup company, either directly or by retrading them for coupons you have a use for. Finally, you send people coupons of your startup back, according to a pre-agreed payout schedule and payout amount. For example, 7% of the investment per month, starting 12 months after the investment and proceeding until investors have received 180% back. Investors can then use these coupons to access the products and services of your company, or other products and services by retrading them.

For sure there are more use cases for PayCoupons, but we will have to explore them together. We don't know them all yet, we just know it's a tool that works where money fails: it allows trading, donating and investing your economic "spare capacity" even when you can't compete with big industry in terms of efficiency.

Founding a company in a failing economy

7. Sep 2016

(by Matthias Ansorg, PayCoupons team)

The original idea for our PayCoupons moneyless payment platform was born when two ideas blended together. The first, by my teammate Daniel, was for a tool that lets small businesses collaborate so they are efficient but "virtual" bigger businesses. The second, by me, was for a tool that can jumpstart the economy. The impression of the economic shock of the 2008/2009 crisis and the crazy high unemployment rates in southern Europe in the following years had me wondering about an obvious absurdity of our "developed" economies: when the economy is depressed, it stays depressed for the sole reason that it is depressed. In individual terms: you don't buy anything because nobody buys anything from you. You either don't have the money to buy from others, or you have savings but you fear that you won't be able to earn the money back that you spend because – obviously – your business is not doing well. In rough terms, that is the only reason why the economy does not work. People are just as educated as before the crisis, have just as much time to work, the machines and factories are still there. But the engine died, it's not running anymore.

In computer science, such a situation is called a deadlock: no progress because everyone has to wait for somebody else to act first, and this queue of waiters forms a circle. Sometimes, when your computer's operating system freezes, it is this kind of condition and you would have to "switch it off and on again", because then the boot sequence defines who acts first, breaking the deadlock.

In an economy, the "boot sequence" would be the so-called anti-cyclical spending of the government. Think the "cash for clunkers" program in Germany and other EU states during the 2009 economic crisis. But that has its limits, too. Whole economies are sluggish, and it still takes years for them to recover. And many governments have no financial "firepower" for this: governments in low-income states have low budgets, and many EU governments are too much in debt now as a result of the bank bailouts in the last crisis. Plus, it is no do-it-yourself solution. It renders citizens helpless in an economic crisis, depending on help from "big government".

That's why I was dreaming of "an app with a big green Start-the-Economy button" that could break the deadlock. I had no clear idea back then how that could work, but as said, all the ingredients were there. So if everyone would stop waiting and start spending at the same time, they would all also start earning at the same time and the economy would work again.

And here comes the interesting part: breaking the deadlock also applies to starting successful businesses, and it does not matter if these businesses are started in a failed or in a working economy. (I know it sounds crazy.) Like this: if a group of people that forms a more or less "closed economy" would stop having no startup and start having a startup each at the same time, all of their startups would succeed right from the start. Because everyone earns and spends, and all the money flows round and round without running out.

Bringing this idea to reality, of course, was not that simple. For example, no (sub-)economy is really closed because there is taxation, draining some money off, so it can't "flow round and round without running out". Also in a complex world like ours where we buy products and services from all over the world, it is very hard to create an autarkic, closed economy. While we won't find an autarkic economy, we can find cycles of needs. In such a cycle, the economy is autarkic for a group of people just for one moment. But that's enough for PayCoupons to do its job and break the economic deadlock. And technically, when money flows one full round in a cycle of needs, there is no need for money at all: everyone started with zero money, earned amount x and spent amount x, and is left with zero money again.

This was, in short, the reasoning of why we created PayCoupons the way it is. And why we think it is a tool that helps to set up successful businesses even in a deadlocked, failing, depressed economy.

(Photo: based on "New phone" by John Watson, licensed under Creative Commons BY-NC 2.0)