Kent’s “Healthy Money Healthy Planet: Developing sustainability through new money systems”

While strolling through one of the best second-hand book stores in NZ (Title Book Galleries) I ran across this title from Deirdre Kent, an unknown writer from NZ.  Being that I have an interest in economics as well as sustainability I thought it would be a good one for me to read.

Kent’s premise is that the problems that exist in the global economy (i.e. climate change, depletion of natural resources, income inequality) stem from fractional reserve banking (FRB) systems and interest-bearing debt.  Here is a summary found on page 213:

“…the unhealthy interest-based money system we currently have demands that the money supply keeps growing, and at an exponential rate.  It is therefore clear that interest-charged money is inherently inflationary.”

Or, in this simple example found on page 20:

“Suppose a bank lends out $100 to each of 10 families at 10 per cent interest.  To repay the loan, families are required to grow crops and produce goods to sell.  At the end of the year, each family is expected to pay back their principal of $100, together with $10 interest, a total of $110….There is now $1,000 in circulation, but the system requires $1,100 to be paid back at the end of the year to the bank, hence there is an inescapable shortfall….”

To solve the world’s problems Kent calls for radical monetary changes by drawing on ideas from older economists such as Henry George & Silvio Gesell.  Namely, Kent would like to see local complimentary currencies exist along with national currencies.  In addition, she’d like to see local community banking and interest-free loans (its not yet clear how private banks would make money).  Lastly, she would assign a “hoarding charge” to those people who didn’t spend their currency within a certain timeframe.  The goal of this last initiative is to increase the velocity of money.  Somehow though she would not assign this charge to savings deposits.  But then would that really increase the velocity of money?

Although I did find Kent’s identification of issues in the existing FRB system intriguing, I felt the solutions she proposes in the book lack detail as well as sound economic thinking.

Here are my notes:

*Economics is for everyone- “Economics is for everyone.  We can’t avoid it, as it permeates every field of our lives- work, food, clothing, mortgages, jobs, business, budgets, family, education, investments, wages, savings, housing, and of course, shopping.  Since the discipline involves making value judgments about what is worthwhile and what constitutes progress, it is far too important to be left solely to economists…”

*Power of compound interest: “…if a single penny had been invested at the birth of christ, at a 5 per cent interest rate, it would buy 134 billion balls of gold equal to the weight of the earth at modern gold prices.”

*On page 71-72 Kent outlines 6 reasons why GDP is a poor indicator of economic progress.  Here is an example: “Being pregnant, chasing toddlers and breastfeeding do not add to the GDP, but looking after other people’s children in a daycare centre does.” or on page 81: “…when fish are left in the sea to replenish stocks, they are not considered a monetary “asset” to the economy; only when they are sold in the markets…”

*Islamic finance: “… is based on the belief that the provider of capital and the user of capital should share the risk of business ventures equally, whether these are industries, farms, service companies or simple trade deals.  Translated into banking terms, this means that the depositor, the bank and the borrower should all share the risks and the rewards of financing business ventures.”

*Local complimentary currencies- Kent does provide a nice summary of complimentary currencies that were recently or are currently in use on pages 128-153 and again on 292-294.  There include Salt Spring Island certificates, Ithaca HOURS, and LETS.  This is interesting stuff.

*Looking at nature to solve economic problems- “…in nature species adapt by conserving what is working and altering what is not; they don’t just suddenly change.”

*High profits=low service- Kent references a study done in the 1990s in NZ which showed that there was an inverse correlation between a banks profits and the level of its customer service.  Does the same hold true in the US?  I wonder.

*Things I’ll research further after reading this book:
a) how money is created under a FRB system
b) alternative measures of economic progress such as the Genuine Progress Indicator (GPI by Redefining progress) or Human Development Index (HDI by the UN)
c) ITEX, a commercial trade barter system, which was originally started in Portland in 1982.
d) Silvio Gesell