The Individual
Anyone can create their own credit notes – it’s getting them accepted that is the problem. As individuals we can only back credit issued with our own personal capabilities to create. So a note from an artisan baker who lives nearby is probably a good bet. But in late stage capitalism most of our personal contributions to value-added are selected/ combined/ subsumed into the capitalist value-creation function. In fact this selection and combination is the core rationale for capitalism – the ability to create something bigger than the sum of its parts and cash in the resulting surplus value [extraction of economic rent].
The appeal of this person-as-primary-credit-creator ideology derives to a large extent from the cult of the heroic individual. It represents an atomistic view of society informed by the rampant competition/ evolutionary school of economic thought. It is interesting only in the sense that all value creation is grounded in individual contributions and that recognising those contributions in some way is important.
Community/ Mutual Credit
Here the ideology is one of communal support. No man is an island ; we all need support at different stages of our lives and careers. So the community manages in some way its collective resources in order to smooth the path. Note that this may be more or less socialist in its nature; and the community may be of individuals or of businesses or both.
We can characterise this approach as a credit commons [3]. And for a sustainable commons a key success factor is to specify boundaries – who is in and who is out (and thus under what circumstances a party can join or be asked to leave). This turns out to be a non-trivial governance task and leads into consideration of wider ‘digital democracy’ issues.
Much of the thinking behind mutual credit dates back centuries but more recent instantiations have been reinvigorated by emerging seductive digital ‘solutions’. At their best they can facilitate information and experience sharing; at their worst they relegate decision making to algorithms with no room for flexibility or judgement as circumstances change.
Mutual credit however remains the purest form of credit creation because it satisfies the core test set out by Douthwaite in The Ecology of Money – that a currency should be controlled by its users [4]
FEASTA
Ideologies of credit creation
Graham Barnes
This is so frustrating. How do people think it works now? Sometimes I think fewer and fewer people are actually involved in business and creating things for other people. Credit creation is MOSTLY local already. The handshake and purchase agreement are the foundational instrument of credit in our economy. They lie completely outside the banking system for extended periods of time and only after delivery of real goods even show up as a blip in the formal financial system. I'd guess these formal and informal credit arrangements dwarf the size of the entire commercial and industrial banking system. Of course bank accounts, letters of credit, credit cards and other types of spending are important too, but they have such high costs and cumbersome requirements that often it is easier and cheaper to extend credit directly in a supply chain and periodically settle up between customers and vendors. I guess consumers don't see it anymore, maybe that is why academics and government people seem blind in their prose.
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