Designing the Credit Commons: Autonomist Cooperative Direct Credit Clearing

Direct Credit Clearing - No Need for third partyThe under perfoming state in which the global monetary system finds itself today invites to seek for  more viable alternatives to perpetual repayment of coumpounded interest-bearing debt.  The Credit Commons in the form of re-appropriation of the means of  production / creation of money are the natural evolution to a post-capitalist economic system, and society. The goal is to democratize money by reverse-engeneering the existent clearing system and eliminating the need for third parties and design the system around users: from High Frequency trading to Optimal Frequency trading. Instead of ‘private’, Cooperative  Corporations give the blueprint of a juridical form for the tranformation into commons of the means of production of every good and service plus the networks that enable their exchange, namely monetary and payment systems.

Throughout the past few centuries the clearing process has been used by banks and conventional clearing houses continue to operate. The Ammers’ Dictionary of Business and Economics  defines a “clearing house” as “an association of commercial banks, brokerage houses, central banks or other institutions established to settle simultaneously the claims of its members to one another”. For instance, the central bank is the clearing house of commercial banks, albeit price stability remains the primary function of a central bank. However, the process can be scaled to new financial scenarios.

Direct Credit Clearing is not mere barter:

The clearing process  may be applied among buyers an sellers of goods and services to directly offset their respective claims without the use of intervening banks or conventional currencies. In the clearing process each participant effectively pays into or takes out of a virtual “pool.” [The] important point to understand is that in multiparty clearing what you owe to one party can be cleared or netted against what some other party owes to you.

(Greco, 2009)

In The End of Money and the Future of Civilization, Thomas Greco stresses from a business oriented perspective that ” ultimately it is your sales that pay for your purchases”. In turn, from an Autonomist Monetary Economic point of view, other than sales, there is labour itself to pay for one’s purchase of goods and services. What’s more interesting for discovering a breakthrough and go beyond capitalism, he adds “Direct credit clearing makes the use of any third party credit instrument (money) unnecessary.” The prospects  for the organization of production and growth, together with those around the property of money, are very impressive:

“A Credit Clearing Association based on an arrangement in which a group of traders, each of whom is both a buyer and a seller, agree to allocate to one another sufficient credit to facilitate their transactions among one another. The rest is merely bookkeeping. In such a system, the total amount of credit outstanding at any point in time can be thought of as the money supply within the system.”

(Greco, 2009)

For instance, in order to exit the present impasse, a nonprofit banking financial institution openly monitored by the public on a computer network with transparent audits could serve as desirable clearing house. By expanding the vision even further, in a P2P environment with a pretty autonomist background, this means that buyers and sellers would include entrepreneurs and workers in the same set, namely the set of peers, those who can buy and sell on a common platform in which there will be represented all the goods, services and commodities on indexes such as the CPI, with one fundamentally safeguarded inclusion: ‘labour’ as the commodity sold by workers on the common G/Local market.

Another achievement of such systemic organization for the monetary system would be the end for the necessity of endless exponential growth. Indeed, the consequences for the quantity theory of money would be that the ‘money supply’ “need not be an ever-increasing number. Conversely the quantity of money in the direct credit clearing system is “self-adjusting in accordance with the trading needs of the associated members, and does not play the same crucial role as in a commodity money system where the money supply is relatively inflexible.”

What about checks-and-balances? To avoid unmanageable chaos and secure a steady economic system, it is important to refine two more structural factors:

  1. Balance Limits: “the maximum line of credit on any account should be decided on the basis of the amount of that member’s sales of goods and services [including labour] average over some recent time period.”
  2. Settlement: “to settle accounts, those who have negative balances would put enough cash to zero their account balances, while those with positive balances would draw out enough cash to bring their account balances to zero.” When visualizing the process with the conventional system and procedures eventually out of the picture, one starts to really appreciate Jonh Kenneth Galbraitht once claiming that “The process by which banks create money is so simple that the mind is repelled” (Galbraith, 1975).

Moreover, Direct Credit Clearing makes the decoupling or exodus from the commercial banking system a question of functional efficiency of the new configuration: “While periodic cash settlement might be used initially to build confidence in credit clearing as a viable alternative payment method, even that degree of dependence on conventional money is not a functional necessity and should eventually be eliminated.” This will favour both austonomist and democratic features of the system.

Finally, Direct Credit Clearing systems’ design must provide strong authentication and  surety of contract. In fact, the primary goal of a clearing system is to secure authentic reciprocity to all the members of the supply chain, from consumers /  workers, to retailers / craftsmen, wholesalers, manufacturers, and the producers of basic commodities. To assure safety of contract, both collateralisation of assets that set balances’ limits and co-responsibility schemes in the form of ‘self-help’ or ‘affinity groups’ are sound design instruments of trust to implement.

To sum up with Greco:

A mutual credit clearing union can reclaim a part of the credit commons from monopoly control, enabling members to act independently of the banks in allocating their credit and conducting  businesses and trading.”

(Greco, 2009)

The final step, Direct Credit Clearing in a P2P economic system, can “with relative ease be implemented at all levels to the economy, from the local to the global. [The] main obstacles that are likely to be encountered are political ones, as vested interests try to maintain their privilege and prevent the emergence of competition.”

It therefore behooves us to act quickly in the establishment and proliferation of alternative exchange mechanisms so that they will achieve widespread patronage and support sufficient to resist those attempts.

(Greco, 2009)

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