Rethinking Property, Money and Banking

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Rethinking Property, Money and Banking:

Social Ownership, Self-Management and Mutuality in the Anarchist Economy

Carlota Moreno Villar (11063556) University of Amsterdam MSc Thesis Political Science (International Relations) Word count: 2 3761 Date: June 2020

Thesis group Alternatives to Capitalism: Models of Future Society

Supervisor Dr. Annette Freyberg-Inan

Second Reader Dr. Paul Raekstad

Abstract

Capitalism is a social, political and economic system embedded in history which inherently creates inequality and oppressive social relations. The main sources of inequality and oppression in capitalism are private property and the monetary system —which fuel the process of accumulation— and the racial and colonial nature of capitalism. The focus of this thesis will be on private property and money. Money and monetary policy will be analysed from a heterodox sociological and historical perspective. The aim of this thesis will be to propose economic reforms that are conducive to the development of an alternative anarchist economy, incorporating insights from heterodox economic theory and grassroots economic experiments. The thesis will argue that the fundamental values of anarchism are equality, freedom and solidarity. Further, it will propose three principles of allocation that should guide an anarchist economy. Namely, self-management, mutuality and social ownership. The economic reforms that follow these principles, and which are conducive to the development of an anarchist economy, include the introduction of complementary currencies and the development of cooperatives.

Table of Contents

Chapter 1: Introduction 4 1.1 Capitalism and Inequality 4 1.1.1 Capitalism, Income Inequality and Wealth Inequality 5 1.1.2 Capitalism and Freedom 6 1.1.3 Capitalism, Colonialism and Racism 7 1.2 Orthodox Economic Theory and Capitalism 9 1.3 Anarchism, Prefigurative Politics and Economics 10

Chapter 2: Anarchism, Anarchist Economics and Revolutionary Action 13 2.1 Anarchism and Anarchist Values 13 2.1.1 What Is Anarchism? 13 2.1.2 Anarchism, Freedom, Equality and Solidarity 15 2.2 Anarchist Economics and Revolutionary Action 17 2.2.1 Anarchism and Private Property 18 2.2.2 Anarchism and Money 20 2.2.3 Anarchist Praxis and Revolutionary Action 22

Chapter 3: Economic Theory, Orthodoxy and Heterodoxy 25 3.1 Orthodox and Heterodox Economics 25 3.1.1 The Sociological Definition 25 3.1.2 The Intellectual Definition 27 3.2 Orthodox and Heterodox Monetary Analysis 28 3.2.1 What Is Money? 28 3.2.1.1 Money as a medium of exchange and the myth of money neutrality 28 3.2.1.2 Money as a social relation and the non-neutrality of money 30 3.2.2 Money and Capitalism From the Heterodox Perspective 31 3.2.2.1 Money creation in capitalism 32 3.2.2.2 Money creation, crises and inequality 33 3.2.2.3 The sociological approach and the Marxist theory of money 34 3.3 The Feasibility of the Anarchist Utopian Vision and Prefigurative Politics 34

Chapter 4: Alternative Economic Arrangements 36 4.1 Democratisation of Monetary Policy: Complementary Currencies 36 4.1.1 Local Exchange Trading Systems (LETS) 39 4.1.2 Time-Banks: Fureai Kippu 41 4.2 Cooperatives 42 4.2.1 Worker Cooperatives: Mondragon 44 4.2.2 Worker-Recuperated Enterprises in Argentina 46 4.2.3 Indigenous Cooperatives in Canada 47 4.2.4 Cooperative Finance 48

Conclusion 51

References 54

Chapter 1: Introduction

Cohen (1981) describes three commonly used justifications or arguments in favor of capitalism. Namely, that the regime of private property enlivens production, safeguards freedom and conforms to principles of justice. These are the economic argument, the freedom argument and the justice argument, respectively. As Cohen (1981) explains, the economic argument rests on the assumption that free markets and private property result in good economic consequences that are to the advantage of everyone. The freedom argument states that deviations from the free market are transgressions against freedom. Finally, the justice argument rests on the moral defence of private property. In the coming chapters, these ideas will be challenged.

First, with respect to the economic argument, I will question the idea that capitalism delivers great amounts of wealth to the inhabitants of this planet, and that wealth eventually trickles down to those at the bottom. Second, with respect to the (economic) freedom argument, I will show that deviating from market exchange does not restrict one’s freedom. The market is a mechanism for distributing goods and services which is based on negative reciprocity. Alternative methods for distributing resources exist which do not restrict one’s freedom, such as exchanges based on (positive) reciprocity. This will be illustrated in chapter 2. Further, in the next section of this chapter I will argue that the inequality that characterises capitalism results from the control elites maintain over the economic resources of a country, which increases their political power (Krieger & Meierrieks, 2015). This power is then used by elites to limit economic freedom in order to defend their economic interests. Finally, with respect to the justice argument, the idea that private property is morally justified will be challenged. An account of the role private property serves in capitalism, and how it is related to inequality and exploitation, will be given in chapter 2.

1.1 Capitalism and Inequality

The reality is that capitalism has not delivered on the promises made on its behalf by the likes of Milton Friedman or Friedrich Hayek. Harris-White (2005) examines the idea that poverty is continually being created and re-created under capitalism, instead of contributing to its eradication through the creation of wealth. She concludes that, although capitalism creates wealth, capitalist growth is not a solution to poverty. “On the contrary there are many ways in which it causes poverty, even though that poverty may be exported to sites from which it is not visible” (Harris-White, 2005, p. 11). Similarly, Wachtel (1972) concludes that poverty and inequality are a logical consequence of the proper functioning of capitalist institutions, in line with Marxist thinking. Crucially, capitalism is a social, political and economic system embedded in history that has originated and evolved with the racialism of Europe’s pre-modern civilisation (Robinson, 2000), its patriarchal character (Eisenstein, 1979) and colonial history

(Blaut, 1989). The sources of inequality in capitalism are multifaceted, and cannot be explained only in terms of the material reality of capitalism. This section will show the extent to which inequality is present in capitalist societies.

1.1.1 Capitalism, Income Inequality and Wealth Inequality

Kuznets (1955) posits that there exists an inverted U-shaped relation between inequality and economic development. Using historical data from various industrial economies, Kuznets shows that a general developmental pattern exists whereby, in the process of development, inequality first increases until it reaches a peak, and then decreases. In the case of the United States, Kuznets believes the peak was reached in the 1890s. Inequality remained stable for several decades after this point and, after the 1920s, it began to decline (Alderson & Nielsen, 2002). This pattern of inequality in the context of economic development has been found to apply to a variety of industrial economies (Lindert & Williamson, 1985). However, more recent developments in industrial societies show a reversal of the relationship hypothesised by Kuznets. Harrison & Bluestone (1988) show how in the 1970s this trend was reversed in the US, with rising income inequality maintaining a steady rate in at least the following two decades. Fritzell (1993) compares income inequality trends in Canada, Germany, Sweden, the United Kingdom and the United States. Whilst there is substantial cross-national variation with respect to changes in inequality trends since the 1970s, he shows that there was a universal tendency towards increased inequality and polarisation of the earnings distribution.

According to Alvaredo et al. (2018), in recent decades, income inequality has increased in nearly all countries. Similarly, Harvey (2015, p. 171) claims that over the last forty years or so there have been “dramatic increases in income and wealth disparities among individuals and social groups in almost every country of the world”. In the beginning of 2020, ahead of the World Economic Forum (WEF) in Davos, Oxfam released a report titled “Time To Care”, looking into the global inequality crisis. The report explained that in 2019, the world’s billionaires, 2.153 people, had more wealth than 4.6 billion people (Lawson et al., 2020). Alvaredo et al. (2018) provide estimates of how global income growth has been distributed to the totality of the world population since 1980. They find that the global top 1% earners have captured twice as much growth as the bottom 50%. In the United States, between 1976 and 2006 the per capita income of the top 1% earners increased by 232%, whilst it only increased by 64% for the bottom 90% of the population (Wisman, 2013). Since 1980, income inequality has increased rapidly in North America, China, India and Russia, and moderately in Europe. There are, however, exceptions, such as in Brazil or sub-Saharan Africa, where it has remained stable (Alvaredo et al., 2018). “The diversity of trends observed across countries since 1980 shows that income inequality dynamics are shaped by a variety of national, institutional and political contexts” (Alvaredo et al., 2018, p. 10). For example, the income share of the top 1% in the United States and Europe was

close to 10% in 1980. Whilst in Western Europe it increased to 12% in 2016, in the United States it rose up to 20% in the same year (Alvaredo et al., 2018).

Overall, it has become clear that the hypothesis developed by Kuznets (1955) does not conform to reality. The reversal of the downward trend of inequality in the 1970s-1980s supports this idea. Further, the gap between the wealthy and the poor, and the squeezing of the middle class, have been increasing up until the present.

1.1.2 Capitalism and Freedom

It is often claimed that capitalism promotes freedom. Or, at least, economic freedom. A well-known defence of this idea is Milton Friedman’s Capitalism and Freedom (1962). However, there are many ways in which capitalism can be said to restrict the freedom of the majority of people.

First, let us consider the case of the wage labourer. As Karl Marx pointed out, one’s position within the social relations of production determines the social class one belongs to. According to Marx, the proletarian is the producer who has nothing to sell but his labour power. He is forced to sell his labour power to avoid starvation (Cohen, 1983). Whilst it could be said that the worker is free to pursue other choices, such as begging, the reality is that workers are still forced to sell their labour power if they do not want to starve (Cohen, 1983). “When I am forced to do something I have no reasonable or acceptable alternative course. It need not be true that I have no alternative whatsoever” (Cohen, 1983, p. 4). This restriction of the freedom of the labourer results from the material inequality of the working class and the oppressive, hierarchical relations that private property establishes.

But there are other ways in which capitalism may be said to restrict freedom. Importantly, it is a great misunderstanding that capitalism promotes economic freedom. That could perhaps be said of market economies, but not of capitalism. Economies which rely on completely free markets do not exist in reality. Capitalism, on the other hand, is a system which places various social and political limits on economic freedom in order to promote accumulation. Krieger & Meierrieks (2015) study the interaction between income inequality and economic freedom for 100 countries in the period from 1971 to 2010. They find that inequality has a negative causal effect on economic freedom. They explain this by making reference to the elites’ political power, which stems from their disproportionate control over countries’ economic resources. According to them, elites use their political power to restrict economic freedom and defend their interests by discouraging innovation and competition. This account “emphasises the role of rich industrial incumbents in shaping economic institutions by exercising de facto political power” (Krieger & Meierrieks, 2015, p. 20). It is precisely the power of elites to shape economic institutions which leads to the monopolising tendencies of our economy. Cowling (1982) shows

that monopoly and oligopoly capitalism are dominant in the world economy. He argues that major corporations, often organised in interlinked oligopolistic groups, have captured dominant positions in markets. These dominant positions “will remain unassailable partly because these dominant oligopolies will invest in their maintenance in order to secure the benefits of the stream of monopoly profits associated with their position” (Cowling, 1982, p. 1).

Thus, capitalism restricts freedom in different ways. First, in the sense that it creates oppressive social relations that result from the hierarchical nature of class. Also due to the racial discrimination and colonial relations that are inherent to capitalism. This idea will be explored further in the following section. Secondly, in that it restricts economic freedom to protect the interests of elites. This is done, for example, by limiting competition so that elites can keep their monopolies.

1.1.3 Capitalism, Colonialism and Racism

Capitalism cannot be understood fully without taking into account its history of colonialism and racism. Angeles (2007) posits that colonialism is a crucial factor behind today’s differences in income inequality among countries. According to him, colonies that received large numbers of European settlers were characterised by important concentration of economic and political power, a situation which was maintained when these colonies gained independence. Colonies where the presence of Europeans was smaller exhibit lower levels of inequality. As Angeles (2007) explains, European settlers were able to accumulate most of the countries’ income for themselves by excluding the rest of the population from owning land or mining resources. Once colonies gained independence, with the exception of Algeria, the European settler minority was able to take all political power, preserving the status quo. Angeles (2007) shows that the colonial experience of developing countries refutes the ‘inverted-U’ shape of the relationship between inequality and income that Kuznets defends. Importantly, as explained by Angeles (2007), Kuznets excluded from his analysis countries with large native populations and small enclaves of non-native, privileged minorities. This omission is of crucial importance because it excludes a great deal of developing countries.

Many countries in the world also exhibit racial patterns of inequality. Collins et al. (2019) shows the extent of the racial wealth divide in the US. “Since the early 1980s, median wealth among Black and Latino families has been stuck at less than $10,000”, whilst white household median wealth grew from $105,300 to $140,500 (Collins et al., 2019, p. 3). The latest available statistic for Native Americans goes back to the year 2000, when their median wealth stood at $5,700 (Muhammad et al., 2017). Picker (2017) describes the situation of the Romani population in Europe. He states that, compared to the European average, Romani people are over seven times more likely to live in segregated households, and that the number of those living below the poverty line is 90%. Hamilton et al. (2001) examine the relation between race and inequality in

Brazil, South Africa, and the United States. They state that “the over 125 million people of African descent who reside in these nations remain disproportionately numbered among the poor and disadvantaged” (Hamilton et al., 2001, p. x). Finally, Bhalla & Luo (2013) examine the situation of ethnic minorities in China and India. They consider factors such as health and education levels, or income inequality, and show that ethnic minorities are highly disadvantaged.

In light of this, it is clear racial inequality is very present in capitalist societies. In fact, racial inequality is inherent to capitalism. Whilst Marxism sees capitalism as naturally evolving from feudalism, Du Bois (1969) and Blaut (1989) show that the origin and development of capitalism can be traced back to the history of slavery and colonialism. Blaut (1989, p. 290) links the concentration of capitalism in Europe and its rapid acceleration to early colonialism:

“In 1492 the characteristics of pre-industrial capitalism were already in Europe, as they were in some other areas. But this mode production was dominant only over small sections of the European landscape, and it did not have behind it the force power. So it could not accumulate capital, increase production, increase the wage-work force, etc., very quickly. Colonialism moved the constraints. It provided capitalism in this region the resources needed to increase its scale and increase its power”

Similarly, in Black Reconstruction, Du Bois (1969, p. 5) recounts the centrality of American slavery to capitalism:

“First of all, their work called for widening stretches of new, rich, black soil—in Florida, in Louisiana, in Mexico; even in Kansas. This land, added to cheap labor, and labor easily regulated and distributed, made profits so high that a whole system of culture arose in the South, with a new leisure and social philosophy. Black labor became the foundation stone not only of the Southern social structure, but of Northern manufacture and commerce, of the English factory system, of European commerce, of buying and selling on a world-wide scale; new cities were built on the results of black labor, and a new labor problem, involving all white labor, arose both in Europe and America”

For Robinson (2000), the institution of American slave labour was particularly important for the historical development of world capitalism in that it expropriated the labour of African workers as primitive accumulation. “American slavery was a subsystem of world capitalism” (Robinson, 2000, p. 200). Essentially, slavery was not a historical aberration or a mistake; it was and is systemic and essential to the development of capitalism (Robinson, 2000). Again, Du Bois (1969, p. 16) makes this clear in Black Reconstruction:

“Out of the exploitation of the dark proletariat comes the Surplus Value filched from human beasts which, in cultured lands, the Machine and harnessed Power veil and conceal. The emancipation of man is the emancipation of labor and the emancipation of labor is the freeing of that basic majority of workers who are yellow, brown and black.”

Importantly, Robinson (2000) explains that the labour movement that resulted from the trade unionism that developed in Europe and the United States was a crucial support for the

imperialism and colonialism of the late 19th century. Here Robinson challenges the myth of the ‘universal proletariat’. He explains that, in the US, black and non-black labour became politically opposed. “The northern non-black working-class movement effectively excluded the freedmen, the slaves and the five million poor whites of the South” (Robinson, 2000, p. 200), helping to maintain the status quo. Robinson’s (2000) account of the development of English working class consciousness and the Irish worker also questions the idea of a ‘universal proletariat’.

The key takeaway from this section is that one must understand the historical and social context in which capitalism developed to understand the nature of inequality in capitalism nowadays. It is clear that colonialism and slavery were central to the development of capitalism, and that racial and colonial patterns of inequality persist to this day.

1.2 Orthodox Economic Theory and Capitalism

Orthodox economic theory fundamentally misunderstands the nature of capitalism and, therefore, the nature of inequality. It completely removes social, political and historical reality from economic analysis. The standard economic textbooks, such as Mankiw’s (2020) Principles of Economics, or McConnell, Brue & Flynn’s (2017) Economics, will probably summarise the capitalist economy as a system of economic production characterised by private property, capital accumulation, investment and competition. In this system, business owners (capitalists) own the means of production (capital) and hire workers to produce. Emphasis is usually placed on competition and markets, or the so-called invisible hand. That is, how markets self-equilibrate and lead to efficient outcomes through the mechanism of competition, which reveals true prices and allocates resources to their best uses. Deviations from the ideal world imagined by economic theory are explained away as market externalities or unnecessary government interventions. It should be noted that efficiency is here seen as the guiding criterion for the economy: optimal outcomes are those which are most efficient, not necessarily those which are fairer, or more equitable. These textbooks will often also include some notion of trickle-down economics, or the idea that wealth gained at the top will eventually trickle down to those at the bottom, as if the natural state of things were that we must depend on the rich to get by.

These approaches to economics, which could be classified as “mainstream” or “orthodox”, deal with market economies, not capitalist ones, and seek to apply market economy models to existing economies when, in reality, they are very different things. “Capitalism is a legal regime, an economic system and a social formation that unfolds in history” (Boyer, 2010, p. 63). The distinction between capitalism understood as a dynamic and evolving socio-economic system (Boyer, 2010), and capitalism understood as a market economy, is extremely important.

In capitalist systems, the market is only one component of the economy, which includes coordinating actors other than firms and markets, such as the state (Boyer, 2010). Further, capitalism is not just an economic system; it requires legal rules and a political power that defends property (Boyer, 2010). Consequently, society, polity and economy are inherently interdependent, which counters the idea of a “pure economy”, or the total disconnection of the economic sphere (Boyer, 2010). Importantly, market economy approaches conceive of only one universal kind of capitalism, removed from context and time, whereas the alternative approach defended here views capitalism as embedded in history and producing various kinds of capitalism (Boyer, 2010). The varieties of capitalism approach, along with the French Regulation school and the Social Structures of Accumulation (SSA) approach, have already revealed the many forms capitalism can take, depending on the particular social, historical and cultural reality of each and every country (Boyer, 2011).

Orthodox approaches to economics have helped cement assumptions about reality in the minds of many people, obscuring the ways in which capitalist economies generate suboptimal outcomes from the points of view of equity and fairness . Often, defenders of capitalism claim that inequality is a necessary evil. They claim that to completely rid ourselves of inequality would mean to take a step back in our freedoms. This implies that a trade-off exists between individual freedom and equality, which cannot be reconciled. Alternatively, those who identify more closely with Tony Blair’s Third Way, or the uneasy marriage between capitalism and social democracy, claim that capitalism can work, if properly managed. Underpinning this view is the idea that inequality is not endemic to capitalism, but an unfortunate consequence that can be remedied with extensive social welfare programs. This is not the view that is taken here. Instead, this thesis will take an anarchist approach to capitalism and inequality. In doing so, it will consider inequality to be an inherent feature of capitalism.

1.3 Anarchism, Prefigurative Politics and Economics

Anarchism seeks, above all, to establish a society of free and equal individuals. A society of free individuals is one in which human beings can define their lives for themselves, not subject to the arbitrary will of another, and one in which they can develop to the fullest their capacities and talents (Rocker, 1949/2013). As a theory, anarchism finds inspiration in liberalism and socialism. From the former, it inherits a preoccupation with the happiness and prosperity of the individual, and the right over one’s own person, as well as a preference for minimum government. From the latter, it inherits the realisation that the equalising of social and political conditions is not sufficient for a free and equal society to arise; there must also be an equalising of economic conditions (Rocker, 1949/2013). Further, anarchism has been greatly influenced by the democratic tradition. For anarchists, who are radical democrats, individuals should have a say in all important matters affecting them, to the extent that they are affected by them. This is to be achieved, they would contend, by means of decentralisation and confederation.

Importantly, the democratic tradition brings to anarchism a concern with an abstract collective concept, akin to Rousseau’s general will, which in this case is not fixed in the state (Rocker, 1949/2013) but in society as a whole.

Overall, anarchists advocate the abolition of economic monopolies and of all political and social coercive institutions within society (Rocker, 1949/2013). This essay is concerned with the first. An anarchist economy, ideally, would constitute “a free association of all productive forces based upon co-operative labour, which would have for its sole purpose the satisfying of the necessary requirements of every member of society” (Rocker, 1949/2013, p. 4). For this vision to become a reality, an anarchist economy must be guided by the following values: freedom, equality and solidarity. These values are embodied in anarchism’s main principles: self-management, societal ownership and mutual aid.

In light of the issues considered above, this thesis will outline what an anarchist alternative to capitalism would look like. To do so, it will draw insights from anarchist theory and practice, and it will build on heterodox economic approaches, as opposed to mainstream ones. An alternative to capitalism entails not only the redesigning of the economy, but also accompanying changes in the social, political and legal spheres. Such changes, though necessary, are not the focus of this thesis, which will pay more attention to the economic sphere. The focus will be placed on money and monetary policy, as well as property relations. This is so because, as will be explained in the following chapters, they are at the core of capitalist exploitation. Before getting into the ins and outs of the anarchist economy, it is furthermore important to note that, in practice, economic systems need not (and usually don’t) exist in their “pure” forms. With regards to future economic models, or alternatives to capitalism, Rudolf Rocker (1949/2013, p. 20) explained it well when he said:

“Mutualism, collectivism and communism are not to be regarded as closed economic systems, permitting no further development, but merely as economic assumptions as to the means of safeguarding a free community. There will even probably be in every form of a free society of the future different forms of economic cooperation existing side by side, since any social progress must be associated with free experimentation and practical testing out”

What Rocker (1949/2013) refers to has important implications for the aim of this thesis and the way prefigurative politics is here understood. This concept is the subject of much debate in anarchist circles because, in principle, anarchists are opposed to absolute schemes or universal truths of any kind. For that reason, following Raekstad (2018, p. 362), prefigurative politics in this thesis will be defined as a “strategic commitment to developing revolutionary organisations that embody the structures of deliberation and decision-making that a post-capitalist society is to contain”. Prefigurative politics, in this sense, conforms to the anarchist ideas of experimentation and, more importantly, the idea that means and ends must be consonant. Revolutionary action, therefore, must not only foster, but also embody, the kind of changes

envisioned. Prefigurative politics in this sense also resonates with Graeber’s (2004) counterpower, which seeks to gradually create anarchic institutions that are set in opposition to capitalism and the state, to create a situation of dual-power.

The aim of this thesis, then, will be to propose economic reforms that are conducive to the development of an alternative anarchist economy. The research question that motivates this thesis is as follows: what economic proposals can foster the development of an alternative anarchist economy? In order to answer this question, two further sub-questions will be considered: (1) what values and principles ought to guide an anarchist economy?; and (2) what are the sources of inequality and domination in capitalism?

The first sub-question will be answered in chapter 2. The chapter will examine the ideas behind anarchism to understand which values are at its core and how they can be translated into economic principles of allocation. Chapter 2 will also begin to answer the second sub-question, as it will outline the anarchist critique of property and money as sources of inequality in capitalism. Chapter 3 will expand on the importance of money as a source of inequality in capitalism. It will do so by challenging orthodox economic theory from a heterodox perspective. Specifically, the ideas of money neutrality offered by the neoclassical school of economics will be countered. The alternative proposed in the chapter is the sociological and historical approach to understanding money, which views money as a social relation. Finally, these insights will be incorporated into chapter 4, which will look into alternative economic arrangements that are in line with the anarchist vision. First, it will consider complementary currencies, which have as an objective the promotion of economic, social or environmental projects at a local or regional scale. In addition, complementary currencies facilitate exchange in periods of money scarcity, such as recessions, and they reduce the dependence of local economies on external finance. Secondly, it will look into cooperative organisation in the economy. Specifically, it will consider the case of Mondragón in Spain, worker recuperated enterprises in Argentina, and Indigenous cooperatives in Canada through an anti-colonial lens. Finally, it will also delve into the importance of cooperative finance. Specifically, it will discuss its current situation and its beneficial effects in terms of improving access to credit, increasing the stability of the financial sector, and contributing to the development of the local community.

Overall, this thesis will argue that the economic arrangements that can foster the creation of an alternative anarchist economy, and which conform to the anarchist principles of mutuality, self-management and mutuality, are complementary currencies and cooperative forms of organisation, such as worker cooperatives or cooperative financial institutions.

Chapter 2: Anarchism, Anarchist Economics and Revolutionary Action

Ultimately, economics’ raison d'être is to answer one fundamental question: how should means of production, resources and labour be distributed in a world in which they are finite? The answer to this question is a normative one. The way we choose to allocate these will depend on what purpose we believe our economy serves, and what kind of values we want our economy to conform to. What neoclassical economics has managed to achieve is to make this question one of efficiency. Economics as a discipline seems to be oriented towards answering the question: how can means of production, resources and labour be distributed efficiently? But this question already implies a normative assumption. The assumption that efficiency is a value that takes precedence over other considerations, such as equality or freedom. Not only that, but efficiency is evaluated in relation to constant exponential growth and the accumulation of capital and financial resources. That is, things are efficient insomuch as they contribute to the process of accumulation. This is reflected in the importance attached to GDP as a measure of value and economic well-being, and in the centrality of the profit maximising objective of businesses. Importantly, the answer to this question is also a matter of feasibility. One could claim that the pursuit of efficiency is a necessary evil. The idea behind this is that if one were to pursue absolute equality, one would have to sacrifice some freedom, and vice versa, because they are, to a certain extent, incompatible. In this view, the pursuit of efficiency results from a fair compromise between these two values. This is not the view taken in this thesis.

This chapter will aim to shed light on the issues outlined above from an anarchist position. Thus, it will aim to answer the following question: what values ought to guide an anarchist economy? Two main points will be made in the first section. To begin with, that anarchism, at its core, can be characterised by adherence to certain values, and the social and economic relations that spring from them. Specifically, anarchism entails a commitment to equality and freedom. Secondly, that equality and freedom need not contradict each other where there is solidarity. Thus, solidarity is also a core value of anarchism. Further, in the second section it will be argued that these values inspire what I have termed anarchism’s principles of allocation. Namely, self-management, mutuality and social ownership. It will also be argued that these principles should replace the principles that govern allocation in capitalism.

2.1 Anarchism and Anarchist Values

2.1.1 What Is Anarchism?

Theorising about an anarchist economy requires a sound understanding of what anarchism is, and what its values are. Unfortunately, defining anarchism is extremely difficult. For Carter (1971) anarchism adheres to the values of local community and individual freedom. For Colin

Ward, a prominent British anarchist, anarchism is about transforming social structures and practices to move towards a freer society centered around the values of freedom and mutuality (White, 2007). In reviewing the 19th century western anarchist tradition, Fowler (1972) notes that many define anarchism as anti-authoritarianism, others as a rejection of coercion, and some stress individual autonomy. Malatesta (1891) defines anarchism as the absence of government or the state. He stresses that this does not mean that anarchism also entails the absence of order. For Malatesta the state, or the government, is not an abstract social power that represents the will of the people. Instead, it is a collective of government officials who enjoy a monopoly over force and authority, and an instrument of the privileged that ensures they can maintain their dominance (Malatesta, 1891). Thus, for Malatesta, disorder begins with the state and the subjugation of the masses to its arbitrary power.

Fowler posits that the common thread uniting 19th century anarchists is opposition to the state and to government in general. Similarly, for Williams (2007) anarchism’s central character is opposition to coercion, hierarchy and authority. The definition of anarchism as opposition to the state follows from its opposition to hierarchical institutions and the concentration of power, whether social or economic (Rocker, 1949/2013). At the heart of such opposition is the rejection of domination. Thus, anarchism is not so much opposition to the state, but opposition to the concentration of power which allows some to dominate others. Hierarchies concentrate authority and power at the top and divide people into classes with different collective bargaining power and control over decision-making. In other words, hierarchical institutions and the monopolisation of power entail the expansion of the positive freedom of some at the expense of others’ negative freedom. Because capitalism and the nation state are both hierarchical and monopolise power, anarchists are naturally opposed to them.

But one cannot define anarchism solely in terms of that to which it is opposed. Anarchists’ rejection of domination reflects liberalism’s theoretical contribution to anarchism: a commitment to the freedom of the individual. This positions individuals as the unit of analysis for anarchists and represents the idea that “the happiness and prosperity of the individual must be the standard in all social matters” (Rocker, 1949/2013, p. 7). As a theory, anarchism is inspired by two other currents: on the one hand, the norms of democracy and the equality of all citizens before the law; on the other hand, socialism, because anarchists understand that a free society can only exist if individuals are socially and economically equal (Rocker, 1949/2013).

An anarchist society, then, would be one in which every individual is free and equal to others. But defining what a free society is is difficult as well. Presumably, societies exist with varying degrees of freedom, rather than being simply free or unfree, and we will assume in this thesis that a society that is freer is preferred to one that is less free. A minimum requirement for a society to be free would seem to be that everyone enjoys negative freedom, or freedom from interference by others in their affairs. A freer society would be one in which individuals' positive

freedom is also extensive. Further, in relation to equality, as long as economic power differentials exist, the potential for domination remains. Anarchism’s commitment to the equality of individuals demands that people not be separated into classes of property owners and property-less individuals, and that economic monopolies and the structural concentration of power are abolished (Rocker, 1949/2013).

The preceding discussion tells us, then, that an anarchist economy must be guided by the values of freedom and equality. However, some would claim that these two values conflict, or that there is a trade-off between them. That equality can only be maintained at the expense of freedom. Anarcho-capitalists, for example, would hold this view, believing in the primacy of an individual’s freedom over society or community. Here it is important to clarify that anarcho-capitalists are not, in reality, anarchists, but individualist libertarians, for anarchism is collectivist in its emphasis on equality and radical democracy. Unlike anarcho-capitalists, anarchists do not believe that freedom and equality are at odds. For anarchists, freedom and equality do not conflict when there is solidarity in a community. Put another way, this means that for anarchists the only way of creating a free and equal society is through community and reciprocity, and not individualism and self-interest. This is reflected in the ideas of Peter Kropotkin, one of anarchism’s leading theoreticians. For Kropotkin, who sought to integrate insights from natural science and sociology and to counter Social Darwinism, social instincts and mutual aid, or cooperation, are what allowed humans to survive and progress (Kropotkin, 1902/1955). From this we can infer, then, that an anarchist economy is one which is also guided by the value of solidarity, or one in which there is reciprocity and cooperation between individuals. The following section will elaborate further on this point.

2.1.2 Anarchism, Freedom, Equality and Solidarity

On the issue of whether freedom and equality conflict, first we must begin by considering how a commitment to equality affects negative freedom. Because this thesis is concerned with anarchist economics, it will pay attention to the trade-off between freedom and economic equality. The argument that will be made here is that the equalising of economic conditions without impinging on individuals’ freedom is possible in a society where reciprocity functions as an allocation mechanism.

Principles of allocation refer to rules or beliefs governing the allocation of tasks, authority, resources or property. Allocation mechanisms are processes or methods that distribute these according to certain principles. For example, the market, where each party in a transaction attempts to get as much they can at the expense of the other party, can be considered an allocation mechanism guided by the allocation principle of negative reciprocity. A capitalist society would be more generally characterised by such negative reciprocity, or “the attempt to get something for nothing”, where each party seeks an unearned increment at the expense of

the other (Taylor, 1982, p. 29). A concrete illustration of negative reciprocity in capitalism is wage labour, whereby the capitalist profits by appropriating the additional value the worker produces, at their expense. That is, the capitalist pays the worker less than the value of what the worker produces.

In contrast, in his book Community, Anarchy and Liberty, Michael Taylor (1982) makes the argument that for social order to be maintained in an anarchist society, the relations between individuals must be those characteristic of a community. This entails the widespread existence of positive reciprocity between members of a society, reciprocity being best maintained in small communities where direct and many-sided relations exist. Such “reciprocity is made up of a series of acts each of which is short-run altruistic (benefiting others at a cost to the altruist) but which together typically make every participant better off” (Taylor, 1982, p. 29). Taylor (1982) shows that the negative freedom of the members of a community would be augmented if they introduced the practice of positive reciprocity. To do this, he introduces a scenario where two neighbours, A and B, each of which owns a set of tools, agree to share them in such a way that each can take whatever tools they need provided that the other doesn’t need them at that time and that they return them whenever the other does need them. He explains that before this agreement takes place, each enjoys negative freedom with respect to their own tools. After the agreement is introduced, their original negative freedom is maintained, but now they also enjoy negative freedom with respect to the other’s tools provided that the other person does not need them. Such an agreement can be extended to all members of a community so that the expansion of negative freedom is greater and available to all.

Generalised reciprocity, whereby the obligation to reciprocate is diffuse and altruism is not conditional upon reciprocation does not diminish one’s negative freedom, but instead increases each participant's utility (Taylor, 1982). In practices of generalised reciprocity, such as food sharing, the objects to be shared remain under exclusive control of the owner until they are given to the recipient. At that point they come to be under exclusive control of the recipient. Here participants are trading the negative freedom to, for example, eat their surplus of food now, for the negative freedom to eat something else in the future that they would otherwise not have had. What generalised reciprocity entails, therefore, is trading the freedom to do something at t1 for the freedom to do something at a later time (Taylor, 1982). In this sense, negative freedom is not diminished. Utility, however, is increased, as “typically what is given is what is not then needed or cannot then be used, and what is received is of more value, so that the freedoms lost are less valuable than those gained” (Taylor, 1982, p. 156).

As has been shown, neither of the two forms of reciprocity considered so far diminish negative freedom. A final type of reciprocity Taylor (1982) explores is cooperative work or reciprocal assistance. As he explains, cooperation does not render one free to do things one could not do before, but “it makes cooperators jointly capable of doing them together” (Taylor, 1982, p. 157)

whereas this was not possible before. The negative freedom of individuals is, in this case, neither augmented nor diminished, but because they are now capable of doing things they could not do before, it can be said that their positive freedom is augmented.

Summing up, reciprocity in this example involves the transfer of wealth from one to another, or the pooling of labour, without diminishing one’s freedom. The result is that all participants are better off and that wealth is better distributed because tools or other resources are given to those who need them. All in all, reciprocity is one way of promoting equality that does not restrict one’s freedom, but instead likely increases it. What this tells us, then, is that the nature of economic transactions, the dynamics involved and the principles they follow are crucial to understanding the nature of capitalist exploitation. Whether our economic relations are based on negative reciprocity or (positive) reciprocity matters for the ways inequality and injustice are created and perpetuated. Bringing this back to the discussion about the trade-off between equality and justice, the preceding discussion suggests that solidarity, or mutual support between members of a group, is a value that should guide an anarchist economy in order for equality and freedom to coexist in an anarchist society. And with this we have answered our first question: what values ought to guide an anarchist economy? Freedom, equality and solidarity.

2.2 Anarchist Economics and Revolutionary Action

We have established so far that anarchism entails not only an opposition to hierarchies and domination, but also a commitment to the freedom of the individual. We have also clarified that anarchists believe freedom is only possible if everyone in society is equal, because the concentration of power, whether social or economic, in anyone's hands, allows them to dominate others. Finally, it has also been argued that freedom and equality do not conflict in a society where solidarity is also an important value and reciprocity works as an allocation principle.

Importantly, the way anarchism is here understood contrasts with the definition of anarchism as that which it is opposed to. Particularly, the state. Instead, anarchism here is understood as a commitment to the freedom of the individual and a preference for certain social relations between members of a community. Specifically, those grounded on the values of freedom, equality and solidarity. This is so because the principles that stem from them prevent the appearance of oppressive social relations, where power differentials allow some to dominate others.

This thesis will attempt to locate the allocation principles and mechanisms in capitalism that lead to the monopolisation of economic power and to replace them with others that work to distribute power and resources equally between members of a community. Economic power, in capitalism, arises from private property, or the monopoly of the means of production, and from

the accumulation of money. Marxist theory and anarchist theory have extensively discussed the monopoly of means of production and its relation to the oppression of labour. Anarchists have also paid much attention to the money question, which has become all the more relevant in the context of financial capitalism and the 2007 financial crisis. It puts money, banking and finance in the spot.

This section will discuss issues related to property and money in more detail. In addition, from this discussion we will infer what anarchism’s preferred allocation principles are and the related changes they imply for the economy. Specifically, it will be argued that anarchism’s allocation principles are those of societal ownership, self-management and mutuality. The necessary changes to the organisation of our economy that arise from these principles include: (1) the socialisation of private property; (2) the decentralisation and democratisation of monetary policy, banking and finance; and (3) the replacement of competition with cooperation and reciprocity.

2.2.1 Anarchism and Private Property

Property rights can be seen as socially-enforced constructs that determine how a resource or an economic good can be used and owned (Alchian, 2008). They determine how property is to be allocated or distributed. “Private property establishes an exclusive ownership right to a thing or process whether it is being actively used or not” (Harvey, 2015, p. 39). It must be distinguished from personal property or possessions, which refers to things that you own due to use or occupancy. A capitalist system is characterised by a private property regime, which means that there is private ownership of the means of production.

Anarchists claim that private ownership of the means of production gives rise to inequalities in power and privilege. That is, the monopolisation of the means of production by capitalists concentrates power in their hands. Mikhael Bakunin believes that private property means that those who own productive assets can live without working by exploiting the work of others who are propertyless and forced to sell their labour power (Spannos, 2012). Similarly, for Proudhon, private property allows owners to exploit users and creates oppressive social relations (Proudhon, 1904/2008). What this means is that private property leads to the creation of hierarchical classes of property owners and propertyless individuals, who have different positions in society and different bargaining power. As Proudhon further explains, “under the regime of property, the surplus of labour, essentially collective, passes entirely, like the revenue, to the proprietor” (McKay, 2012). This parallels Marx’s analysis of the exploitation of labour, and his realisation that the capitalist must pay the workers less than the value of what they have produced. This regime of private property, which creates antagonistic classes with diametrically opposed interests, as Marxist theory tells us (Clarke, 1995), forces the propertyless into wage labour and allows capitalists to appropriate the products of their labour. Classes share common material positions in society, which affect their collective bargaining power and the control they

have over decision-making in relation to property and the division of labour (Spannos, 2012). Connecting this to the discussion on reciprocity, we can see that private property is a rule or norm governing the allocation of property that gives rise to social relations based on negative reciprocity, with one party seeking unearned income at the expense of the other. Private property is at the root of the oppressive social relations between classes because it implies greater bargaining power for those who own productive assets and the ability to live off unearned income.

We have now identified property as an important source of concentration of economic power, one that gives more bargaining power to propertied classes and is at the root of the social relations of domination between the capitalist and the worker. This is something that anarchists and Marxists agree on. What they do not seem to agree on is the alternative to private property. Marx famously predicted the natural evolution of history towards communism (Rocker, 1949/2013). In communism, the means of production are owned centrally by the state. However, the centralisation of the ownership of the means of production in the state is not viable for anarchists. Anarchists reject “not only workers selling their labour to capitalists, but also workers taking orders from managers or the state” (Spannos, 2012). If we take Malatesta’s (1891) definition of the state as a collective of government officials who enjoy a monopoly over force and authority, we can understand how such a centralisation of power is dangerous. Centralisation and hierarchies go hand in hand, as centralisation inevitably creates power differentials between the managers of the state and those who they are supposed to represent. If the state enjoys not only a monopoly over force and authority, but also over the means of production, this power differential is only expanded. Centralisation, which seeks to reduce authority and the power to control certain resources in the fewest hands possible, inevitably also creates the possibility of domination. “Economic equality alone is not social liberation. It is precisely this which all the schools of authoritarian socialism have never understood” (Rocker, 1949/2013, p. 10). Centralised planning by the state is elitist and precludes any democratic worker self-management, which is what anarchists defend.

Anarchism advocates for decentralised societal ownership of the means of production. Proudhon, Bakunin and Kropotkin, the leading theoreticians of the main anarchist schools of thought, mutualism, collectivism and anarcho-communism, respectively, all advocated for societal ownership of the means of production (Rocker, 1949/2013). What these anarchists had in mind was the organisation of labour into self-managed worker cooperatives, owned equally by all workers, which would enjoy usufructuary rights to property (Rocker, 1949/2013). Usufructuary rights allow one to make use of assets which belong to someone else, in this case the community. Cooperatives are democratically run associations, businesses that are owned and managed by their workers (Gordon, 2012). In these self-managed worker cooperatives, wage labour would not exist because all workers would have equal shares of the product of labour. To coordinate production nationally or supranationally, cooperatives would be federated

and would work through delegation and cooperation (Rocker, 1949/2013). Self-management is of extreme importance for anarchists because of their commitment to individual freedom and democracy, and because even in the workplace hierarchies lead to oppressive social relations.

So, all in all, what anarchists advocate for is the socialisation of the means of production and the organisation of workers into self-managed cooperatives. Societal or communal ownership of the means of production would be the allocation principle that would replace private property in capitalism. This principle stems from the values of solidarity, equality and freedom, and anarchism’s understanding that freedom is only possible when material conditions are equalised. Usufructuary rights would work as an example of an allocation mechanism following the principle of societal ownership. Self-management would similarly represent a principle for the allocation of tasks and authority in the workplace, which would replace the hierarchical division of labour that creates a class of managers and mental workers above manual workers, who are left with the more physically demanding but less fulfilling tasks. Again, this principle is rooted in a commitment to freedom and equality, and the right of individuals to control their own lives. Finally, mutuality would be the allocation principle governing the distribution of wealth or the product of labour in cooperatives, whereby the profits of labour would be distributed equally among workers. Mutualism, in a biological context, refers to a symbiosis that is beneficial to both organisms involved. In a similar way, mutuality here is seen as the idea that economic activity and its rewards should be carried out in such a way that is equally beneficial for all involved. This principle is grounded on the value of solidarity and operates on the basis of reciprocity between members of a community.

2.2.2 Anarchism and Money

Ingham (2008) recognises three elements of capitalism in order of priority: (1) a monetary system that creates credit-money through banks; (2) market exchange and; (3) commodity production in the private sector. According to him, the monetary system plays a crucial role in capitalism and its origins. Further, all three elements are to some extent allied with the state, “but the monetary system is utterly reliant on state sovereignty” (Pixley, 2013, p. 282).

The issue of money is a contested and complicated one. Whereas virtually all anarchists would agree on the socialisation of the means of production, consensus is not observed when it comes to money. Some anarchist schools accept the role of money in their economies, but others, such as anarcho-communism, the dominant tendency within anarchism, envision a post-monetary economy (Rocker, 1949/2013). When discussing this issue, differences between the orthodox and heterodox conceptions of money become extremely important. Orthodox economists, from Smith to Mill, deny the importance of money and monetary factors in determining economic outcomes, invoking ideas of money neutrality (Smithin, 2002). Underpinning this view is the idea that economics deals, primarily, with the real exchange of goods and services, as opposed

to the accumulation of financial resources (Smithin, 2002). This points to the distinction outlined by Schumpeter between real and monetary analysis. As Smithin (2002) explains, real analysis is grounded on the view that all important features of the economic process are to be understood in terms of the exchange of real goods and services. Monetary analysis, on the other hand, posits that money and the cost of acquiring financial resources are integral to the economic process. With many economists pointing to a new stage of financial capitalism (Wray, 2011; Hein, Dodig & Budyldina, 2015), and in light of the 2007 financial crisis and its lingering effects, it would seem that money and monetary policy do matter. This opens the door to questioning the independence of central banks, the centralisation of monetary policy and its removal from democratic control, and even our conception of money itself.

Marx recognises the centrality of money to capitalist production, though this is often overlooked by Marxists themselves (Clarke, 1995). Engels places private property at the foundation of exchange, but Marx moves beyond exchange and competition to look at the subordination of social production to the power of money (Clarke, 1995). “Marx did not see the exchange relation as expressing a superficial conflict of two wills, but he saw it as a mediated relationship, in which exchange took the form of purchase and sale of commodities for money” (Clarke, 1995). For commodity exchange to occur, buyers and sellers must have exclusive rights over money and the commodity to be sold. In other words, “exchange value and money jointly presume the existence of individual private property rights over both commodities and money” (Harvey, 2015, p.38). However, even though Marx understood that money is not a neutral factor in the economy, and that it has very real effects on economic outcomes, his theory of money remains limited and incomplete. Limitations in his understanding of money affect the way he conceives class and inequality, and result in a somewhat rigid view of the class structure. These ideas will be extended in the next chapter.

Proudhon recognises the importance of money as well. Linking his ideas to his observations of working-class activity, particularly of workers who had organised credit among themselves, he proposes the democratic organisation of credit as a means to achieve the organisation of labour (McKay, 2012). For Proudhon, socialised credit, by means of mutual banks, produces socialised property (McKay, 2012). Similarly, as Onken (2000) explains, for Silvio Gesell, a German anarchist economist, the exploitation of human labour originates primarily in the sphere of distribution due to structural defects in the monetary system. Gesell sees a contradiction between money’s role as a medium of exchange and as an instrument of power. He attributes the market-dominating power of money to two things. On the hand, money’s superior liquidity compared to goods and services. On the other, the fact that money, unlike labour or goods, can be hoarded. The ability to hoard money allows its holders to temporarily withhold it from the market for speculative purposes, disrupting the flow of economic activity (Onken, 2000). That is, money can be hoarded instead of invested in productive economic activities, slowing down the economy and the exchange of goods and services. “In the course of the business cycle when

declining interest rates cause large amounts of money to be withheld from the market until the outlook for profitable investments improves, the result is economic stagnation and unemployment” (Onken, 2000, p. 611). The accumulation of money, then, enables the holders of money to demand the payment of interest to refrain from speculative activity, essentially enabling money to extract interest in return for allowing the exchange of goods and services to occur (Onken, 2000).

Gesell’s ideas about money make him an early defender of money’s non-neutrality. Gesell’s account shows how “the return on capital is accorded priority over broader economic considerations, and production becomes attuned more to the monetary interest rate than to the real needs of humans” (Onken, 2000, p. 610). Money’s non-neutrality results in the inequitable distribution of income, leading to the concentration of monetary as well as non-monetary capital and the formation of monopolistic structures (Onken, 2000). Money, therefore, is a factor of crucial importance in determining economic outcomes.

“Dual sources of economic control lie in goods and service production, and in the production of modern money that necessarily relies on the state” (Pixley, 2013, p. 273). The centrality of money to capitalist production calls for an intervention in the monetary system. The transition to a post-monetary economy, or the abolition of money, seems extreme and unrealistic at this time. Further, money does have useful qualities as a medium of exchange. Therefore, this thesis will consider alternatives to abolishing money and to the capitalist monetary system, inspired by the socialisation and democratisation of credit that Proudhon defends; Gesell’s ideas on complementary currencies and their potential to: (1) provide the means for exiting an undemocratic and centralised monetary system and (2) to protect local economies from speculative activities and external shocks. The coming chapters will explore the money question in depth drawing from heterodox economic theory and grass-roots experiments.

2.2.3 Anarchist Praxis and Revolutionary Action

Anarchism’s “founding fathers” are usually considered to be Proudhon, Bakunin and Kropotkin. Whilst this might be true when one is referring to anarchism as a body of theory, as David Graeber (2004) has shown, anarchic forms of organisation have existed for quite some time, and continue to exist and grow in the present. These anarchist theorists themselves based their ideas on the actions and strategies of workers of their time, and the main principles of anarchism are not the result of the abstract machinations of intellectuals, economists or PhD candidates, but of forms of cooperation that were observed back then in the 19th century, much earlier than that, and continue to be observed nowadays. Proudhon, for example, obtained some of his ideas from the militant textile workers of Lyons in the 1840s, and other anarchist authors such as Bakunin, Malatesta or Emma Goldman were inspired by popular anti-government movements (Carter, 1971). The importance of this realisation is not to be underestimated: the ideas put forth by anarchism must be bottom-up or must not be at all. Only then will revolutionary action be truly

democratic and conducive to the freedom of the individual. The kind of revolutionary action envisaged by anarchism must come from the workers themselves; it cannot be imposed from above, and it cannot be designed by any elite. Anarchism is not the creation of a few “great men” of history, and its commitment to popular sovereignty and freedom necessarily implies that the revolution cannot be, in any way, authoritarian or paternalistic.

The way in which revolutionary action should proceed has always been a point of contention between anarchists. Some anarchists advocate for gradualistic proposals, whereas others defend a radical and absolute demand to abolish oppressive institutions (Carter, 1971). Godwin, for instance, argued intensely in favour of a gradualist ethic and against revolutionary action, but most anarchists were in fact revolutionaries, and many were violent revolutionaries (Fowler, 1972). Modern anarchists, such as Graeber (2004), favour a more experimentalist and pragmatic approach. This is the approach also favored in this thesis.

The issue of violence and radical revolutionary action is central to anarchism. Graeber (2004) posits that a general difference between Marxism and anarchism is that the former has tended to be a theoretical or analytical discourse about revolutionary strategy, whereas the latter has tended to be an ethical discourse about revolutionary practice. What he is referring to is anarchism’s concern with forms of practice and the idea that means and ends must be consonant; that is, freedom cannot be created by authoritarian means (Greaeber, 2004). The solution he proposes is revolutionary counterpower.

Counterpower “is a collection of social institutions set in opposition to the state and capital” (Graeber, 2004, p. 24) which create a situation of dual power. Specifically, this entails the gradual creation of alternative, anarchic institutions that will replace existing coercive institutions, and the shift from a conception of the revolution as a cataclysmic break towards the idea of revolutionary action, or any collective action that rejects and confronts power or domination (Graeber, 2004). This is in line with the theory of exodus proposed by autonomist thinkers in Italy, which proposes opposing capitalism and the liberal state by means of engaged withdrawal, or mass defection by people wishing to create new forms of community (Graeber, 2004). Similarly, these ideas are consonant with Colin Ward’s pragmatist anarchism. For Ward, genuine change could only be achieved if it grew out of changes in personality and social relations, none of which can be politically mandated (Williams, 2007). Importantly, he claimed that the state could not be overthrown by a revolution because the state is also a condition, a type of relationship between humans, a mode of human behavior, which can only fully be destroyed by behaving differently (Williams, 2007).

Therefore, the anarchist revolution is (even if it seems like a contradiction) gradual and experimental. This reflects the idea that anarchism is not a patent solution for all human problems, nor is it a utopia of a perfect social order, because it rejects absolute truths and

schemes and is not a fixed, self-enclosed social system (Rocker, 1949/2013). Here we can see why anarchism finds Marxism’s determinism and vanguardism objectionable: forms of struggle and goals are not rigid or predetermined, and anarchists prefer to respond to existing conditions in an ad hoc and amalgamistic manner (Cochrane & Monaghan, 2012). Accordingly, the task of the anarchist theorist is to draw on the inventory of revolutionary action and anarchist organisation that is everywhere present, and to translate this into a coherent theoretical body that is always changing and adapting.

Again, emphasis must be placed on the fact that examples are everywhere to be found. From an anthropological point of view, Graeber (2004) offers some of the less commonly known examples: for instance, the Piaroa, a highly egalitarian society living along the Orinoco that place great importance on individual freedom and reject monopolistic control over resources or authority. A few more examples of societies without governments are given, including the Bororo, the Onondaga or the Wintu. This is all to show that anarchic forms of organisation are possible (and here it is also important to remark that because a political organisation is prior to the state, it is in no way inferior or primitive). Some critics would object to the use of these examples arguing that these are primitive societies (I myself object to the use of the word primitive) that do not say anything about anarchism’s feasibility as an alternative to capitalism nowadays, but they need not worry because “modern” examples also exist. One only needs to look at Mondragon, a successful federation of cooperatives in the Basque country, the Spanish revolution of the 1930s or, more recently, Rojava, among many others. To clarify, the claim made above is not that these were or are perfect anarchist societies or organisations, but instead that they have successfully incorporated anarchist organisational principles in some way or another and that they can serve as inspiration.

Chapter 3: Economic Theory, Orthodoxy and Heterodoxy

The distinction between orthodoxy and heterodoxy is not clear-cut. Orthodox and heterodox economics stand in opposition to each other, but the variety of perspectives that can be included in both of these categories make the identification of common intellectual features and the formulation of a precise definition complicated. To adequately understand the difference between orthodox and heterodox economics, these terms must be clearly defined, however. Generally, two sets of definitions exist. The first is a broad definition, termed the sociological definition by Dequech (2007), which equates orthodoxy with mainstream economic theory. Dequech’s (2007) own so-called ‘intellectual’ definition corresponds to the second, narrower interpretation of orthodox economics. The narrow definition conceives of orthodox economics as the dominant school of thought within the mainstream. Currently, the dominant school of thought in mainstream economics is the neoclassical school (Dequech, 2007). Accordingly, heterodox economic theory would be broadly defined as economic theory that opposes mainstream approaches. The narrow interpretation of heterodox economics, however, would define heterodoxy in opposition to neoclassical economics.

These approaches differ greatly in how they view the nature of economic reality and the conclusions they draw from it. Adopting one stance or the other leads to fundamentally different ideas about economic analysis, capitalism, and the feasibility of utopian economic models. In this chapter, both definitions of heterodoxy will be explored. In doing so, the main differences between heterodox and orthodox economic theory will be described. These differences relate to the methodological and ontological commitments of each approach.

3.1 Orthodox and Heterodox Economics

3.1.1 The Sociological Definition

The broad definition of orthodox economics corresponds to Dequech’s (2007) sociological definition, whereby economic orthodoxy refers to mainstream economic theory. Mainstream economic theory consists of ideas held by individuals who are dominant in the leading academic institutions, organisations, and journals in any given time (Dequech, 2007). The mainstream is not a homogeneous category because it does not belong to any one school of thought. It includes a variety of perspectives. This makes it difficult to identify shared intellectual features of these approaches.

Some authors posit that the common thread uniting mainstream approaches is a commitment to individualism and the assumption of rational, optimising behavior (Lawson, 2006). Whilst this definition applies to the neoclassical school, it does not apply to all other mainstream approaches. For example, as Dequech (2007) explains, neoclassical economics and behavioral economics both belong to the mainstream. The latter, however, critiques the neoclassical theory

of utility maximisation (Dequech, 2007), countering the neoclassical assumption that individuals are rational and self-interested. Similarly, various game theory contributions have updated their view of rationality in ways that deviate from the neoclassical assumptions (Lawson, 2006). Thus, upon closer scrutiny, this definition does not hold.

Instead, the common feature connecting these approaches is their methodological orientation. Specifically, they share a strong emphasis on mathematical formalisation, or a reliance on a formalistic-deductive framework (Dequech, 2007). This emphasis on mathematical modelling is hardly questioned by mainstream economists, and works to the detriment of other approaches that emphasise qualitative analysis, such as historical or sociological perspectives. This methodological orientation also implies certain assumptions about the nature of economic reality. Lawson (2006) describes the ontological commitments of the formalistic method. He explains that it requires the positing of closed systems in which deterministic or stochastic event regularities occur. Further, the formalistic method favours formulations in terms of isolated atoms, each exercising their own independent and invariable effects, often ensuring that the same outcomes always follow under given conditions (Lawson, 2006). From this point of view, the distinction between orthodox and heterodox approaches is an ontological and methodological one, centered around the question of the legitimacy of the primacy of mathematical-deductive modelling.

The essence of the heterodox approach, therefore, is the conviction that formalistic methods are not always appropriate for the analysis of economic phenomena. This assertion is underpinned by certain ontological considerations as well. For Lawson (2006), the core of the heterodox position is that economic reality is not only material, but also social in nature. For him, this implies that economic reality is intrinsically dynamic, interconnected and organic. This demands that we understand the economy in a perpetual state of transformation, and that economic analysis should not be anachronistic or static. Furthermore, the interconnectedness of social reality implies the interdependence of economy, society and polity. In other words, the economic sphere cannot be completely disconnected from the social sphere, as the orthodox approach claims.

The dynamic nature and interconnectedness of economic phenomena are discussed by Robert Solow (1985):

Much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes. Concrete outcomes are indubitably affected by these background factors, some of which change slowly and gradually, others erratically. As soon as time-series get long enough to offer hope of discriminating among complex hypotheses, the likelihood that they remain stationary dwindles away (p. 328).

Boyer (2010) echoes the concerns outlined above. For him, the orthodox emphasis on mathematical formalisation and its ontological commitments have led economists to mainly

search for quantitative regular patterns. However, “long-run historical analyses confirm that possible economic regularities are restricted to a period of a few decades” (Boyer, 2010, p. 66).

What both economists are getting at is that economic regularities are context and time dependent, and that they change as the nature of social relations changes. Solow’s (1985) recommendation is a more contextual and historical approach to answering economic questions. He posits that economic analysis ought to be a collection of models contingent on society’s circumstances, rather than a single monolithic model. Similarly, Boyer (2010) recommends that economists shift from searching for quantitative regular patterns to searching for qualitative dynamic patterns in the context of interdependencies in the economy. Both authors reflect the heterodox position, arguing against the mathematisation of economics, and in favor of a historical and context-specific approach that takes into account society and polity as well.

Overall, the broad definitions of orthodoxy and heterodoxy point to an ontological and methodological division. The orthodox approach advocates for a formalistic-deductive framework and favours analysis in terms of isolated, independent atoms (this means that interrelations do not have an important role in this approach). Further, orthodox analysis requires closed systems displaying stochastic or deterministic phenomena, and it tends to be static. On the contrary, the heterodox approach favours methods more suited for the social sciences and the analysis of social phenomena, because it posits that economic reality is not only material, but also social in nature. In addition, heterodox economists generally advocate approaches that emphasise the interdependence of the economic, social and political spheres.

3.1.2 The Intellectual Definition

Defined more narrowly, orthodox economics refers to what Dequech (2007) terms the intellectual definition of orthodoxy. Specifically, it refers to the most recent dominant school of thought in economics, which at present is the neoclassical school (Dequech, 2007). This approach belongs to the mainstream, and thus shares all the characteristics outlined above. More specifically, as can be seen in Mankiw (2020), the neoclassical school subscribes to the idea of the rational, utility maximising individual. Value, according to this theory, is established on the basis of individuals' subjective preferences, which drive prices (as opposed to value being determined by a product’s cost, like classical theory defends). In this theory, competition leads to the efficient allocation of resources, and markets are self-equilibrating. Further, in this view savings determine investment. This idea will be explored in more detail in the coming chapters. Finally, neoclassical theory assumes the existence of a closed economy and the separation of the economic sphere from the social and political one.

Summed up, mainstream economics refers to the widely accepted ideas or approaches to economics which tend to rely on mathematical formalisation. Orthodox economics, however,

refers to the dominant school of thought within the mainstream, which, at present, is the neoclassical school. Whilst the preferred definition here is the sociological one, for the purposes of this essay orthodox economics will be taken to mean neoclassical economics. This is so because neoclassical economics, being the dominant school of thought, heavily influences policy-making. Using this definition will also enable the comparison of orthodox and heterodox monetary policy in the following sections.

3.2 Orthodox and Heterodox Monetary Analysis

This section will compare the orthodox and heterodox approach to monetary analysis. First, it will describe the orthodox approach, which conceives of money as an efficient medium of exchange, and which posits that money is neutral. Then, the heterodox approach will be discussed. The heterodox approach proposed in this chapter is the sociological and historical understanding of money that Ingham (2002) proposes. In this view, money is a social relation, and it is not neutral. Instead, money has an important role to play in the determination of economic outcomes.

3.2.1 What Is Money?

To begin to discuss monetary policy or the distributional effects of money creation in capitalism, we must first understand what money is, and what its origins are.

3.2.1.1 Money as a medium of exchange and the myth of money neutrality

The neoclassical or orthodox account of the nature of money is based on Menger’s (1892) rational choice analysis of the logical and historical evolution of money. In this account, money originates in the barter economy as a solution to the problem of the ‘double coincidence of wants’. It arises unintentionally from the acts of isolated individuals. Traders hold stocks of the most tradable commodities to maximise their barter options, and eventually these tradable commodities emerge as media of exchange. Precious metals, which have further advantageous properties such as durability or divisibility, develop into their coinage form and become the most widely used money form, ultimately developing into the present monetary system. In this view, the explanation of the origin of money takes the form of commodity-exchange theories which posit that money’s historical and logical origins lie in the natural process of exchange (Ingham, 2001). That is, “money is primarily a medium of exchange evolved spontaneously from barter for the purpose of minimising transaction costs” (Lau & Smithin, 2002, p. 6). In this account barter exchange and market exchange are not considered to be structurally different (Ingham, 2001), and money is the consequence, rather than the cause, of markets and exchange. To wit, money is the consequence of individual rational utility maximisation in the context of barter and market exchange.

The neoclassical school sees money only as a technical device that facilitates a more efficient conduct of transactions (Ingham, 2001) and it denies the importance of money or monetary factors in determining economic outcomes (Smithin, 2002). If money is neutral, this means that any change in its quantity affects only the level of prices, and not production and growth in the long-run (Philipps, 2017). The idea that ‘money is neutral’ or that ‘money acts as a veil’ can be traced back to Mill. John Stuart Mill wrote in his Principles of Political Economy with Some of Their Applications to Social Philosophy (1848, p. 333), “there cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money”. Underpinning this view is the distinction between real and monetary analysis outlined by Schumpeter (1994/1954). Real analysis works on the assumption that economics deals primarily with the exchange of real goods and services and that only these factors are relevant in determining economic outcomes. The neoclassical school subscribes to this view. The idea that ‘money is a veil’ is a core concept of classical and neoclassical economics, and it is foundational in the macroeconomic models used to forecast national economies (Philips, 2017). In fact, almost all mainstream economic analysis, with the exception of Keynesian analysis, has been orientated to real rather than monetary analysis (Smithin, 2000).

However, there are reasons to question the validity of the assumption that money is neutral and has no effects in the economy. For instance, problems in the real economy have often been accompanied by disruptions in monetary conditions, as the experiences of the Great Depressions of the 1890s and 1930s, the stagflation era of the 1970s or the currency crises of the 1990s show (Smithin, 2002). The more recent example, though, is the 2007 financial crisis, which will be examined in more detail in the coming sections.

The historical account of the evolution of money outlined by Menger (1892) and adopted by the neoclassical school, which suggests that money’s central function is to be a neutral medium of exchange, is not actually supported by historical records (Ingham, 2001; Smithin, 2002; Wray, 2002; Graeber, 2011). Moreover, it also includes logical inconsistencies. Ingham (2002) explains that the neoclassical story of the origin of money gives rise to a paradox: money was supposedly in the common interest, but it conflicted with the immediate interests of individuals because they would have to exchange their commodities for pieces of metal that were, in reality, useless. What Ingham (2002) is getting at, essentially, is that Menger’s (1892) account can only demonstrate that holding money is economically rational for individuals once its use is widespread and widely accepted. Finally, according to Ingham (2001), the most fundamental problem with orthodox theory is the way it neglects the significance of money as a unit of account — a mistake that Marxist analyses of money also make. The following section will elaborate more on this.

3.2.1.2 Money as a social relation and the non-neutrality of money

The heterodox approach explored in this thesis is oriented towards monetary rather than real analysis. It does not deny the importance of the real economy in determining economic outcomes, but it posits that money and the cost of acquiring financial resources are an integral part of the economic process. In this approach, money is seen as a system of social relations based on power relations and social norms (Ingham, 2002). This historical and sociological account, introduced by Ingham (1996), is inspired by Schumpeter (1994/1954), Keynes’s (1930) Treatise on Money, and the work of the German historical school. Its purpose is to debunk the neoclassical narrative whereby money is assumed to emerge from market exchange to suggest precisely the opposite. Money, in the sociological and historical account, enables multilateral market exchange to arise.

According to Ingham (2002), the challenge faced by the neoclassical view lies in explaining theoretically the jump from real exchange ratios between goods determined by individual subjective preferences, to price lists necessary for multilateral market exchange. Without a money of account these exchange ratios can only be easily established between pairs of commodities in the context of dyadic exchange (Ingham, 2002). Unless the value of commodities that are to be exchanged is in some way related to a fixed standard, agents are engaging in barter-exchange relations because they are comparing individual needs and not values in the abstract (Ingham, 2002). It is some degree of countability that allows a commodity to act as money. Consequently, ‘a money of account’ is the primary function of money. Money’s properties as a unit of account are what allows for the creation of price lists and debt contracts that, in turn, make possible multilateral market exchange. Only with a ‘money of account’ could market value, as opposed to individual subjective value, arise (Ingham, 2002).

The idea that money arises as a unit of account is supported by Graeber’s (2011) Debt: The First 5000 Years. He analyses the historical origins of money and, in line with Ingham (2002), suggests that money originates as a social institution for the settlement of disputes or obligations. Once the idea of a unit of account was widely available to society, money developed into an authoritatively fixed standard of value calculated on the basis of quantitative comparisons between commodities and expressed in a unit of account (Ingham, 2002).

The chartalist monetary approach details the evolution of money from this point on in relation to the state. “In this approach, money is a creature of the state. The state defines money as that which it accepts at public pay offices, mainly in payment of taxes” (Wray, 2002, p. 48). It posits that the state had a direct role in determining what the unit of account would be. Wray (2002) locates the origin of money in the settling of debts or obligations in public assemblies, but explains its standardisation in relation to the development of upper classes, and temple and palace communities. Specifically, he locates its standardisation in the tax levies of palaces,

which were essentially debts to the palace. As he explains, as their domain expanded, the palaces eventually began to outsource tax collection to tax farmers. These tax farmers, in turn, present the first evidence of lending at an interest (Wray, 2002). They would pay a villages’ debt, and charge interest to the villagers. Debts were measured in clay tablets which indicated a quantity of grain and the names of the persons involved in the transaction. “A debt could be cancelled and taxes paid by delivering a tablet recording another’s debt” (Wray, 2002, p. 44). This was the case until the issuance of the first coin by King Pheidon of Argos in the seventh century BC (Wray, 2000).

What the chartalist school, along with Ingham (2002) and Graeber (2011) shows is that markets operated on the basis of credit and debit much before the development of coins and that money originated as a ‘unit of account’ to quantify these debts, with the state authoritatively fixing the standard of value and exchange ratios.

All in all, this section has aimed to show that the creation and control of money is, essentially, social and political, not economic. States created standardised money so it could be collected in the form of taxes, and not to favour exchange (Ingham, 2001). The account offered above begins to show the nature of money as a social relation. Ingham (2002) outlines three reasons why money can be seen as a social relation: First, money is produced by non-market agencies and it does not obey the economic laws of the production and exchange of commodities. Second, monetary exchange consists in a social relation that is qualitatively different from pure exchange. This point is of crucial importance. Commodities have intrinsic value, but the value of money depends on the extent to which it is widely accepted by people. In this sense, money is a claim upon society. For money to have any value, one must believe that it will be accepted tomorrow by someone else, and presently, it is the state that backs money. Here we can see the difference between monetary exchange and pure commodity exchange. The barter exchange of commodities is bilateral, but monetary relations are trilateral. That is, because the transacting agents cannot by themselves produce a universally acceptable money, monetary exchange requires a third party that may legitimately produce it (Ingham, 2002). Consequently, monetary exchange cannot be viewed through the lens of dyadic exchange, like the neoclassical account claims. Finally, there is a third sense in which money can be thought to be a social relation. Namely, that modern capitalist money “consists in nothing more than a symbol or signifier of states’ and banks’ promises to pay” (Ingham, 2002, p. 23). The following section will expand on the role of money in capitalism nowadays.

3.2.2 Money and Capitalism From the Heterodox Perspective

Money is a variable of vital importance for the determination of economic outcomes. As the previous sections have argued, money is not neutral. For Ingham (1999), the capitalist credit money system is relatively autonomous, and it has the capacity to generate and reproduce

inequality. Lau & Smithin (2002) argue that money plays a crucial role in sustaining capitalism. Philipps (2017) states that money is used by diverse interests in the continuing economic struggle over the accumulation of capital and financial resources and redistribution. Money is not neutral. This section will aim to show the importance of money in capitalism. It will discuss money creation in capitalism, speculative investment, and the relationship between money and inequality.

3.2.2.1 Money creation in capitalism

“The essence of the critique of capitalist credit-money revolves around the way money is created in contemporary capitalist society” (Longhurst & Seyfang, 2011, p. 6). The mechanism by which credit is created is of extreme importance. One important characteristic of capitalism is that credit-money is created through bank lending. As Lau & Smithin (2002) explain, private financial institutions create private debts through the act of lending. Some of these debts become transferable and can be used to pay for goods and services, thus becoming private money. Similarly, some of these private monies become public money through central banks (Lau & Smithin, 2002). What this means, is that capitalist credit-money is transferable debt, or promises to pay that are used as means of payment. Importantly, the central bank also has the ability to create reserve money, but this money is not an accurate depiction of the money supply because it does not reflect the quantity of money circulating in the economy (Phillips & Desmoulins-Lebeault, X). Essentially, what this means is that banks are not just financial intermediaries transmitting household savings into business investing, like neoclassical theory states. Rather, they create credit. This is a point of crucial importance: “bank finance for investment is not related to previous saving. Saving is not a determinant of investment” (Lau & Smithin, 2002, p. 14). The real determinant of investment is banks and their willingness to lend. Furthermore, “the mechanism for credit extension to increased economic transactions consists of loans causing deposits and those deposits cause a spurt of transactions” (Philipps, 2017, p. 216). Lending, then, is a vital motor for increased economic activity.

The monetary system’s design gives banks the ability to create credit-money in excess of reserves many times over, enabling the credit-money supply of money to be more elastic than real economic sector output (Philipps, 2017). A problem is that “most credit today is spent to purchase already-created assets, rather than to generate fresh real-sector productive capacity” (Philipps, 2017, p. 217). This kind of investment does not contribute to GDP, but instead fuels unsustainable asset inflation. The financial crisis, when money kept being funnelled into the housing market, ultimately fuelling a bubble, is an example of such a situation. To a great extent, corporate profits have not been reinvested in increasing the capacity of the real sector but have instead been divested into speculative activities. This has been made easier by the extensive deregulation of the banking sector, which encourages money capital to discard manufacturing in favour of safer income from the financial sector (Philipps, 2017). It is precisely

for this reason that such an extensive and powerful financial system can be harmful to the wellbeing of the economy. The financial sector competes with the real sector for resources, and this can lead to the misallocation of these. If the financial sector is too powerful, resources will be misdirected into unproductive, speculative activities.

3.2.2.2 Money creation, crises and inequality

Catão & Milesi-Ferretti (2014) show that the periods that precede a financial crisis are characterised by increased lending by banks. The problem with these expansions of credit is that resources are divested from the real economy to the financial sector and into speculative activities. That is, credit is invested in unproductive activities. “Credit that finances trading in existent assets, real or financial, does not add to the GDP, but rather, fuels unsustainable asset inflation” (Phillips & Desmoulins-Lebeault, 2019). This is exactly what happened in the 2007 financial crisis, when real estate prices dramatically increased as a result of the acceleration of mortgage lending. In general, once asset bubbles burst, prices collapse and banks decrease their lending activities in light of revised expectations for the economy. However, “when banks issue new loans less quickly than old loans are repaid, the supply of money in circulation shrinks” (Phillips & Desmoulins-Lebeault, 2019). This results in lower spending and the slowdown of the economy. Basically, deflation. Ultimately, ordinary people pay the price for the irresponsibility of banks.

In addition, according to Ingham (1999), the capitalist credit monetary system generates and reproduces inequality. He suggests that the production and control of money in capitalism is a relatively autonomous social process. Specifically, in capitalism, the power to create money lies with the state, and the banking and financial system. The consequences of the way the institutional system produces money are important to consider because the power to control the supply of money-credit has profound implications for class inequality. Those who hold money (creditors), usually have the option to keep it without having to incur a loss, which gives them more bargaining power when negotiating the conditions of loans. As Fantacci (2013) explains, two capitalist institutions encourage creditors to lend. First, the interest rate on loans, which compensates them for giving up liquidity temporarily and for incurring risks. Second, stock markets, which convert investments into money. Interest rates are usually determined in relation to risk. However, risk assessment always involves some degree of arbitrariness that results from the power of creditors (Ingham, 1999). As a result, important structural asymmetries exist in the credit market. Those with higher net worth are deemed low risk and are given good conditions on their loans, whilst those at the bottom end are stuck with conditions that make the repayment of debt more difficult. Many, in fact, are excluded from the system altogether, and cannot access financing (Ingham, 1999). Ultimately, those who are at the top of the income distribution enjoy better access to credit, whereas those who are at the bottom are excluded from financing, perpetuating patterns of inequality.

Bagchi, Curran & Fagerstrom (2019) examine the relation between monetary growth and wealth inequality. They find that overall and inherited wealth both increase with the money supply. This points to the distributional effects of monetary policy. Again, it must be stated that even the process of money creation affects individuals differently. For example, Cohen (2008) analyses the differential impacts of the 2007 financial crisis on different communities. He concludes that the subprime mortgage crisis had a disproportionate effect on African-Americans and Latinos, who were three times as likely as whites to have subprime mortgages.

Finally, as Ingham (1999, p. 72) explains, monetary stabilisation is “the effect of the restructuring of the social relations of the means by which capitalist credit money is produced”. In recent times, monetary stabilisation has taken the form of central bank independence. Monetary stabilisation is carried out to protect the position of those holding assets in money-forms, and to punish the acquisition of assets financed by credit money (Ingham, 1999). An illustrative example is the Great Depression. In the first few years of the depression, key political actors in the US were prepared to accept mass unemployment and foreclosures in order to maintain the value of the gold standard (Eichengreen & Temin, 1997).

3.2.2.3 The sociological approach and the Marxist theory of money

Ingham’s (1999) account of money in capitalism exposes a limitation of Marxist analysis, which overemphasises the capital-labour nexus and misunderstands the nature of money. For Marx, the origins of money can be traced to the development of commodity production and exchange. Marx’s account of the development of money essentially conceives of it as the materialisation of exchange value which results from the contradictions of commodity production (Vasudevan, 2009). Whilst he does recognise money’s non-neutrality, he sees the economic forces behind monetary symbols as the “alienated and mystified expression of the underlying 'real' social relations of capitalist production” (Ingham, 1999, p. 66). Instead, Ingham (1999) believes that the dominant element in capitalism is the production and control of money, and not the ownership of the means of production. Importantly, he cautions against taking this argument too far: the conventional emphasis on the material side of capitalism should not be inverted. Instead, Ingham (1999) posits that class in capitalism cannot be understood fully without an understanding of the way the monetary and financial system exert an autonomous effect on inequality. Essentially the class situation is the result of two autonomous sets of capitalist social relations. Namely, “those of the labour market and production process and those by which the supply and value of money is established” (Ingham, 1999, p. 80).

3.3 The Feasibility of the Anarchist Utopian Vision and Prefigurative Politics

Economic theory and our assumptions about the nature of economic reality greatly affect the way we assess the feasibility of utopian economic proposals. This chapter has attempted to question the assumptions of orthodox economic theory, which conceives of a universal economic model with stochastic or deterministic regularities and isolated atomistic individuals. This approach fundamentally limits our understanding of economic reality and the way capitalism works. The failure of the orthodox economists to foresee the 2007 financial crisis is an example of the limitations of these theories. The alternative proposed in this chapter is the heterodox approach, which emphasises the importance of social relations in determining economic outcomes, and the value of sociological and historical economic approaches. Understanding the way these perspectives limit or enhance our understanding of what is feasible and what is not is one of the first steps in imagining what future economic arrangements are possible.

The analysis of money and capitalism offered by the heterodox approach reveals the centrality of money in determining economic outcomes. Anarchist economists, such as Silvio Gesell or Proudhon, have also recognised the importance of the monetary economy. This idea has long been contested by the neoclassical school. The neoclassical belief in money neutrality is based on the idea that money is a medium of exchange that acts as a veil in the economy and does not affect economic outcomes in the long-run. What gives rise to this idea is the neoclassical account of the historical origin of money. Namely, that it arises as an efficiency enhancing tool in the barter economy. This account does not hold up to empirical scrutiny (Ingham, 2001; Smithin, 2002; Wray, 2002; Graeber, 2011). The alternative offered here is the idea of money as a social relation. It points to the definition of money as a unit of account, supported by historical accounts of its evolution from the need to quantify debt. Importantly, it also incorporates insights from the chartalist school of money, which emphasises the importance of the state and its role in the monetary economy. What this approach tells us, essentially, is that money operates differently than most commodities and does not necessarily obey economic laws of exchange and production. “The strategic importance of money is related not to the object exchanged or to the form of exchange, but lies in the network of social relationships which makes the transaction possible” (Pacione, 1997, p. 1186). Ultimately, the position defended by Ingham is that money arises from the contractual relationship between creditors and debtors. The unit of account used to denominate the amounts is not arbitrary. It is defined by the state, as that which it accepts in payment of taxes. But the crucial insight is that the value of money depends on the extent to which people believe in it. This opens the door to considering more seriously the possibility of social control over the production of money and over monetary policy.

Chapter 4: Alternative Economic Arrangements

As has been argued in the previous chapters, capitalism is an inherently unequal system based on oppressive social relations. Moreover, the rise of neoliberalism, the 2007 financial crisis and the austerity policies that followed, have left many in a precarious situation. It is precisely in the context of the state’s failure to meet the needs of citizens that alternative community development projects emerge. Alternative forms of economic organisation can help respond to social and economic failures, and can promote the development of communities. Crucially, they can also reduce the dependency of local economies on the world economy, and their exposure to external shocks.

The alternative economic organisations or currencies explored in this chapter will conform to the principles outlined in chapter 2. Namely, mutuality, self-management and social ownership. These three principles are present in all the examples outlined below. The first section will deal with complementary currencies, and will study in more detail two of the most widespread types of complementary currencies, which are Local Exchange Trading Systems (LETS) and Time Banks (TBs). The second section will deal with cooperative organisations. Many different types of cooperatives exist, such as energy or housing cooperatives. In this chapter, however, the focus will be placed on worker cooperatives —specifically, Mondragon and Argentina’s worker recuperated enterprises— Indigenous Cooperatives in Canada and their anti-colonial nature, and, finally, cooperative finance organisations.

4.1 Democratisation of Monetary Policy: Complementary Currencies

“Designing quasi-money forms that facilitate exchange but inhibit the private accumulation of social wealth and power becomes imperative” (Harvey, 2015, p.35) in the context of capitalism. Historically, there are countless examples of complementary currencies that have emerged during periods of economic crisis, expanding counter-cyclically. Most of these, however, were eventually reabsorbed by central banks (Orzi, 2017). Complementary currencies began to emerge in the 1930s in many places such as Germany, Austria, Bulgaria, Canada, Ecuador, Spain, Mexico, Romania and China, among others (Corrons, 2017). Seyfang & Longhurst (2013) found 3418 local currency projects in 23 countries across six continents. There are many terms given to these currencies, such as complementary, community, local or alternative currencies. For Corrons (2017), complementary currencies are complementary monetary systems that are created independently from banks and governments by their users, which have as an objective the promotion of economic, social or environmental projects at a local or regional scale. These currencies combat the limitation of economic exchange in periods of monetary scarcity. That is, during economic downturns, when credit dries up and money is not widely available, alternative currencies provide a means of reactivating the economy. Typically, these currencies are limited geographically to a local or regional scale.

Hernández et al. (2013) describe four main characteristics of alternative currencies: (1) they de-incentivise hoarding; (2) they are communal in character as they are created and managed by their users; (3) they transform the nature of exchange towards transactions based on reciprocity and; (4) they are backed by real economic activity. For Brenes (2013), complementary currencies promote reciprocity in exchange and redistribution. Further, Brenes (2013) claims that a positive function of complementary currencies is to expand the earnings sources of those who are excluded from the formal economy. Some critics argue that this only serves to perpetuate the exclusion of marginalised communities from the formal economy. However, in line with the idea of counter-power described by Graeber (2004), the view taken in this thesis is that the creation of economic spaces outside of capitalist economic exchange is a crucial step forward in the quest to reform our economic system. The gradual implementation of alternative economic arrangements serves to reduce the dependency of marginalised communities on the capitalist economic system and to legitimise the questioning of current economic practices. Ultimately, this means that strengthening the informal economy can offer an emancipatory space from dominant capitalist practices (Longhurst & Seyfang, 2011). With respect to community currencies, Blanc (2002) gives four more reasons why local monies might be introduced: (1) to obtain seigniorage profits; (2) to transform economic exchange qualitatively, introducing trust and reciprocity into transactions; (3) to protect the local economy from external shocks and; (3) to develop the local economy and increase its dynamism.

In general, there are three main aspects of sustainability to which complementary currencies contribute. Environmental sustainability is an often cited one. There are different ways in which complementary currencies can promote environmentally friendly practices. For instance, in the Brazilian city of Curitiba, participants can obtain credits in exchange for participating in recycling activities (Longhurst & Seyfang, 2011). These credits can then be spent on a variety of public services, such as public transport. Additionally, by fostering the localisation of the economy, the environmental effects of transportation can be substantially ameliorated (Brenes, 2013; Longhurst & Seyfang, 2011). Social sustainability is another important dimension. Community currencies “create stronger connections between local people and businesses, boosting social capital and cohesion” (Longhurst & Seyfang, 2011, p. 3). Importantly, some of these community currencies, such as Local Exchange Trading Systems (LETS), are based on relations of reciprocity and trust. This will be explained further below. Finally, economic sustainability is also very important. Complementary currencies create local monetary circuits that avoid money being leaked outside of the local economy (Brenes, 2013). Importantly, they also provide a means to value work in the informal sector of the economy, or domestic or voluntary work, which are usually undervalued in the conventional labour market (Longhurst & Seyfang, 2011). Finally, they foster the development of local economies by supporting small and medium enterprises through the provision of mutual credit between local businesses with no need for national currency (Brenes, 2013).

Another reason to consider complementary currencies are the ecological limits of an expanding capitalist economy. A monetary system based on the creation of money through debt, paid with interest, requires the constant expansion of the economy. That is, it requires an inherently expansionist economy if interest is to be repaid (Brenes, 2013). Environmentally, this of course does not make sense. The idea that an inherently expansionist system is not desirable can become clearer if one considers what the purpose of the economy ought to be. According to Lau & Smithin (2002), the substantive rationality of capitalism is its normative end. Specifically, its substantive rationality is the search for profit, or the accumulation of financial resources. However, in the anarchist view, the substantive rationality of the economic system should be to satisfy people’s needs and to foster their development. Complementary currencies can aid in moving towards this substantive rationality.

Whilst acknowledging the positive impacts of complementary currencies, Longhurst & Seyfang (2011) claim that there is a tendency for the proponents of local or community currencies to overstate their impact and success. Two points are worth making at this point. First, by their own admission, not much research exists yet into these currencies, and empirical evidence is still lacking because they are relatively new experiments. The second, perhaps more important point, is that their success is often measured in the wrong way. For instance, Jacob et al. (2004), evaluating the complementary currency known as Ithaca HOURS, take into account whether it is accepted as legal tender or not. However, the purpose of these currencies is to circulate in parallel to national currencies and to foster the creation of an alternative economy or a local economy. The degree to which they are accepted as legal tender should not significantly affect evaluations of the success of these currencies.

Complementary currencies vary greatly, and providing a precise definition that encapsulates all is difficult. Seyfang & Longhurst (2013) provide a typology of complementary currencies. According to them, there are four categories:

❖ Service credit. The most common type (50.2% of the total), in 11 countries and 4 continents. They aim to build social capital, inclusion and cohesion. They reward neighbourly support, social care, and community-based activities. They can be characterised as formalised reciprocal volunteering schemes. Members enlist services they can provide and services which they need, and a central broker matches people. Importantly, they are time-backed, meaning that credits are obtained based on hours volunteered.

❖ Mutual exchange. They are the second most common category (41.3% of the total). These are currencies created by their users through the act of spending. Transactions always add up to zero because one person’s credit equals another’s debit. The value of the currency is maintained by trust. They usually operate in a geographically defined

area. Members publish lists with goods and services they need, and goods and services they can provide. Transactions are then matched. LETS are the most common example of this type of currency.

❖ Local currencies. They comprise 7.1% of the total. They are geographically limited, usually within a region. Their purpose is the promotion of economic activity locally and regionally by increasing the velocity of exchanges. Ithaca hours are a prominent example of local currency. They can be converted into national currency.

❖ Barter markets. They comprise the smallest category (1.4% of the total). They can be characterised as a hybrid between local currency and mutual exchange. Members receive local currency as interest-free loans. They are used to trade with other members. They first emerged in Buenos Aires, Argentina, in the context of the Argentine financial collapse of the late 1990s. These are not convertible to national currency.

Overall, these currencies aid in the promotion of relations based on reciprocity. More specifically, on the principle of mutuality, or the idea that economic activity and its rewards should be carried out in a way that is equally beneficial for all involved. Further, by empowering communities and marginalised people, they can promote the principle of self-management, whereby individuals regain power over their lives and economic activities. In the remainder of this section, two examples of well-known currencies will be explored in more detail to provide some insights as to the limitations of these, and their potential for empowerment.

4.1.1 Local Exchange Trading Systems (LETS)

Pacione (1997, p. 1185) describes Local Exchange Trading Systems (LETS) as “a form of community organised exchange based on reciprocity which is formalised by being recorded in local currency”. It involves multilateral exchange because a debt can be repaid to anyone else in the system, and its value is based on reciprocal trust between members (Pacione, 1997). LETS, currently the most widely used complementary monetary system, came to be in 1983, when Michael Linton sought to promote them (Corrons, 2017). The objective of LETS, mainly, is to “facilitate ‘import substitution’ in its locality in order to promote a local economy that is less reliant on external sources of goods and services” (Pacione, 1997, p. 1181). LETS encourage members to exchange goods and services within their communities using the group’s own local currency. According to Caldwell (2000), members search listings of goods and services they require and negotiate prices in their currency with those offering them. Once the transaction is complete, the consumer’s account is debited by that amount, and the seller’s account is credited by that same amount. Credits do not have to be earnt before they are spent, and the currency is issued by its members in the process of exchange.

An example of such a system can be found in the municipality of Suchitoto, El Salvador. Suchitoto has an urban population of 7,000 people and a rural population of 20,000 (Rivera et al., n.d.). The currency is known as Unidad de Intercambio Solidario Suchitotense (UDIS). For Hernández et al. (2013), this complementary currency is inspired by ideas of self-management, emancipation and participatory economics, and is based on the values of solidarity and cooperation. It works within a local cooperative network of 169 producers and the people of Suchitoto (Hernández et al., 2013). UDIS arose in the context of the exclusion of many of the members of the community from the formal economy. The people of Suchitoto faced scarce liquidity and limited access to credit or loans, which threatened their ability to meet their needs (Hernández et al., 2013). Further, the community considered that some of the products imported from outside the municipality could be redirected towards local production (Rivera et al., n.d.). The main goal the LETS, then, was to improve the social and economic situation of the municipality by introducing a new dynamism in the economy and localising production.

According to Rivera et al. (n.d.), several strategies were undertaken to foster the development of the currency. For example, associations of cooperatives, such as Asociación Cooperativa de Ahorro y Crédito Aprovisionamiento y Comercialización Renacer de Guazapa (ACORG), began to extend credit in UDIS that could be used to purchase goods within the network. ACORG and other cooperatives also began paying salaries partially in UDIS. In addition, a market for exchange in UDIS between Suchitoto’s rural and urban populations was established. These actions were taken anticipating the biggest issue for the development of UDIS: reaching a threshold level of businesses that would generate a big enough volume of transactions to make the project viable. Ultimately, the currency succeeded in reactivating the economy and creating networks of producers that were previously disconnected (Rivera et al., n.d.). Moreover, it fostered stronger community ties and reciprocal networks, and it encouraged more communal discussions about economic reform. Importantly, the success of the experiment was largely due to mutual support and solidarity shown by the people of Suchitoto (Rivera et al., n.d.).

However, important limitations to these schemes remain. As Hernández et al. (2013) explain, the goods exchanged through UDIS are mainly agricultural. 59% of the products consist of food items such as vegetables, maize or beans. There is, additionally, a transporter and a producer of fertilizer. Artisanal products comprise 17% of production, whilst other goods and services amount to 10%. Whilst the majority of members (72%) claim that they trust the system, Hernández et al. (2013) suggest that for it to be expanded further, and to function more effectively, the goods and services offered need to be further diversified. Additionally, Rivera et al. (n.d.) suggest that other factors which limited the expansion of the currency were: (1) lack of experience in managing a relatively unknown economic instrument; (2) the bankruptcy of one of the main cooperatives taking part in the network and; (3) the lack of resources available to producers to expand their own production.

Similarly, North (2003) reviews LETS experiments in the UK, and finds some common limitations. Firstly, some members worry that benefit authorities would reduce assistance if they found out they earn LETS credits. Secondly, the development of reciprocal networks of mutual aid can be challenging in environments where there are high levels of crime and low levels of trust. Third, some potential members might opt to search for employment in the informal sector. In addition, potential recruits often believe they have little or nothing to contribute.

4.1.2 Time-Banks: Fureai Kippu

Time banks (TBs) can be characterised as innovations that have a community purpose and that aim to contribute to the “well-being, empowerment, autonomy and social exchanges of a given community” (Blanc, 2011, p. 9). Individuals who are members of TBs provide services to others and obtain time credits that can be used later on to obtain other services. The recipient of the service has a debt in time credits which can be repaid by providing a service to another member (Valor & Papaoikonomou, 2016). TBs originated in Japan in the 1970s, with the establishment of Fureai Kippu in 1973. Fureai Kippu are a Japanese innovation that involves mutual support networks of members, targeted at providing social care for older people through exchanges of time credits that can be supplemented by cash payments (Hayashi, 2012). They were later popularised in the 1980s in the US by Edgar Cahn, as a response to the erosion of informal neighbourhood networks (Valor & Papaoikonomou, 2016). In the late 1990s and early 2000s, incorporating insights from the experiences of LETS, TBs received renewed traction and interest (North, 2003). They are now present in at least 34 countries, with more than 300 in the United Kingdom (Andersson, Csehz, Ehlers & Erlanson, 2018).

Time banks are schemes consisting of indirect and multilateral reciprocity, where exchanges are not dyadic, but chain-generalised or network-generalised (Valor & Papaoikonomou, 2016). They are growing in numbers and in their variety, covering different social needs as well as work and time use patterns (Boyle, 2014). In a report for the European Commission, Boyle (2014) identifies important benefits of time banks. These benefits include: (1) the creation of mutual support networks; (2) increasing feelings of social inclusion and a sense of belonging; (3) fostering employability by allowing people excluded from the formal economy to contribute to their community; (4) encouraging intergenerational relations and; (5) contributing to the physical and psychological well-being of members. “Time banks have a track record of rebuilding social networks effectively, improving physical and mental well-being and improving employability” (Boyle, 2014, p. 36).

The Fureai Kippu in Japan is one of the most well-known examples. It finds its origins in 1973, with the founding of the Volunteer Labour Bank, which included labour exchanges between the bank’s members through a time-based currency called Love Currency (Hayashi, 2012). Inspired

by this model, and in the context of Japan’s ageing problem, grassroots mutual help groups began to emerge in the 1980s to meet the needs of the elderly. Members would volunteer hours of their time to care for the elderly, and would be credited with those hours, which could later be redeemed back (Hayashi, 2012). In 1996, approximately 70,000 volunteers (most of which were women) had provided four million hours of personal assistance (Hayashi, 2012). These schemes changed considerably over time. In the 1990s, many of these groups adopted small membership fees and members were also given the option to be reimbursed in both, conventional money and time credits (Hayashi, 2012). This was done out of concern for the sustainability of purely voluntary arrangements and the reluctance of the elderly to receive hours that they could not reciprocate (Hayashi, 2012). The majority of Fureai Kippu schemes now operate under reciprocal exchanges between members through time credits and conventional money. Conventional money reimbursements, however, are not so common for other TBs outside of Japan (Hayashi, 2012).

Importantly, TBs are also not without limitations. In Japan, the main obstacles to Fureai Kippu are the inability of some of the elderly to reciprocate hours, the lack of volunteer members to meet the rising demand, and the shortage of donated credits because credit-holders prefer to keep them for future care or for relatives (Hayashi, 2012). Valor & Papaoikonomou (2016) describe some of the challenges faced by TBs in Spain. Namely, a supply and demand mismatch, the limited type of services on offer/demand, the inflexibilities of the model, and psychological barriers such as reluctance to request services. Boyle (2014) also elaborates on challenges faced by TBs. First, regulatory issues are an important obstacle to their development. TBs are beginning to be regarded as a legitimate concern for tax authorities. In Scandinavia this concern has already materialised; in Sweden, for example, members can lose income-related benefits if they partake in these schemes (Boyle, 2014). Second, TBs need a human and online infrastructure, and the ability to use information and communication technology to improve their effectiveness (Boyle, 2014). A further critical factor for the proper functioning of TBs is the coordination mechanism used to match requests for services with those who can provide them (Andersson et al., 2018).

4.2 Cooperatives

Cooperatives are different from investor-owned enterprises in that they have different purposes, property rights and decision making structures. Cooperatives follow the principles of mutuality, self-management and social ownership. They follow the principle of mutuality because economic activity is carried out for the benefit of all and, consequently, profits are usually distributed equally among workers. They also follow the principle of self-management, because these organisations tend to be non-hierarchical and democratically run, and they enjoy high levels of participation on the part of employees. Finally, they also conform to the principle of social ownership because they are owned by their workers. Cooperatives challenge capitalist

modes of organisation and show that alternative organisations are viable and preferable to capitalist enterprises. There exists a wide variety of cooperatives, differing in the extent to which they follow these principles. The International Cooperative Alliance (ICA) defines cooperatives in the following way ("International Co-operative Alliance | ICA", 2020): “cooperatives are people-centred enterprises jointly owned and democratically controlled by and for their members to realise their common socio-economic needs and aspirations”. The ICA further states that they are enterprises based on values and principles that they are principally concerned with equality, and that they therefore allow people to create sustainable enterprises that generate long-term jobs and prosperity. These enterprises are also managed by producers, users or workers, and they are run according to the 'one member, one vote' rule.

Cooperatives can help to strengthen communities, maintain job security and promote local economies. They tend to arise counter-cyclically, as they often emerge as responses to economic downturns. This is the case of worker-recuperated enterprises in Argentina. Additionally, cooperatives perform well during crises. For example, Mondragon, in Spain, managed to maintain employment levels during the crisis that followed from the 2007 financial crash (Vieta & Lionais, 2015). Similarly, cooperative banks have been very resilient during the crisis (Vieta & Lionais, 2015). Spear (2000) identifies several advantages of cooperatives with respect to traditional firms. These include the ability to respond to market and state failures, to create trusting relationships, to promote self-help, to strengthen civil society, to promote stakeholder participation and to create positive social and economic externalities. In giving priority to community interest over short-term financial gain, cooperatives can maintain production in locations that would not be viable for investor-owned firms, they may hire marginalised workers, and may choose to purchase local inputs rather than cheaper imports (Vieta & Lionais, 2015). However, this is not always the case. For instance, in the US, Canada and Argentina, some producer and energy cooperatives have given in to bureaucratic centralisation, market interests and demutualisation (Vieta & Lionais, 2015), and have begun to abandon their cooperative values.

There are many examples of successful cooperatives which have substantially improved the lives of their members. For example, The Cooperative Home Care Associates (CHCA) in the Bronx, NY, includes more than 1,600 worker-owners, and it has “vastly improved the lives of the mainly Black and Latino women workers involved” (Davidson, 2012, p. 239). It dedicates 80% of its revenue to wage and fringe benefits of workers, such as health and dental insurance, and it offers continuous educational opportunities to members (Davidson, 2012). For Vieta & Lionais (2015), drawing on the experiences of cooperatives such as Mondragon, the cooperative banks of Trentino, or Kerala’s agricultural weaver coops, a key element of success for cooperatives is their involvement in wider socio-economic processes. According to them, these successful cooperatives were rooted in broader visions of social justice and community

development. Thus, they link the importance attached to the local community and its development to the success of cooperatives.

In what follows, several examples of cooperatives or types of cooperatives will be explored. First, the Mondragon cooperative, perhaps one of the most well-known ones, will be examined. Second, the case of worker-recuperated enterprises in Argentina and their subsequent transformation into cooperatives will be investigated. Third, the situation of indigenous cooperatives in Canada will be studied, in particular in relation to colonialism. Finally, an overview of the cooperative finance sector will be given.

4.2.1 Worker Cooperatives: Mondragon

The Mondragón Corporación Cooperativa (MCC), located in Spain, is composed of more than 120 core cooperatives employing over 100,000 workers (Davidson, 2012). Mondragon was, in 2003, the biggest business group in the Basque Country, the eighth in Spain, and the third in terms of employment in Spain (Forcadell, 2005). The MCC consists not only of industrial organisations, but also financial organisations, such as banks, and educational organisations. MCC has training centers with the local university, and various R&D centers. For Forcadell (2005), this emphasis on education and training is one factor that makes MCC stand out from other cooperatives or federations of cooperatives. Similarly, Basterretxea & Alvizu (2010), looking into Mondragón’s training and educational policy, conclude that MCC’s training policies, in combination with policies that promote lifelong employment and the relocation of employees between the corporation's different companies, give MCC a comparative advantage and prove to be very useful. Further, MCC has a strict no-layoff policy and maintains an excellent record of employment whilst also boasting an extraordinarily high enterprise survival rate (Forcadell, 2005).

The Mondragón corporation finds its origins in 1965 in a small technical school and a small credit union. The combination of school, credit union and factory, owned and controlled by workers and the community, is the main driver of MCC’s success (Davidson, 2012). This is extremely important: for a cooperative to perform better, it requires resources to train workers, and access to credit. Establishing cooperative financing institutions and collaborating with educational institutions is a critical factor in the development of a cooperative.

Davidson (2012) describes the characteristics of MCC cooperative. Typically, MCC cooperatives are worker owned and decisions are made democratically, with one vote per worker. Workers earn a salary and are entitled to a share of the profits, but in line with Spanish cooperative law, a portion of the profits must be redirected towards the local community, through investments in, for example, schools or parks. Workers earn different wages depending on skills and seniority,

but the workers themselves set the salaries and modify them in the annual assembly. According to Davidson (2012), MCC follows ten main principles:

❖ Open admission: no discrimination is allowed and everyone is free to join the coops. ❖ Democratic organisation: there is ample participation by workers and there is a ‘one worker, one vote’ principle. ❖ Sovereignty of labor: the idea that labor is the dominant power over capital. ❖ Capital as instrument: defines capital as a tool governed by labor. ❖ Self-management: emphasises the importance of training of workers and their participation in management decisions. ❖ Pay solidarity: the right of workers to decide on the remuneration scheme of the cooperative. ❖ Inter-cooperation: encourages cooperatives to cooperate with each other. ❖ Social transformation: cooperatives aim to give back to the community and are an important motor for community development. ❖ Universal solidarity: reflects their involvement in the labor movement. ❖ Education: training and education are a core value of MCC cooperatives.

These principles ensure that MCC coops conform to the ideas of self-management, mutuality and social ownership. Cooperatives are owned by their workers, they are managed by their workers, profits are usually distributed equally, and profits are also reinvested in the community. Together, they have ensured that MCC “continues to grow and provide a quality of life for a participant that is unique in its moral benefits and above average in its material standards” (Davidson, 2012, p. 230).

Within MCC, Forcadell (2005) presents the case of Irizar, a worker’s cooperative that produces luxury coaches and that has belonged to Mondragón since 1962. It has 630 workers, and it ranks first within its sector in Spain, and second in Europe since 1998. It has shown an impressive growth record, increasing its average productivity by approximately 18.4% every year in the 1993-2000 period, and increasing its sales from €18 million in 1991 to €305 million in 2003. According to Forcadell (2003), Irizar has extremely democratic principles of organisation. It has a flat management structure, with decision making power in the hands of shop-floor work teams. In fact, Irizar’s structure consists mostly of horizontal working teams. The democratic decision-making system is a major driver of success, and it encourages the participation of workers in establishing goals and strategies for the firm.

Overall, the democratic structure of decision-making present in most MCC cooperatives, their commitment to self-management and mutuality and, importantly, their emphasis on cooperative finance and access to education, are the key to MCC’s success. The experience of Irizar also tells us that enterprises can be managed democratically without this entailing a loss

of efficiency. Further, Mondragon also shows how capitalists, and competition, are not necessary for innovation and for the creation of dynamic economic sectors.

4.2.2 Worker-Recuperated Enterprises in Argentina

The empresas recuperadas por sus trabajadores (worker-recuperated enterprises) are businesses that went bankrupt and that used to be investor or privately owned, but that were taken over by their employees. These enterprises arose in Argentina in the late 1990s and early 2000s as a response to the difficult economic situation in the country and the neoliberal structural reforms which deteriorated employment conditions for many (Ruggeri & Vieta, 2015). In general, waves of socialisation of enterprises have followed periods of economic difficulties or market failures. They are bottom-up, worker-led initiatives which aim to save jobs and to protect the local economy and community. Recuperated enterprises are usually run under self-management (autogestión) principles, and legally, they have mostly taken the form of cooperatives (Ruggeri & Vieta, 2015). A study conducted in 2013 by Ruggieri & Vieta (2015) finds that, as of that year, there were 311 of them, employing 13,462 workers. They are primarily small and medium-size enterprises, and usually have approximately 44 workers per firm (Ruggieri & Vieta, 2015).

These recuperated businesses have influenced labour movements abroad, and have encouraged the recuperation of other enterprises in countries such as Brazil, Uruguay, Turkey, Spain and the US, among others (Ruggeri & Vieta, 2015). According to Ruggieri & Vieta (2015), most of the worker-recuperated enterprises that arose in the 1990s continue to exist and develop. This is corroborated by Ranis (2010), who claims that recuperated enterprises have a mortality rate of 15%. In recent years, their variety has increased, expanding from mainly the metallurgic industry to other sectors, such as the service sector (Ranis, 2010).

For Vieta & Lionais (2015), the empresas recuperadas arose within a wider social movement for radical socio-economic change, and this contributed to the success of recuperated enterprises. For example, their “ability to survive the prolonged periods of legal limbo and eviction attempts by former owners and at times the state largely stems from the support and legitimacy they receive from the wider community” (Vieta & Lionais, 2015, p. 6). The creation of two organisations aimed at encouraging workers to take back their workplaces was fundamental in the development of the movement and the success of the recuperated enterprises. These organisations were the Movimiento Nacional de Empresas Recuperadas (MNER), founded in 2002, and the Movimiento de Fábricas Recuperadas por los Trabajadores (MNFRT), founded in 2003 (Ranis, 2010). These organisations were crucial in lobbying to alter Argentina’s bankruptcy law to permit workers to take over businesses, and they were successful in 2004, when legislation was passed in Buenos Aires that “made permanent the rights of the worker cooperatives to maintain control over their enterprises” (Ranis, 2010, p. 82). This included, for example,

protection from creditors’ demands over the previous owner’s debts, or from claims from the previous owners to take back the businesses.

But of course, these newly formed cooperatives face many challenges. Ruggieri & Vieta (2015) identify several of these challenges, which include: (1) securing organisational stability; (2) gaining market share; (3) fixing or replacing depreciated machinery; (4) re-skilling workers; and (3) forging networks of solidarity with other recuperated businesses or traditional cooperatives. Ranis (2010) also identifies the lack of support from the main worker’s unions, and the difficulty of accessing new credit lines, as important obstacles to the formation of more recuperated enterprises.

Ranis (2010) elaborates on the case of Zanón, a ceramics factory that was taken back by its employees. In 1998 Zanón won against the local worker union and the previous owners of the factory, who were in collusion, and took control of the business. This cooperative is run completely democratically. According to Ranis (2010), in the Zanón factory policies are made by majoritarian decisions of weekly run assemblies. Leadership positions are not permanent and positions of responsibility are constantly rotated. Workers in production, sales, or administration earn the same salary, whilst workers in more demanding jobs, such as maintenance of machinery, receive an additional 10% of their salary. Profits are reinvested in the cooperative or shared out equally among the workers.

Overall, the empresas recuperadas are effective community responses to the neoliberal crisis, which contribute to the revival of neighbourhoods and the maintenance of job security for many. These newly formed worker cooperatives are usually self-managed, and profits are distributed equally between members, in the spirit of mutuality.

4.2.3 Indigenous Cooperatives in Canada

Sengupta (2015) elaborates on the colonial origins of Indigenous cooperatives in Canada. The Indigenous communities in Canada include First Nations, Métis, and Inuit groups, comprising approximately 4% of the population. Indigenous cooperatives are cooperatives where the majority of members are Indigenous, and which implement Indigenous values in their strategy and operations. One key difference compared to traditional cooperatives is the inclusion of the development of cultural goals, and the emphasis attached to environmental issues (Sengupta, 2015). In general, they are more holistic in their goals, compared to their European counterparts, which tend to have narrower objectives. Further, these cooperatives include organisational structures that are inspired by Indigenous forms of sharing with respect to production and resource distribution (Sengupta, 2015).

According to Sengupta (2015), cooperatives have played a dual role in Indigenous communities. On the one hand, they “were a tool of colonisation, assimilation of Indigenous labour, and consolidation of European settler control over land and resources” (Sengupta, 2015, p. 122). On the other, they are “indicative of the cooperative nature of many traditional modes of communal life” (Sengupta, 2015, p. 122), with Indigenous communities being the first North Americans to practice collectivity, cooperation and communalism. This questions the idea that cooperatives have always served to further social goals and that they have always been inclusive. Further, it demonstrates the importance of analysing cooperatives not just from a class perspective, but also from an anti-colonial one. This is so because, as Sengupta (2015) explains, settler colonialism, the experience of subjugation of Canada’s Indigenous people, is a structure that continues to manifest itself in the present.

Sengupta (2015) shows that the Canadian government played a crucial role in the development of cooperatives in Indigenous communities, first as a colonising tool and then as a form of local economic development. Membership in these cooperatives was not usually voluntary, and the benefits of cooperatives largely accrued to European settlers. Rhodes (2012) also describes the use of cooperatives as a colonising tool by the British empire. These British cooperatives had the objectives of profit-making and the promotion of trade, and had no social objectives.

Sengupta (2015) concludes by stating that even though cooperatives have colonial origins in Canada, contemporary cooperatives have been re-appropriated by Indigenous communities for the development of unique forms of cooperation that aid in the resurgence of the cultural and economic independence of Indigenous communities. For example, Indigenous cooperatives have expanded the original goals of traditional cooperatives to include land ownership and use, strengthening socio-economic circumstances and revitalising traditional culture.

The key takeaway from this is that cooperatives must be established by the communities themselves, and not imposed by governments from above. If they are not, they risk suppressing local forms of entrepreneurship (Sengupta, 2015). In addition, it is important to understand that cooperatives are not inherently inclusive, and that they can also reinforce colonial relations or racist discrimination. For example, after reviewing published court cases, Sengupta (2015) argues that, in highly racially segregated cities such as New York, predominantly white housing cooperatives exclude primarily black applicants. He describes the same problem occurring in food cooperatives.

4.2.4 Cooperative Finance

Financial cooperatives gained importance in the 19th century. They provided access to credit and financial services to those who were excluded by the traditional banking sector (Périlleux & Nyssens, 2017). Financial cooperatives have a different ownership structure, business model and

objective than traditional banks. They are financial institutions whose members are clients and owners (Périlleux & Nyssens, 2017). Membership is voluntary and open to customers of local or regional cooperative financial institutions (Groenveld, 2017). To become a voting member, a nominal investment must be made in the institution’s non-tradable shares (Briggeman et al., 2016). Not allowing shares to be traded reduces the pressure to engage in short-run risky activities aimed at increasing the price of shares. Thus, shares can only be sold back to the institution. Further, these cooperatives also tend to be regional and part of wider networks of cooperation (Bülbül, Schmidt & Schüwer, 2013).

Financial cooperatives usually focus on retail banking, are more risk-averse than conventional banks, and they increase the institutional diversity of the banking sector, thereby increasing systemic stability (Périlleux & Nyssens, 2017). They also tend to be more long-term oriented, more stakeholder centered, and less affected by stock market cycles (Chiaramonte, Poli & Oriani, 2015). Chiaramonte, Poli & Oriani (2015), using evidence from OECD countries during the financial crisis, argue that cooperative banks have increased systemic stability and have performed better than traditional banks. They explain that cooperative banks were less exposed to toxic assets, and that they enjoy much lower volatility of returns, which offsets their relatively lower profitability. These results are supported by Beck et al. (2009), who look into banks in Germany, and Groeneveld & de Vries (2009), who examine the situation of European cooperative banks.

According to Bülbül, Schmidt & Schüwer (2013) financial cooperatives are governed by several principles, which include the ‘principle of self-help’, meaning that the bank is a self-governed organisation, and the ‘democratic principle’, embodied in the ‘one member, one vote’ rule. Further, in line with the principle of mutuality, their objective is not to maximise profit, but to meet the needs of its members and the local population (Périlleux & Nyssens, 2017). For that reason, profits are not distributed according to investment, but according to member use instead (Boland & Barton, 2013; Briggeman et al., 2016).

McKillop & Wilson (2011) describe the situation of credit unions in the world. Credit unions, like cooperative banks, are democratic, self-help cooperative financial organisations aimed at achieving the goals of their members and wider local communities (Mckillop & Wilson, 2011). They are financial intermediaries that gather savings from their members and sell deposit accounts called shares (Taylor, 1971). These savings are then used to give out loans. Like cooperative banks, they do not distribute profits according to investment. Whilst many profit distribution schemes exist, the general idea behind them is that no one member can benefit from the union at the expense of another (McKillop & Wilson, 2011). However, whereas cooperative banks can do business with non-members, credit unions cannot. McKillop & Wilson (2011) explain that as of 2009, there were over 49,330 credit unions across 98 countries,

counting approximately 184 million members and $1,354 billion in assets. The credit union sector is particularly developed in the US (McKillop & Wilson, 2011).

Cooperative banks in Europe have gained more attention since the financial crisis, and have fared better than traditional banks. In 2015, cooperative banks in Europe increased their member base by 1.6 million to 80 million members, and their average share of loans in the domestic market rose by 1.1% over the last five years to 22.3% (Groeneveld, 2017). Moreover, their total assets have remained stable, whilst those of all other banks have shrunk by approximately 2% (Groeneveld, 2017). Crear (2009) reports the same situation in the US credit union sector, with loans by American credit unions rising by 7% during the crisis. Importantly, “over a longer term horizon, co-operative banks in Europe have outperformed all other banks in terms of Return on Equity (ROE)” (Groeneveld, 2017, p. 6).

However, as Périlleux & Nyssens (2017) explain, many financial cooperatives face increasing pressures to adopt hybrid models that include traditional shareholder features, with some countries going through the demutualisation of their cooperative financial sector. For example, Briggeman et al. (2016) delve into the situation of agricultural finance cooperatives in the US and argue that, in recent years, as a response to their changing industry environment, they have shifted towards a more traditional model, introducing equity capital. Similarly, Groeneveld (2017) explains that the regulator and supervisory environment of cooperative financial institutions in Europe has changed dramatically since the crisis, increasing compliance and supervisory costs, and putting additional pressure on the cooperative bank’s profitability. This is particularly the case for small and medium sized banks. Further, cooperative banks. Further, they are undergoing a consolidation process driven by the increasing pressure to contain cost, deleveraging and restructuring (Groeneveld, 2017).

Still, cooperative financial institutions are an important driver of self-help and cooperation in communities. Importantly, they improve access to credit for those who are excluded from the financial sector, and they increase the stability of the financial sector overall. They conform to the principles of mutuality, self-management and social ownership, and are less risky and more long-term oriented than their traditional counterparts. Further, they contribute to the development of the local community. Crear (2009) gives a few measures that aid in their further development. These include: (1) provide unions with direct access to payment, clearing and settlement systems; (2) provide access to central bank liquidity; (3) lift restrictions on small business lending; (4) ensure access to deposit insurance systems on par with commercial banks.

Conclusion

In this thesis, much attention has been paid to the nature of social relations in the economy. It has been argued that capitalism is a socioeconomic system embedded in history, characterised by negative reciprocity. The importance attached to social relations is due to the heterodox approach to capitalism and economics, whereby economic phenomena are not merely material, but also social, legal and political. The relevance of social relations is also due to the anarchist critique of capitalism, which focuses on the oppressive social relations that emerge from hierarchical systems such as capitalism’s racialized and gendered class system. Importantly, in this thesis, anarchism is understood not only as opposition to the state, or to hierarchical institutions and domination, but also as a preference for certain social relations, which will be summarised below.

The aim of this thesis has been to offer alternative economic arrangements that conform to the values of anarchism and that foster the development of an alternative anarchist economy. These values are equality, freedom and solidarity. Importantly, it has been argued that equality and freedom need not conflict in an economic system in which solidarity is present and social relations are based on (positive) reciprocity. The trade-off between freedom and equality is an often cited justification for capitalism, which is seen as striking an fair balance between these two values. Contrary to this view, this thesis has shown that economic freedom in capitalism is rather limited. Similarly, it has shown that capitalism creates a racialized class system that is hierarchical and oppressive in nature. Here, material and racial inequality are considered to be inherent to capitalism.

Moreover, the economic arrangements proposed in this thesis follow anarchist's principles of allocation, which guide the allocation of resources, authority or the means of production. These are social ownership, self-management, and mutuality. To begin with, the principle of social ownership opposes capitalism’s private property regime, and specifies that there ought to be social ownership of the means of production. Second, the principle of self-management springs from anarchism’s commitment to freedom and equality, and is related to the allocation of tasks and authority in the workplace. This principle would replace the hierarchical division of labour that creates a class of managers and mental workers above manual workers, which is characteristic of capitalist firms. Finally, the principle of mutuality is related to distributional issues. Specifically, it states that economic activity should be beneficial for everyone involved. Thus, this principle is often associated with the equal distribution of profits among workers and with more egalitarian remuneration schemes. It is also related to the purpose of economic activity and the motivations and concerns of businesses. Mutualism rejects the profit motive in capitalism, and instead promotes economic activity that aims to satisfy the needs of workers and to contribute to the community. Importantly, it also defends cooperation as opposed to competition.

The anarchist critique of capitalism focuses on the oppressive social relations that emerge from the private property regime and the lack of social control over monetary production, which is concentrated in the hands of banks and the state. With respect to property, anarchism is opposed to private property rights. This is so, because private property creates a class of property-owning capitalists above workers, fuelling inequality and power differentials. In this hierarchical relation, capitalists appropriate the workers’ labour power to earn a profit. In addition, there is another important division in capitalism which is the source of much inequality and oppression. This is the division between, on the one hand, those who have control over the production of money and lending (creditors) and, on the other hand, capitalists and workers who are often in the position of debtors. In the capitalist system, as Ingham (1999) has shown, money is created via the act of bank lending. Thus, banks create money. Importantly, the state is also involved. The unit of account in which money is denominated is set by the state as that which it accepts as legal tender, as the chartalist school of money posits. The monopoly over the creation of money that banks enjoy has distributional consequences. For instance, with respect to access to credit and the power to extract interest in exchange for credit, which essentially allows money producers to earn money for simply having money.

The importance of control over monetary production is a key concern of this thesis. The neoclassical (orthodox) account of money posits that money is a neutral medium of exchange, which does not affect economic outcomes in the long-run. This account finds the origin of money in barter exchange, as a response to the problem of the ‘double coincidence of wants’. Contrary to this view, this thesis takes a heterodox perspective to monetary analysis. Specifically, it subscribes to the sociological and historical analysis of money defended by Ingham (2002), which conceives of money as a social relation. The aim of chapter 3, which investigates heterodox monetary analysis, was to dispel myths about the nature of money and to open the imagination to new monetary arrangements. That money is a social relation is crucial for understanding the potential of alternative monetary arrangements, outside of capitalist credit-money.

The last chapter of this thesis has aimed to propose economic arrangements that can foster the creation of an alternative anarchist economy. These proposals deal with property rights, money creation and democracy in the workplace. Alternative forms of economic organisation can help respond to social and economic failures, and can promote the development of communities. Furthermore, they can also reduce the extent to which local economies are dependent on the world economy, and their exposure to external shocks. The first alternative offered are complementary currencies, which are complementary monetary systems that are created independently from banks and governments by their users, which have as an objective the promotion of economic, social or environmental projects at a local or regional scale. These currencies are owned and managed by the communities that use them, in accordance with the principles of self-management and social ownership, and they also conform to the idea of

mutuality because they aim to promote economic, social or environmental initiatives for the benefit of the community. Complementary currencies such as LETS or time banks, for example, are currencies that work on the basis of reciprocity and that aim to meet the needs of their users and to strengthen the local economy.

The second alternative offered are cooperatives. These are enterprises that are owned jointly by their members and are run democratically. They have as their goal to realise the common socio-economic needs and aspirations of their members, in line with the principle of mutuality. Cooperatives prioritise values such as equality over profit, and they work on the basis of cooperation. Because they are managed and owned by their workers, following a ‘one member, one vote’ rule, they conform to the principles of self-management and social ownership. Further, a wide variety of cooperatives exist, from consumer to energy cooperatives. In this thesis, however, special focus has been given to worker cooperatives and cooperative finance. First, the case of Mondragón, perhaps one of the most well-known and successful cooperatives in the world, was examined. Then, the situation of worker-recuperated enterprises in Argentina was assessed. What we learn from these two cases is the importance of education and training for the development of cooperatives, and of ensuring that cooperatives have access to new credit lines. Further, their involvement in wider socio-economic processes or their commitment to the community, is also a big driver of their success. Crucially, running a business democratically, as the cases of Mondragón or Irizar show, does not prevent innovation and growth, but instead likely encourages them. In terms of their effects, cooperatives give workers more autonomy and decision making power, more job security and better and more egalitarian remuneration. They also contribute to the development of the community and local economy and are more resilient in times of economic downturns.

Chapter 4 also explores the link between cooperatives and colonialism by examining the situation of indigenous cooperatives in Canada through an anti-colonial lens. It cautions against obviating the potentially exclusionary effects of cooperatives and the importance of their voluntary character.

Finally, cooperative finance is extremely important to improve access to credit for many people who are excluded from the financial sector, and to help in the development of local communities. Credit unions and cooperative banks are member-oriented financial institutions that conform to the anarchist principles outlined in this thesis. In addition, they are less risky and more long-term oriented than traditional banks and they contribute to the overall stability of the financial sector.

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