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Edition 04: 26 March, 2008




08.70 Projects under the Model are independent of  the credit and food crises.


08.71 Introduction.


Local social, financial, productive and service structures created during the execution of projects under the Model together form cooperative, interest-free, inflation-free local economy systems in the project areas. These systems operate in parallel and in harmony with existing traditional formal-money structures, but do not substitute them.  Changes in the parallel formal money structures do not directly affect the local economy systems created. Where the world-wide formal economic situation worsens, people in individual project areas may choose, or be forced, to make more frequent use of the alternative local money system at their disposal. In “better times” of  “economic growth” they may be more likely to consider using formal money structures for conducting their business transactions.


Section 08.72 describes the nature of financial leakage, the main cause of poverty, and the role interest plays in it.


Section 08.73 shows how the project blocks financial leakage from, and keeps available financial resources re-circulating continuously in the project area.


Section 08.74 describes how on-going operation and management costs are fully covered by the project structures independently of the formal economy.


Section 08.75 describes how on-going food security is guaranteed in periods of famine or financial crisis.



08.72 The dominating debt-based financial system.


08.72.01 The interest-factor.

The cumulative interest content of a typical western industrial product is thought to be at least 40% of the cost to the end user. It may sometimes be more. This interest content normally exits promptly from local consumer areas never to return. Little, if any, of the purchasing price of an imported item is recycled locally. Commonly, not even local savings are invested locally for local development purposes.

The currently dominating “capitalist” economy is debt-based. Most money, these days about 98% of it, is created or put into circulation by privately-owned banks against interest. Most business organisations, but also public bodies and even governments, finance their activities by way of interest-bearing loans issued by private banks. This means the total amount charged to end users by those involved in the production of goods and services must take into account and include the amount of interest incurred during the various phases of  that production.


08.72.02 Cumulative interest in supply chains.


A supply chain is a series of commercial links between the first steps in planning and preparing for the exploitation of raw materials or equipment for a given product or service before a product or service reaches the final consumer.  In the modern world, especially in industrialised economies, supply chains can be very complex. There may be many hundreds, even thousands, of steps in the progress made by a manufactured product or service from its conception to its final destination.


The following simple supply chain is purely notional. In reality the supply chain in such cases is infinitely more complex. It will often have many more steps than in the following example.


Assume oil has been found in a desert area. A well has to be drilled to tap the oil supplies. An oil-drill is needed together with other materials and equipment to drill the well. The contractor building the factory where the drill is produced, may have borrowed money against interest to cover the cost of buildings, equipment and materials costs. The costs of the factory where the drilling machine is made includes an amount to cover that interest (level 1). This interest must in turn be covered in the price the drilling manufacturer charges for his drilling equipment. He may have borrowed funds for his factory and for the purchase of materials and equipment to build the drilling machine (level 2). The price of each drilling machine therefore includes coverage for part of the interest originally charged by the contractor for the factory, together with partial coverage for the interest paid by the drilling machine manufacturer for his materials and equipment. The company drilling the well may have to borrow money to buy the drilling equipment (level 3). Its price for drilling the well must therefore cover part of the interest originally charged by the contractor (level 1), part of the interest charged by the drilling machine manufacturer (level 2), and the interest on his own loan (level 3). The same applies to the cost of the pipelines transporting the oil, the construction of the ports for the ships, the construction of the ships transporting the oil, the ownership of the ships, the running of the ships, the storage facilities for the crude oil, the oil refinery, the entire distribution system all the way down to the tank station where the refined fuel is sold to the public.


Interest built into prices this way is cumulative. On the way along the commercial chain, interest is paid on loans taken out to cover prices which also include earlier amounts of interest. More interest is being paid on accumulated interest at each link in the chain, all the way down the line.


The VAT value added tax structure widely adopted in industrialised countries is different and complementary. Under the VAT system, a given rate of tax is applied on the effective sale price at each passage, and the same rate of tax applied to costs at that level is deducted. The intention is that sales tax be applied on gross business profits at each single level. The final consumer pays all. Each supplier, manufacturer, and retailer is accountable to the state for the VAT tax on his gross-profit share in the price build-up. Interest accumulated at each single level in the price build-up is included in the taxed amount, though it is not easily identifiable and is difficult to trace.


In practice, then, not only does the amount of interest included in the price of a given product or service accrue (increase) during its voyage along the supply chain as described. It is also subject where applicable to sales taxes and other charges which are also profit, including the interest content, as it accrues.


The interest content of a given product or service and the taxes paid on it are unproductive and parasitic. They have nothing to do with the inherent value or usefulness of the product or service in question. The interest paid by the final purchaser meanders back to the banks who made the original loan at the various links in the chain in the first place. Since the interest paid is not cancelled on return to the issuing bank, it is free to circulate at a vertiginous speed around the world in real time. It becomes part of an ever-increasing uncontrolled volatile speculative money mass in the hands of a non-elected financial elite, often of dubious ethical background. The recent credit crisis provides an excellent example of this.  


The total accumulated interest and the taxes included in the price of a given good or service are fully paid by the final consumer. Without it, average prices for industrial consumer products and services would on an average be just one-half to sixty percent of what they are today. Perhaps less.


08.72.03 : Final user borrowing.


The final consumer may also have to borrow money to pay for the good or service he is purchasing. In this case, not only does he have to pay for the large interest content already built into the price including interest and taxes as described. In most cases he also has to pay interest on the funds he gets from the bank to be able to do so. These interest costs must be added to the price (which includes interest accrued during the production process and the taxes on  the interest) the buyer has agreed to pay for the good or service. The amount the buyer borrows expressed as a percentage of the cost of the goods or service in question can, of course, vary from 0% to more than 100%. For many “special” consumer items including motor vehicles and housing, the percentage in the western world tends towards 100%.  In some countries such as the Netherlands, younger people may be able to borrow up to 120% of the registered value of the property they are buying.


Interest rates may be quite low for real property investments, but they easily reach 10% per annum in real terms for consumer items bought on credit. The longer the credit period is spread out, the higher the percentage of real interest expressed as part of the purchasing price of the good or service in question. In general, the poorer the buyer, the more interest he is expected to pay, while payback time will also tend to be longer. Annual interest rates in poor countries can be 20% or more. These comments relate to official markets and interest rates. The situation is worse still in the presence of  black market and usury practices.


Where accrued interest built into prices is at least 40%, and where interest on the funds borrowed to make the purchase is up to 10% (per year), the total combined interest content is 50% or more. Where sales taxes are applied on the interest content, another 5-10% can be added to the unproductive content of the price of the product in question. These figures may be considered conservative.


The principles applied to the industrial production chain are also true, perhaps to a lesser extent, for the food and fertilisers industries.


8.72.04: What happens to the interest?


The following is a generalised summary of what happens with interest under the present ruling economic system. In reality the system is more complex. Each comment made here is subject to many variations.


Where a buyer purchases a product or service, the price is usually paid to the seller. The payment may be in cash, or it may be credited to the seller’s bank account. There are also other ways of making payment. One way or another, most funds usually finish up in the private banking system, first at the level of the local branch of a bank, then at national level, and then (often) at international level.


Sooner or later, somewhere along the banking chain, the bona fide capital part of the funds representing the value of  labour and materials invested in the product or service purchased by the final consumer will be used as a credit. The credit will cancel a corresponding debt of the buyer  in the books of the bank which issued (created) the loan in the first place. The bank itself wrote the loan into its books as a credit to itself and a debt to the buyer. Repayment of the loan is treated as a corresponding credit for the buyer. The buyer’s balance with the bank, and therefore the bank’s credit with the buyer offset each other .On full repayment by the buyer they are both set at zero. The two transactions (the loan and the repayment) are both part of the formal bona-fide productive part of the economy. Where production takes place outside the area of residence of the buyer, these money usually leaves the local buyer’s economic system to return to the one where the goods or services were produced. In this case, even the bona-fide productive part of transactions represents financial leakage from the buyer’s area.


The accumulated interest which (together with related tax loadings) is an important part of the final purchase price also finds its way back to the ones, usually banks, who “created” the loans in the first place. The interest represents unproductive, or unearned, income. For this unproductive part of the purchase price no formal credit entry (bank) and debit entry (buyer) was made in the bank’s books. It remains in circulation at the will of the banking system as part of what we call the paper, or the speculative, economy. This usually happens at national or international bank levels. This interest is never cancelled from the books of the banks.  It is sometimes, but not often, fed back into the productive part of the economy in case of economic depression. Mostly it is held in paper or “liquid” form for world-wide speculative manoeuvres on currencies or “invested” in real property or in the share markets.  The prices of property and shares increase and become inflated. People who wish to buy real property or shares therefore have to pay more for them. To pay for them they often have to borrow more money, on which more interest has to be paid. The unproductive speculative cycle continues this way indefinitely….until the whole system temporarily collapses where the productive part of the economy is no longer able to support all the interest payments. This is the case with the present credit crisis.


08.72.05: Debt in developing countries.


In some ways the poorest people in developing countries have an advantage over the “rich” in industrialised countries as they often have no personal debt to finance. They survive on their own work without subsidy and without external interest-bearing “financing”. Unfortunately, the same cannot always be said of their governments. These have, under pressure from international (western) lending organisations, borrowed money against interest for purposes which have rarely, if ever, led to real, on-going improvement of the quality of life of the ordinary people.


In the absence of debt-relief measures, governments of developing countries not only have to pay their loans back, but also interest on the loans as well. In order to pay the interest back, they have to take out more loans, in an exponentially increasing debt-trap spiral. The only alternative governments of developing countries have is to reduce their expenditure for goods and services. In poor countries this usually means reducing expenditure on already scarce basic services such as health and schools and on the maintenance of basic infrastructures such as roads. In recent times they have actually been forced to reduce expenditure this way by institutions such as the World Bank and the International Monetary Fund under their iniquitous Structural Adjustment Programmes.


08.73 Independent financial structures set up during project execution.


08.73.01 Money as a catalyst.

Libraries have been written on the subject of money. For our purposes, money is viewed as being itself without intrinsic value. The metal used for coins might have some limited value if recycled in the real productive economy. However the intrinsic value of coins used for transactions today is an irrelevant part of the total value of the money supply. Bank notes and coins together account for less than 2% of total money supply in industrialised economies. Coins account for just a tiny part of that 2%. 

The “money” we usually refer to acts as a “catalyst” so that a commercial transaction can take place. There are at least two parties to a transaction. Most typically, these are the seller of goods or services and the buyer of them. The seller passes his goods and services to the buyer. Let us assume that the goods and services represent 10 productivity hours of the seller’s life. To pay for them, and for the materials used, the buyer must himself in turn supply goods and services for a similar value, usually to a third party. Let us assume for convenience that those goods and services represent 10 productivity hours of the buyer’s life. The perceived value of the goods and services supplied by the buyer to third parties is then, in principle, in balance with the perceived value of the goods and services bought by him from the seller. The money, which is used as the catalyst for the transaction, enables the seller to take his time to buy goods and services from third parties for the same value. The real contract between the buyer and the seller is, in fact, about the productivity hours needed by the seller to make or perform the goods and services he sells to the buyer. These are balanced by the productivity hours needed by the buyer to produce the “credits” necessary to buy those goods or services. Allowance must always be made for variables such as working speed and efficiency of the parties and the techniques they use.


Catalysts other than coins, bank notes and pieces of paper, such as shells and grain, have in the past been accepted by members of communities and successfully used as means of transactions for the same purpose, sometimes for centuries. Any material or immaterial item or concept can be used as a basic transaction catalyst, provided the members of the community involved agree to adopt and apply it. In  the Model, the means, or “catalyst, used is the subjectively perceived value of an hour’s work.


08.73.02 No catalyst, no transaction


Where no commonly agreed transaction catalyst is available, trading other than direct barter between any two parties cannot take place. One alternative to barter trading would be theft. While commonly practised, theft is not considered a viable alternative in this work.


08.73.03 Financial leakage.


Where more goods and services are bought by individuals, families, groups, or communities than they can produce or sell  financial leakage occurs. Financial leakage due to trading, interest payments and “export” of savings funds means that the limited amount of formal money that reaches rural and poor urban areas in less developed countries is usually immediately sucked out of the area again. The poor areas are left without any means for transferring goods and services, including goods and services bought and sold within the area itself.  Economic development there is blocked.


08.73.04 :The Model blocks financial leakage from project areas


Projects under the Model reduce financial leakage from given project or local development areas. Hopefully they eliminate it altogether. They enforce a zero balance in the value of goods and services imported into and exported from a given economic area. They set up  cooperative interest-free local financial environments limiting as far as possible financial leakage caused by interest payments. Finally, they make sure that trading of locally produced and consumed goods and services can take place under local money LETS systems set up for the purpose.


As we have seen in section 08.72 interest, and related taxes on the interest, globally accounts for at least 50% of the cost of a modern western product or service. Its elimination greatly increases economic buying potential of the users in the local economic area where a project under the Model is set up. The quicker interest-free formal money development funds made available to users in the project area are re-circulated there the greater the advantage the area will have over other areas where interest continues to be paid.


08.73.05 : A basis for local productivity increase.


Similarly, a stable interest- and inflation-free local money system for locally-produced and consumed goods and services enables a limitless series of  neutral or zero-sum economic transactions to take place. The notional funds in the system are constant. They vary only with the number of people in the system at any given time.  The faster the local money funds circulate, the greater the productivity of the people in the project area and the greater the improvement in the local quality of life. Under the system proposed, the only limiting factor is the amount of work the various members of the community are able or choose to do. The more, and the more efficiently, they work, the more credits they will earn and the more goods and services from others in the area they will be able to buy. The less, and the less efficiently, they work, the fewer the credits they will have available for the purchase of locally produced goods and services. Since no-one can work more than 24 hours a day, the system has inherent, built-in, finite, limits. In an economic area with 35000 adult members, and assuming an average working day of 8 hours per person, maximum presumed normal daily productivity is that produced by 280.000 working hours per day. One member may choose to work more or less than another. He may work more or less efficiently than another. He may have a specialisation enabling him to demand more credits per hour’s work than another. Taking all such variations, which are typical of any open, mature, fair, slavery-free economic system into account, the greater the number of transactions which take place every day under the local money LETS systems, the better the quality of life of the inhabitants will be.


The local money system for each project area is set up in an early phase of project execution. It operates independently of the formal money economy. Economic  crises in the formal money system therefore do not influence it.   


08.73.06 : Interest built into the cost of necessary imported goods and services.


While interest on the purchase of a good of service produced in a given project area can be eliminated under the Model, the cumulative interest content included in the price of a good or service imported into a given project area cannot. This is why, under the Model, only goods or services necessary for the purposes of productivity increase can be imported into a given project area within the framework of an integrated development project. The interest-free purchase of PV for television sets for private consumption does not fall under the terms of  the Model. Interest-free purchase of PV television sets for collective study purposes does, as does, for instance, the interest-free purchase of a sewing machine to enable a woman to produce clothes.


Obviously, projects under the Model will never restrict the freedom of community members to spend their formal money income the way they choose. If they wish to buy a PV television set with their own formal currency means, they can always do so. However, they cannot use project structures to do this. If groups of inhabitants wish to purchase PV television sets, project managements would usually, on request, help them set up cooperative interest-free buyers’ group for that purpose. The Project Management can take advantage of reduced prices through bulk purchases and pay for the goods in cash. The goods are delivered to members of the cooperative interest-free at the original landed formal money purchase price. Project Management costs, if there are any, are charged to the buyers under the local money system.


08.74 Coverage of on-going management and maintenance costs.


08.74.01 The local money system created.


In principle, one local LETS currency system will normally be set up in each project area. The systems are set up and run by the people themselves.


All adults within a system are registered as members, but except for goods and services necessary for the project itself, use of the system is voluntary. Any member may usually freely choose whether to conduct a given transaction in the local currency system or within the formal currency system.


Each LETS group therefore has about 35000 registered adult members. In principle, children under the age of 16 will not normally be registered as they are not, under the international convention on the rights of children, allowed to work. However, requirements vary with cultural and economic contexts, and the age of entry into any given system will be decided by the people. Children become registered members of their local LETS systems upon reaching the age nominated in the local LETS system statutes. Children may, for instance, become members at birth and their membership remain “dormant” until the prescribed minimum age for commercial activity is reached.


The reference value will usually be based on the perceived average value of an hour's work. The people may often wish to put upper limits and lower limits to the hourly value. For instance, if the average perceived value is 10 units, a maximum hourly rate for hard physical work or for specialised professional work may be set at 15 units. A minimum rate, for instance for accompanying the elderly or baby-sitting, might be set at 7 units.


08.74.02 Local management and maintenance costs under the local money system.


All products and services produced and consumed in a project area can be brought under the local money system set up there. All transactions involving locally produced goods and services for the management and maintenance of project structures also can be brought under the local Money system. In fact, local goods and services for the project itself, and therefore for the management and maintenance of the project structures, must be brought under the local money system. Their costs, expressed in local money units can then re-circulate in the project area. The quicker the local money credits are re-circulated in the project area the better the quality of living of the people living there.


The only formal money costs for management and maintenance sustained by the population in the project area are for spare parts for capital goods for project structures originally purchased for formal money and for their long term replacement. These costs are covered by the monthly formal money contributions paid by families into their Cooperative Local Development Fund. Labour and administration costs for maintenance are covered under the local money systems set up. The local money units rotate continuously in the local community. In principle, the costs of maintenance of structures and services expressed in local money units therefore are not important because they are always recycled locally.  For example, the cost of maintaining a project-level drinking water supply system might need a maintenance cooperative with ten members.  A ten-member team working 8 hours per day for 300 days per year would represent an annual debit of 24.000 working hours. This is less than one hour’s work for each of the 35000 adults in the project area. Social insurance aspects protecting the weakest members of the community are provided.

The payments made by families into the Cooperative Local Development Fund typically amount to between Euro 3 and Euro 4 per family of five persons per month. The project makes a wide range of services available to the beneficiary families. All of the services are covered by the monthly contribution. Savings on traditional formal money costs for these services should be higher than the monthly contribution to the Fund. Consider for example savings in the cost of drinking water and fire-wood for cooking. Consider the time saved by women for fetching water and collecting firewood. Consider the social and financial advantages created by the project and  the introduction of interest-free micro-credits. Consider increased productivity made possible through better conditions of health.

The project budget includes complete details on the financial management of the structures set up. For the complete package of services offered, a monthly contribution of  Euro 0,60 – Euro 0,75 per person per month by 50.000 people produces a total annual contribution of  Euro 360.000 - Euro 450.000. Only Euro 100.000 in formal money is needed for management and maintenance of the system, as costs are limited to those for the purchase of spare parts for items for project structures paid for in formal money.  The remaining part of the income is continuously recycled in the form of interest-free micro-credits for productivity increase. Within ten years this fund will have accumulated at least Euro 3.000.000- Euro 4.000.000, taking repayment of initial loans for productive activities made during the first two years’ execution phase of the project into account. At the same time, each family will on an average have enjoyed interest-free micro-credit loans for at least Euro 2.500 for the purposes of increasing of their own productivity.

Since formal money costs for maintenance and administration are just 20-25% of project revenues, the relationship between formal money revenues and formal money costs can only be positive. Compare this with the sustainability problems faced by traditional international development projects. Projects under the Model are inherently permanently sustainable. They provide permanent coverage for long-term replacement of capital goods as well.


08.75 Food and water security in times of drought  and food crisis.


08.75.01 Local autonomy for drinking water and food supplies.


People in project areas sustainably grow and store their own food for their own use. To do this the inhabitants use eco-sanitary systems to fully recycle their urine and composted faeces, thereby supplying all fertilisers needed for their on-going food production. Urine is added to grey water (household waste water) to produce enough liquid to supply (vertical) gardens to produce food for family requirements at household level, even in times of drought.  


Traditionally, in the case of serious drought for extensive periods of from 2 to 3 years no community in the world whether in the North or in the South, whether industrialised or under development would be able to survive without help from outside. In past periods of human history people may sometimes have been free to migrate to areas which had remained green and fertile. Demographic pressures in the modern world mean this is very rarely an option in our times. The only alternative is war.


Project areas under the Model enjoy a greater resistance to droughts and other crises than most other communities. However, they cannot offer total guarantee against disaster over very long periods where drinking water supplies from even deep boreholes are not available.


Recommended solar pumps for drinking water supply work at total heads up to 150 meters. This allows interested parties working where there is a risk of long-term drought or other serious climatic crises to deepen boreholes to reach a lower (and presumably safer) aquifer. It is also possible to increase the size of the photovoltaic power array installed with each pump from 300Wp to 400Wp, to help compensate the higher heads involved. Increase in installed power can also be introduced gradually, according to specific risks or requirements. Should a choice be made to allow extra margins from the beginning, provision should be made under item 70101 (Borehole construction) of the standard budget for an extra sum of Euro 250.000, and under item 70204 (solar PV panels) for an extra sum of Euro 125.000. Since reserves are inadequate to cover these increases, the total project budget should in that case be increased from Euro 5.000.000 to Euro 5.350.000- Euro 5.500.000.


Under conditions of extended drought for 2-3 years, reserves of harvested rain-water will have run out. There will be no surface water available, and perhaps no water left in rivers. The only water available to the inhabitants will be the 25 litres per person per day of drinking water from their deep well sources. The system of recycling of urine and grey waters will enable people even in this situation to use this water to produce a minimum food supply in their roof-top or vertical gardens to survive. Only when the drinking water supply from deep boreholes runs out do the populations need external assistance.


The recommended solar pumps also have the feature that they can be installed at any depth below the level of the water in the borehole. It is therefore possible to take strong fluctuations in the water level in the borehole into account to cover situations of severe water draw-down during the day and of slow borehole replenishment. However, where night-time replenishment becomes insufficient to compensate for extra drawings during the day, the quantity of water pumped must be reduced either by turning the PV arrays out of the sun or by reducing the number of pumps in operation. As users start receiving less than 25 litres per person of drinking water per day their general situation will become more and more critical.


Plant nurseries will be set up under the local money system created by the project. Tens of thousands of fruit and vegetable oil trees will be planted in the project area. The trees will take several years to sink deep roots and create relative immunity from drought conditions. Once they have done this they will form a second source of food in hard times.


08.75.02 Plant nurseries and food safety


Nurseries, especially for the cultivation of native trees, including fruit trees, will be formed as commercial activities under the local money system set up, with financing of necessary imported items  under the interest-free micro-credit structures. In principle, there is no formal money requirement for these activities. Should formal money be needed, the activities would qualify for interest-free micro-credits. For these reasons, there is no specific item in the project balance sheet for the nurseries.


Fruit, nut, and vegetable oil trees will be planted along paths between villages and in public places and placed under the management of needy families. Tens of thousands of trees can be planted in the project area. Once the trees have had time to sink their roots and no longer depend on surfrace water for survival, they will represent a second important source of food in times of extended drought.


08.75.03 Cooperative seed banks.


The project will set one or more seed banks up under the local money system. The seed bank(s) will serve :


a)       For the reintroduction and conservation of local and regional plant sorts threatened with extinction.

b)       The preparation and conservation of seeds for local farmers.

c)       The conservation and reintroduction of traditionally used medicinal plants.


Local farmers can buy seed from the seed banks without needing any formal money. They can also extend their debit limits under the local money system in accordance with their seasonal business cycle.





 Poverty, its causes, what is needed,  24 slides.

 Basic project architecture, 14 slides.

 Basic project structures, 43 slides.

 How projects achieve most Millennium goals, 36 slides.




 Agriculture and Food Security.

 Credit and Food Crises.

 Ecology and conservation.


 Fight against corruption.

 Gender and women's rights.

 Health aspects.

 Millennium Development Goals.

Policy implications.

Water and sanitation.



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08.60 Measures taken to fight corruption.

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