In Money for a Threefold Society [MTS], money is issued using assets as collateral. Can you provide some quotes from Rudolf Steiner where he outlines lending against such means of production?
In a 1920 essay [1], Steiner wrote:
In a healthy social life, an individual or a group possessing the necessary abilities may be given credit on land, enabling them to develop it by establishing some kind of production. It must be a development that seems justified on that land in light of all the cultural conditions involved (The Renewal of the Social Organism, CW 24, p. 46).
To address the question of lending against assets as collateral as described in MTS, it might be worth taking a moment to clarify how a usage loan – unlike a mortgage loan from a conventional bank – is, in reality, a form of “personal credit.” With regard to what Steiner discusses in World Economy (CW 340, p. 64f.), a mortgage loan is “real credit” – i.e. credit borrowed against the objective resale value of the property, independently of any owner. Such real credit is to be avoided because it creates social inequities and blocks the economic cycle. A usage loan, however, is a form of personal credit because the book value is not any kind of objective resale value – in fact, a registered asset cannot be sold and so cannot have any resale value as such.
Rather, the book value of a registered economically productive asset – land, means of production – is an estimate of the ownership share of the future goods and services that can be produced by the manager through the application of labour working on the asset, and through spirit working upon labour [2]. Thus, for a given property or asset, a more productive manager can increase the book value, while a less productive one can decrease it (see MTS Note 199 to Chapter 12, and MTS Chapter 14). So, deep down, a usage loan is really a form of personal credit, not real credit, because it depends on the manager’s abilities.
At the same time, however, this personal credit is always tied to the right to use the asset to which labour is applied – because without the right to use the asset, the means of production, there would be no production – and therefore no goods and services, and no book value. So in some sense, the book value is a reflection of the social value of the competent manager’s right to use – which is obviously not an economic value that can be purchased! Because of this value, when an asset is transferred from one manager to the next, the party receiving the right to use must normally, in some way, compensate the one losing the right to use.
Steiner is clear, however, how this is not a purchase of rights in exchange for goods, or money representing goods – it is a “non-purchase transfer” (see MTS Note 145 to Chapter 8) – just as compensation for labour is not a purchase, either. However, despite not being a purchase, the transfer of rights normally involves compensation – just as labour provided in a production process normally involves compensation. This goes without saying.
So it is in this perhaps more subtle sense that the word “collateral” is used in MTS for registered assets [3]. The fact that the socially valuable rights to use may be handed over upon transfer – or perhaps forfeited if there is a breach of financial, legal, or ethical obligations – makes it possible for property to act as security on a loan, even though the property itself is never sold, like private property. That is to say: the value of the competent manager’s right to use is the security, the collateral – not the asset as an objective, real property with a resale value.
Without causing social harms like a mortgage, this kind of collateral that backs personal credit [4] lowers the lender’s risk and allows for a lower cost of credit, compared to a similar unsecured personal loan. This in turn helps the consumer by lowering the costs of goods and services produced. Also, by securing personal loans with collateral in this healthy way, it becomes possible to expand this money system without limit, potentially including enterprises worth billions of dollars. It would be too risky and impractical to base the money supply of the entire global economy on unsecured personal credit.
Therefore, the issue of a practical currency, in Steiner’s sense, must be based on economically productive assets – that is, on goods and services that can be produced by spirit and labour working on such assets. As Steiner said:
Hence you will see that no kind of money can in reality be any other than an expression of the sum-total of means of production available in a given region—means of production including in the very first place the land itself—reduced to the form in which it can be most suitably expressed. This will relate the economic process to something which we can at least take hold of” (World Economy, CW 340, p. 179).
– T. Michael Cox, 19 September 2024
— NOTES
[1] This essay, titled “The Threefold Order and Social Trust: Capital and Credit,” was first published in the newsletter Soziale Zukunft [Social Future], Issue 4, Zurich, January 1920.
[2] Book value is defined in MTS as “the share of the value of the goods and services produced by the asset that accrues to the owner” considered over the lifetime of the asset (MTS Note 77 to Chapter 4). This share is normally very small in comparison to the share of the value of the goods and services produced that accrue as compensation to workers and managers for their physical and spiritual contributions.
[3] Collateral is defined as “something pledged as security for repayment of a loan, to be forfeited in the event of a default” (Google Oxford languages). According to this definition at least, collateral is a security – which can be forfeited – without any mention of resale. The basic idea of collateral is that, under certain circumstances, the lender can seize the property and gain control over the ownership rights. This provides the lender with some measure of security in providing the loan.
[4] Personal credit is not necessarily synonymous with unsecured credit – and neither is real credit synonymous with collateralized credit. These are all different concepts. It is quite common in finance for personal credit to be backed by at least one guarantor, who, for example, pledges a near-liquid cash asset as a security – as collateral – against a personal loan.
In the case of the money system described in MTS, usage loans are personal loans secured by asset collateral. However, as explained in Chapter 13, it is also possible to provide various other kinds of uncollateralized personal loans. In any case, nowhere in the MTS money system is there any kind of real credit!
Furthermore, there is usually no need for a manager to have a guarantor in addition to the collateral provided by the asset’s book value – because, in effect, the members of a financial community themselves effectively act as guarantor. This is described in MTS Chapter 12 subsection “Risk Strategies.” It is up to the local members to decide how much risk they are willing to take on, based on their confidence in a given manager who is assigned the right to use a particular asset held by the financial community. And if the members lack confidence in a manager, then perhaps they ought to choose someone else!