Circular Economy

Our page on community wealth building considers collaborative finance tools from a purely value-production angle, exploring their potential for underpinning local economic exchange, capacity, and resilience. In the overarching context of the climate crisis, this is insufficient. No significant action should be undertaken without considering its potential to mitigate the destruction of the biosphere that threatens our civilisation, and here too collaborative finance has strongly favourable characteristics.

In the current economy of global supply chains – starting with extraction at one end and the dustbin at the other – circularity of trade is not emphasised, but rather verticals, each step adding a little value until the product arrives at the consumer, whilst monetary payments flow in the opposite direction.

The driver in this ‘linear’ economy is the accumulation of money units, and this requires continuous extraction of raw materials and labour power, plus the resultant ‘externalities’ of pollution and resource depletion. This is facilitated by a global financial system in which money is largely created by banks (sources), and sooner or later disappears into the coffers of multinational corporations or offshore tax havens (sinks). Value production is considered a necessary cost along the way to making money, rather than the primary purpose; the economy has become a machine for turning the biosphere into money tokens.

It follows that so long as economic relations are mediated and transacted via the (approximately linear) global financial system, policy drivers – whilst welcome and necessary – will be limited in their effectiveness at encouraging the addition of value via circular material flows (rather than with an endless supply of extracted raw materials and monetary accumulation).

From this angle, it can be seen that although the term ‘circular economy’ is typically understood to refer to material flows, circular financial flows are a necessary part of the picture. If goods and services are to follow circular patterns, so too must payments, and here it is possible to bring simple financial incentives for ordinary economic actors into play.

In a collaborative finance economy, the extent of exchange is in fact determined by this same payment circularity, i.e. the extent to which ‘loops’ (circular patterns of obligations) can be created and supported. Mutual Credit Services’ platforms, such as Clearing Clubs and Trade Credit Clubs all identify and directly reward such loops.

These platforms also enable socially and environmentally positive initiatives – from individual organisations through to community infrastructure – to be funded, increasing variety of exchange and deepening circularity at all scales. The emphasis is not on accumulation of units in an account, but rather on value production enabled by local credit issuance, accounting, and redemption.

Straightforward financial incentives therefore combine with enhanced agency to drive the bottom-up emergence of material circularity. Since this is limited by access to materials (raw or processed), the tendency over time will be towards increasingly adding value to what is available locally. Increased capacity and shorter supply chains build resilience – especially in key areas such as food security – and reduce environmental impact, complementing policies aimed at mitigation and adaptation to the climate and ecological emergencies.

Of course, all this focus on localism is just that – a focus. It is neither expected, nor desirable, that local economies should become entirely self-sufficient, entirely self-contained. The purpose of an economy, after all, is to support the diversity and specialisation that allow people to flourish in myriad ways. So whilst local circularity urgently needs to be increased beyond its desperately weakened condition, this won’t be achieved overnight. Particularly at the outset, circularity will be low, trade imbalances are inevitable, and the majority of supply and demand opportunities will sit outside any single network.

These limitations cannot be addressed by simply building a larger and larger network. Overly large networks generate less trust and require centralised management, increasing costs whilst reducing autonomy and resilience. MCS’ projects therefore exist in the larger context of our work to build the Credit Commons, an emerging structure of exchange and investment that is simultaneously decentralised and diverse, yet interconnected.