BONUS: Join Monetary Activists at Collaborative Finance!
BONUS EPISODE I spoke to Matthew Slater (@matslats) about an upcoming event happening at the Commons Hub in Austria from May 22nd to 28th called Collaborative Finance that he is helping organize with the Crypto Commons Association, one of the projects part of the Breadchain Cooperative which I co-founded. We spoke about what Collaborative Finance means, how money actually gets created in the private sector, and what you can expect at the event. To Learn More and Get Tickets to Collab...
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Transcript
Alright. Hello, everyone. You are listening to the Blockchain Socialist Podcast. And for this episode, I'm gonna be talking to Matthew Slater. This is his second time on the podcast, actually. He is the writer at his blog, mattslats.net. He's the creator of the Credit Commons protocol, which is a protocol for scaling mutual credits. And he spent the last fifteen years full time working on alternative monetary systems. So I think the the last time we spoke was, I think, a little over a year ago now. But the reason we're talking now is because Matthew is the convener of a new event called Collaborative Finance that he's doing, I guess, in conjunction with the, CryptoCommons Association, in the next coming months. So, giving him a chance to talk about the events and and share with people what it is. So, Matthew, if you want, maybe just to start off for people, what is this event, and when and where will it be? Well, first of all, thanks for talking to me.
The Crypto Commons Association, or I think it's called the Commons Association now, has had several events over the last two years, and they've been very popular. And they invited me to design or convene an event on their behalf. So what I've done is I've, thought the theme that's most pressing to me at the moment, I've invited my whole network to come in first, and now we're, throwing invitations further afield to people, especially in, cryptonomics, who are interested to find out about other things which are possible than DeFi.
And it will be in Austria. So in, I think the place the place is the village is called Reichenau Andorax. Ironically, I'm actually here at the moment recording this, episode, since I was here for the Solarpunk event that just happened. But I've been to so many of these clab or these CryptoCommons Association events that they have here, and it's always a really nice time. It's always, like, filled with people who are incredibly intelligent, people who are, emotionally mature. I've had met Matthew at the first Crypto Commons gathering that was now, I think, two years over two years or around two years ago, which is how we know each other. But when exactly is the collaborative finance event going to be? I know it's, it's in May at some point. Right? May 22 to the twenty eighth.
But, of course, because, Felix, really wants to make the CryptoCommons hub a thing in itself, not just a conference venue, People are invited to turn up days before and stay days after. Costs about $50.50 euros a day, including accommodation and food, whether it's conference time or any other time.
Right. Yeah. I'm currently staying for, a week after the Solarpunk events to work on some things, with some people here. And I can say it's a very nice time, a very nice place. There's, like, beautiful mountains, surrounding the this this, basically bed and breakfast old bed and breakfast it used to be. You can do really nice hikes. You can, use the hot tub whenever it's working and there's the water is hot enough. So yeah, there's a lot of really nice things you can do outside of also just talking about, crypto or finance or whatever it is, you're talking about, the whole day.
And this conference will, it will let run for seven days, and I'm gonna make it, not too intense in that time because I know that seven days is a big commitment. We're looking to get some older people more developed in their careers and perhaps a little busier. And so, a light timetable will give everybody time to catch up with their email and also catch up in the hot tub.
Yeah. What's really nice about these events, I think, is that it is way more it's more intimate, but also not it's not as intense as, like, if you're going to, I don't know, a conference that's, like, one whole day at this big giant conference center where it's filled with, like, hundreds of different people that you talk to for, like, two minutes at a time, and you have to go back and forth and be like, oh, it's you. Oh, it's you. So it's a it's a really nice way to get to know people a lot better, I think. I'm quite experienced at conferences over the last fifteen years on monetary theory,
and I always find I have the best time when I'm not in sessions. So, when now I'm designing my own conference, the sessions are not going to intrude, I hope, on the socializing and networking and friend making
that should be going on. Right. But so what I wanted to talk about is if you could maybe explain what do you mean by collaborative finance, and, like, how this event sort of came about, and, like, what is the focus and the problem that you guys are trying to tackle here with this term or concept of collaborative finance? Okay. We're gonna have to break that down a bit.
I've been doing almost exclusively mutual credit systems for the last fifteen years, and that means I'm building software for the local exchange trading systems and some time banks who do the accounting in a very particular way. And it's not the way that blockchains are built. In in a blockchain, generally, you mint a whole load of tokens and then work out what to do with them, who to give them to, and try and maintain the price. In a mutual credit system, you give people negative balances. You don't mint a token like a thing. You say, this account can go 10 units below zero, and that below zero acts as a positive balance for somebody else. And so the balances of accounts are constantly moving up and down, and they always add up to zero. So that's a kind of different paradigm that I'm in. So what's come to my attention recently while I've been focusing on mutual credit is multilateral offset clearing, or it goes by some other names as well. But it's slightly different in that in multilateral offset clearing, you're looking for an existing trading network, and they're all sending invoices between one another. And if you can get a copy of the invoices, you can kind of factor them all out or clear them before they're even paid. And that is really useful for small businesses in a network to help ease their cash flow. So you're not really creating money in a sense with this mechanism, but you are actually helping small businesses especially, reduce their risk throughout the month and help to keep them going. And the realization that my colleague, Dill Green, had was that if you start with this kind of network, then you can introduce deeper and deeper layers of, mutual credit or credit allocation between the members of the network. And so it's like a gateway drug. You start with multilateral offset clearing, and then you carry balances over rather than settling, immediately. And you can let some balances carry on indefinitely. So you have this staged entry into credit creation between members of a trading network. And so this contrasts completely differently with the, the way that many DeFi projects are minting tokens and then trying to create the network or the community around the tokens. The the contrast is that we're trying to look for existing networks and then help them. And so we don't have the business of building a network around the token. We're gen genuinely acting in service to existing networks, and I think that's very powerful.
And and by networks, you mean, like, economic networks, like people that are already doing trade. People who actually produce stuff,
and who, move goods and services around between themselves in order to add value and deliver it to the local economy. So how does this get to collaborative credit? There is one blockchain project which is really focusing on this thing, and that's what I thought would be interesting for a conference. And that blockchain project is Cosmos and informal systems. So after Giuseppe Litterer, the founder of SARDEX, and Thomas Fleischmann, who has been doing multilateral offset clearing with the Slovenian government for many, many years, They wrote a paper with another academic called Paolo Dini. They were all employed by informal systems to work on multilateral offset clearing on the blockchain. They've been doing that for about a year, and I thought that that would be a really good centerpiece for a conference, partly because they'll send along four or five representatives immediately. And so we had the first attendance, and they'll have a a kind of internal conference, I gather. They meet each other periodically anyway. So they'll use the week for their own meetings, but then we can gather around, another 50 people, say, that's the capacity of the commons hub, to talk about these mechanisms and to try and identify potential synergies between different projects which are interested in the same thing. So it was really Ethan, Ethan, Bookman, who, has been pushing the term collaborative credit. I don't really mind what terms we use. But by that, he means that the people in the network provide the credit to each other. So the, the traders are collaborating not only because they work together to produce goods and services, but they're also collaborating to produce credit and reduce risk between themselves rather than, calling upon a bank or a financial intermediary to do that for a cost. Right. So that's what collaborative credit means.
If I understand correctly, it's basically a way to almost like to recognize, like, the places where credit can be given in a way so that businesses wouldn't have to take out loans from a bank in order to have money be pushed through, like,
the the pipelines of the network, if that makes sense? The the hope is that you wouldn't need to borrow money from the bank to pay off an invoice at the beginning of the month knowing that you're going to receive an equivalent amount of money from an invoice you sent at the end of the month. So you're not borrowing from the bank for that short term liquidity. But as the network gets deeper, the liquidity it can offer to itself is also deeper. And so you have the prospect of creating money, not in the sense that you might mint a token and it would last forever. And you mint a million tokens and you say they're worth a dollar and you've created a million dollars worth of money. That's not true. That doesn't happen. Money exists, at least credit forms of money, exists only temporarily, and it's constantly reissued and redeemed. It's, a constant process of renewal, and the network can do this for each other in a much more realistic way than some third party can try to maintain the value of its token at $1.
I think maybe you might be a good way to explain. You gave 1 time we spoke I don't know if you remember this, but you gave me, like, a really, funny story, like, of, like I think it was, like, $5 that someone had spent at a hotel, which then the hotel took to someone else. Could you, like I feel like that story is very relevant for for this explanation.
Yeah. I saw a really nice animation of it recently as well. It's it's not a, an unknown story. So there's a town in the middle of a depression, and a rich tourist comes to the hotel and puts $50 on the counter. It says, I'd like to see your best room. And the bank manager says, just one moment, sir. And he goes and he pays $50 to, I don't know, the cook, to settle some debt that they had. And then he takes the rich tourist upstairs to show him the room, but the cook also had a debt with the butcher, and so the the cook rushes across the road and gives the $50 to the butcher. And the butcher also had a debt with the local prostitute. So he, he rushes next door and gives $50 to the prostitute. And the prostitute also had a debt with the hotel. So she rushes across the road with the $50 and puts it on the counter just as the tourist comes downstairs and says, sorry. I didn't really like that room. I'll go somewhere else. And he takes the $50 off the counter and goes on his merry way. And that's the end of the story. But we noticed that the $50 has circulated. It's eradicated a whole circle of debts, and then it's been taken out of circulation. In a sense, the $50 wasn't even needed. What was needed was the organization. All of those debts could have been canceled without the $50 if they had just seen if they had a, dare I say, a centralized algorithm or a centralized point of information, which says, well, you owe you owe you owe you owe you, cancel it all out. You don't need the $50 to actually go around. So that's exactly the the mechanism we're talking about with multilateral offset clearing and in a slightly different way with mutual credit in general. You don't need the physical representation of money or a token or something actually valuable in order to cancel out debts. All you need is to see the debts together in the same place so that you can cancel out one against the other. This is the same principle, really, that's been applied in bank clearing. You know? All the banks processing thousands and millions of checks between each other, they don't actually send the money between the bank accounts for every check. They clear them all first. And this is something which I've not seen happening at all in the blockchain and DeFi space, but it's a critical financial function.
Right. They essentially, by recognizing sort of these networks of money that sort of sort of promises of money being moved Mhmm. You can, like, drastically reduce the amount of transactions that are needed. And the transaction costs.
Yeah. The amount of actual money that needs to be issued and minted and has to exist in order to settle those transactions. You only have to settle the difference. And to do that, you need much less money. And, again, if you delay the transactions and allow more time, so if you delay the settlement to allow more time for more counterbalancing transactions to happen, you need even less money. And, eventually, in theory, you know, if you let it go into infinity, you need no money at all.
Or another way Monetary efficiency.
Ultimate infinite monetary efficiency. Another way of saying that is that if everybody had an account with the same bank, you wouldn't need any money outside of the bank. Everyone would just settle within the bank. So that's a very important thing to understand about money, the fact that it can be entirely virtual and in a sense valueless. You don't have to mint it, and you don't have to model it on the idea of gold having intrinsic value, which is the way that, most people think about money and especially in the blockchain space, which is built on the Austrian economics of commodity money.
Right. So I guess the the this sort of collaborative finance events, the the the focus and the problem is kind of taking I mean, one sort of already this historical kind of work that that you've been doing around mutual credit and the thinking around credit and, like, the sort of a different view of looking at money in a way that doesn't sort of think about it as a commodity but thinks about it as really something else?
A relationship.
As a yeah. We could say relationship. And then while at the same time, Cosmos has been really interested in pursuing similar types of monetary dynamics, if I could call it that Mhmm. Within their own system that would greatly enhance the transactional efficiency of of of the network, which is still very new for blockchain. In blockchain world, you send it, like, it's only things level at the level of the transaction that each transaction gets put through. There isn't sort of, like, this clearing of transactions even within, like, one block of block space. But so Cosmos is the only one that I've seen that's pursuing this type of thing. And there there are technical advantages to that, like transactions, but then there are also just, like, using your money more efficiently is what it seems to me ultimately about. So you can get a lot more done
with significantly less money on hand. Well, also understand that there's a cost to issuing money, and there's a cost to moving money between accounts. And it used to be you know when banking was invented that, money was gold and the cost of moving it from one place to another was very high because you had to protect it from bandits. So the banking networks that developed across Europe were all about cancelling our debts that were going in both directions. That's the origin of modern banking. And in a sense, they still do that. They don't move money between, from your account in one bank to the pay payees account in another bank. They just cancel it out with a payment going in the opposite direction and then they settle at the end of the day. And so, that means that a much lower volume of money needs to be created. And there's a whole monetary policy and, as I say, a cost to creating money. When, when money was gold, the cost of creating money was the cost of mining the gold, basically. But even today, the cost of creating money is that someone has to borrow it and pay interest on it for the whole time that it exists. And so, when we create money within the network, someone doesn't have to pay interest on borrowing that money into circulation, and that's critical.
And, like, just to say, like, the when you say that in order the cost of money creation now is paying interest, this is because, most money is created via, like of, well, retail banks borrowing from central banks in which they pay the central bank in interest, and then No. More money is created whenever No. The money is created
when you and I take out a mortgage or an overdraft, and we borrow it from the central sorry, from the High Street bank, and the High Street bank is creating the money. Right. That's the point at which it's happened. An economist called Richard Verner has done forensic accounting and identified this to be the case.
Right. Okay. Yeah. My my thinking was that there was slightly less money being created, but a lot more money being created at the retail at at the private layer of the banking system, I guess. Well, first approximation
is that you could say the government is creating money through notes and coins and quantitative easing, but most of the money is created by the consumer, by retail banking customers, most of it in the form of mortgages,
but also business loans and overdrafts and student loans and things like that. Right. Right. So so one of the things that I think is interesting about the term collaborative finance, I was wondering if you had any thoughts on this. Like, is isn't finance already in some ways collaborative? We're we're collaborating in in some way in order to make finance happen.
Well, yes. You could argue that, if I, if I have a super blockchain startup and I go to the venture capitalists and they give me a million dollars in venture capital, then I'm in some kind of collaborative relationship with the venture capitalists. But other people might argue that, though the relationship is a collaboration, to be sure, there's a very unequal balance of power, which might be seen as uncollaborative. So when we talk about financial sorry. When we talk about collaborative finance, I think what we really mean is that there's a more equal balance of power between those who are extending the credit and those who are holding the credit Mhmm. The money creators and the money users. And in these networks that I'm talking about, everybody in the network kind of has an equal role. And sometimes they'll be in credit, and sometimes they'll be in debt. Sometimes they'll be liquidity creators. Sometimes they'll be liquidity holders. And so it's much more equal and balanced and collaborative by that definition.
Right. It sort of take like, to me, it seems like it's taking things that already, of course, all of these re retail banks and, I mean, various types of banks and clearing houses already do with each other. Mhmm. But trying to give the advantages of doing that to people at a at a lower level, I guess. Yeah. We don't need the banks.
We don't need every dollar that goes from one business to another to be backed by the full faith and credit of the government. For most purposes, those dollars can be backed by ourselves, and we don't have to pay the bank to get the full faith and credit of the government on each dollar that's issued.
Do you think that there's still, though, some thing about needing an institution around monetary systems in order for people to have confidence in in the money? Yes.
I would say that there needs to be governance always, but it the institution doesn't have to be outside of the business network. Really, if people are issuing credit, then they are the ones who need to be participating in the governance of that credit. And with the money system as it is, monetary policy is in the hands of banks in the interest of maximizing banking profit. And so when the banks, may I say, fuck it all up, then the the credit burden falls on the taxpayer who didn't even have a say in how the credit was being issued and allocated or used. Right. So you need an institution. You need monetary policy, but you also need, ideally, participation of the people issuing the credit and holding the credit in the process of governance, credit allocation, and risk management.
One of the things that, for me, like, that I think a lot of the crypto people miss, especially libertarian ones, in their critiques of the financial system. Like, some you know, oftentimes they're like, oh, you know, abolish the Fed or something like that. And I'm like, okay. Yeah. Sure. Abolish the Fed. But, like, the problem isn't necessarily just that. It's like that the monetary system is extremely undemocratic. Like, there is no we have no input or say in what happens with the money, but if there's a huge problem with it, then it's all of our problem. Right. And there's also a confusion
between, the role of the government and the role of private corporations in the money system. So the high street banks are private corporations. The central bank is much more ambiguous about whether it's government or whether it's private and it's a bit different in different countries and I recently read a book about this and and why history has shown that you can't shouldn't really put monetary policy in the hands of the public in the hands of democratic institutions. But at the same time, you shouldn't really put it in the hands of private institutions or private finance either. And so what we're left with is a very ambiguous and undefined role of the central banks and their relationship with the treasuries insofar as who actually decides monetary policy and in whose interests. And it would be so much easier if the issuers themselves, I e you and me who issue money when we borrow it, could have a role in the risk management and in the allocation of who gets that credit. That's very important.
So whenever we first met, in the CCG, the CryptoCommons gathering, I remember you were probably the most vocal critic of crypto and and blockchains at the event. I'm curious for you, like, is there anything, as far as all this goes, that you think is interesting now that you've been sort of immersing yourself the past couple of years in the space? Is there anything that blockchain, you think, is bringing that is of interest to you when it comes to this problem area? I think that,
Bitcoin is a supreme expression of anarcho capitalism and not much else really. There's not much else in the whole of crypto that I think is really interesting. And anarcho capitalism has its place, but it's not the kind of anarchism that I like. Anarcho capitalism tends to be about destroying all the laws and all the governments so that the richest and most powerful can do whatever they like. So it's an arctic in the sense that it doesn't like the government, but it's also a much stronger form of capitalism. It's capitalism with all the regulation and protections stripped away. And Bitcoin seems to be very much for that. But you could say the same thing about gold, and gold has worked very well, in some ways as a a global currency, meaning that it works in the realm where there isn't any governance. There isn't any superior force. Of course, now we have The United States, at least for a few minutes more, as the superior force. And before that, the British Empire was a superior force, and they kind of managed the global, monetary system using gold. But before that, gold was just a a substance that floated around. And in a sense, it it would have been an anarchic system because the global system of trade didn't have a government. And so Bitcoin, is really great when there isn't a government. It enables you to do payments that nobody can interfere with. And, of course, that does have its nefarious uses as well. But, I'm not against Bitcoin per se, but I think all the things that they tried to do with this technology, a technology that was deliberately designed and built to support this kind of anarcho capitalism kind of finance, so much has been done, which just seems to be useless because for the most part, we want institutions that we can trust, and we want institutions that can implement monetary policy. And we don't want random tokens flying around that we don't really know the value of that nobody's guaranteeing. And and when those tokens are guaranteed, in some sense, they're guaranteed by having dollars behind them and by having institutions in the normal financial system. And so there are so many cases in crypto where it's just not doing what crypto is supposed to do, and I also feel that it's not adding any value either. And what I want to see is strong human institutions that understand risk and responsibility, that have proper governing methods, and
and that empower the the normal people who need to use money. Right. But I guess since the event is going to be with I mean, Cosmos has a very high presence.
Mhmm.
Is there something that's from Cosmos that you think that they're bringing that is very interesting?
There there there's another good thing about blockchains, in that they enable, using smart contracts, little programs to be run. Obviously, they depend on the oracles, but in an entirely neutral space. And that could be appealing for some forms of finance as well. So Cosmos, whatever it does or believes or is trying to do, is a blockchain. It's competing against other blockchains in the blockchain space, and that's a battle that it can fight. I don't mind. But what's really interesting to me is that they're bringing the notion of credit clearing, collaborative finance, and, multilateral offset clearing into the blockchain space. And I would really like to amplify that because everything else going in the blockchain space has very little value to me or meaning to me. And I'd like to see blockchains involved in something a little closer to the real world of small businesses and production
and short term finance, things like that. So at this event, what can people expect to hear about? What can they expect to see? What they what can they expect to do, while they're in, in Austria?
Okay. Well, the agenda is for two to three hours every morning, we're going to go through a little program that I've designed where we look at different forms of collaborative credit. And these forms are mutual credit in the sense of business party systems, but also the credit commons, my protocol, which allows those systems to join together and recurse. We're gonna talk about mesh credit, which is more often known as ripple. Okay. And we're gonna talk about multilateral offset clearing, and we're gonna talk about local business vouchers, which is a way that, lots of businesses can come together, and they can agree to honor each other's vouchers. And that can be a kind of money system as well. And one of the the leaders in that field, grassroots economics in Kenya, will be represented in the conference to tell us about that, and hopefully some others too. So with the basis of those four mechanisms, I'm then going to design sessions where we can learn from each other, possibly invite collaboration, and see what can be shared in terms of technology and expertise and other materials.
Nice. And is there still space? Can people sign up and buy their tickets and begin planning to make their way over to, Reichenau?
Well, we managed to half fill all the seats with the people that I chose, and so there's half the seats for everybody else. So, yes, there's still space.
Nice. And, do you know where people can look up and, and buy those tickets? I'm sure there'll be a link under this presentation. That's right. I will have a link. But I think if you go to the CryptoCommons Association website, in case you don't want to look and click on the link, it's also there. Alright. Any, any last words you want to leave with the with the listeners?
Not at all. Thanks for paying attention. Hope to see you there. It's gonna be the event of the year. So on.
Alright. Be there or be square? K. Alright. Thanks so much, Matt. Thank you.