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Commerce · III.04 · MMXXVI · daylight

La Bourse  /  Volume III  /  Nº III.04  /  Workbook — the student

WORKBOOK — THE STUDENT

Chapter III.04 · Credit as a Commons

For the person studying this alone, or in a seminar, with no firm and no signature authority. You already sit inside a credit commons. You have simply never drawn it.

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WHY THIS WORKBOOK IS DIFFERENT

The chapter is written for someone with trade payables. You probably have none. It would be easy to conclude that clearing arithmetic is something to learn when you have a business.

It is not, and the reason is the most useful thing in this workbook: a clearing network is not a financial product. It is a way of seeing obligations as a graph rather than as a list. The moment you can draw who owes whom and find the loops, you can do it to a flat, a family, a student society, a freelance network, a supply chain or a national economy. The arithmetic does not change. Only the number of nodes does.

You will do exactly what the treasurer does. You will do it on a system you can actually see, which for the next few years is a considerable advantage, because the graphs you can see whole are the ones you can learn on.

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PART ONE — DISCOVERY

Weeks 1–4: find the commons you are already in

Exercise 1.1 — Draw your obligation graph (60 minutes)

Take a sheet of paper. Put your own name in the middle. Around it, put everyone you currently owe something to and everyone who owes you something. Money first, but not only money: a favour, a returned item, a piece of work, a promised afternoon.

Draw an arrow from debtor to creditor and write the amount on it. Then do the harder part: ask two of those people who they owe. Add their arrows.

You are looking for one thing. A loop.

Exercise 1.2 — The five places a student commons hides (45 minutes)

Write one honest line for each. The last row defeats most people, and its emptiness is the finding: almost nobody holds a reserve, which is why a small shock inside a small network propagates all the way through it.

Exercise 1.3 — The appreciative interview (45 minutes, with another person)

Find somebody who runs a small business, a market stall, a household on a tight budget, or a society treasury. Ask exactly this:

"Tell me about a time somebody let you pay later, or you let somebody pay later, and it worked out. What made you willing? How did it get settled in the end?"

Then stay quiet. Take notes on the conditions, not the outcome. You are collecting the informal rules of a credit commons from somebody who has never called it that, and there are usually four or five of them, and they usually map onto Ostrom.

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PART TWO — THE ARITHMETIC

Weeks 5–8: compute before you argue

Exercise 2.1 — Clear a real circle by hand (90 minutes)

Here is a four-person circle. Do not use a computer.

1. Gross obligations. Add them. You should get 880.00.
2. Net positions. For each person, receivables minus payables. You should get you −90.00, flatmate +60.00, cousin −130.00, colleague +160.00. They must sum to zero. If they do not, you have made an arithmetic error, and that check is the single most useful habit in this chapter.
3. Cash required. The sum of the positive positions: 220.00.
4. Netting efficiency. 1 − 220.00 / 880.00 = 75.00 percent.
5. The loop. All four sit on one cycle. Its binding edge is 150.00. Subtract 150.00 from every arrow. 600.00 of obligation — 68.18 percent of gross — vanishes and nobody has paid anything. Check that everyone's net position is unchanged. It will be.

Now check your answers against lib/verify/III_04.py, section 12.

Exercise 2.2 — Reproduce the chapter's circle of eight (2 hours)

Do the same on the sixteen obligations in the chapter. Gross €339,000; cash required €29,500; efficiency 91.30 percent; each euro of settlement clears 11.49 of trade. Confirm that bilateral netting saves nothing at all, and write one sentence explaining why — the sentence is the learning, not the number.

Then find the cycle tannery → mill → cutter → maker → shipper → tannery, confirm its binding edge of €18,000 and that cancelling it extinguishes €90,000, or 26.55 percent of gross.

Exercise 2.3 — Your own coverage ratio (30 minutes)

Take the largest balance you owe inside your own network. Divide it by what you receive from that network in an average month — earnings, allowance, work done for people in it.

  clearing coverage ratio  =  balance / monthly receipts   (in months)

The chapter's tannery has €21,000 against €4,083.33 a month: 5.14 months, against a policy cap of 3.0. Where does yours sit? Write one sentence on whether that balance will be cleared by the ordinary course of things or will require an event.

Exercise 2.4 — Find the honest negative (45 minutes)

Every Arithmetic movement in this edition contains at least one case where the approach loses. Find three in Chapter III.04 and write, in your own words, why each is there.

Then practise the move. Take the strongest version of a position you personally hold about money or fairness and write the honest negative against it — the version that troubles you, not a straw one. If you cannot write it, you do not yet understand your own position well enough to defend it. That is not a criticism. It is the assignment.

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PART THREE — DREAM AND DESIGN

Weeks 9–12: build the apparatus

Exercise 3.1 — Write the constitution of a small commons (90 minutes)

Choose a real group you belong to — a flat, a band, a society, a freelance network, a family. Write its credit constitution on one page, using Ostrom's eight, in this order:

1. Boundaries. Who is in, and who may hold a negative balance.
2. Congruence. How a limit is set. Tie it to something the member actually contributes, not to a flat number.
3. Collective choice. Who changes the limits, and how.
4. Monitoring. Where the balances are visible, and to whom.
5. Graduated sanctions. Write all four steps. Warning, freeze, suspend, expel. A constitution with one sanction has none.
6. Conflict resolution. Who hears it, how fast, at what cost.
7. Right to organise. What this group actually is, in one line.
8. Nesting. What is above this group if it cannot solve something itself.

Then add the ninth term the chapter insists on: the reserve. What percentage of what, held by whom, published how often.

Exercise 3.2 — The reserve, costed (30 minutes)

Take your group's annual internal turnover — the total that moves between members in a year, however roughly. Apply a 1.0 percent levy and see what it raises.

The chapter's circle turns over €4,400,000 and a 1.0 percent levy raises €44,000 — a 6.88 percent reserve against €640,000 of debits, reaching the Basel leverage floor equivalent in 0.44 years and a 13.0 percent CET1-equivalent in 1.89 years.

Now the question that matters: at your group's scale, is the levy worth collecting, or is the real reserve simply that somebody's parent would cover it? Answer honestly, and notice that the second answer is a nested enterprise with no constitution.

Exercise 3.3 — The present-tense description (60 minutes)

Write 500 words describing, in the present tense, a version of your local economy in which clearing is ordinary. Not "there would be" — "there is."

Constraints, and they are the exercise:

• Describe a Tuesday. Ordinary transactions, ordinary people.
• Name one number that is published and that people actually look at.
• Include one thing that is difficult and stays difficult.
• Include what happens when somebody cannot pay.

The last constraint defeats most people. If your description has no answer to it, you have written a brochure rather than a design.

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PART FOUR — DESTINY AND DELIGHT

Weeks 13–16: make it hold, and enjoy it

Exercise 4.1 — The density experiment (three weeks)

Netting efficiency is a property of the graph. So change the graph.

Pick three people in your network who do not currently transact with each other and introduce them for a specific reason — one needs something the other has. Then redraw the obligation graph three weeks later.

This is exactly what Sardex pays brokers to do by telephone. It is the whole product. Notice how much work it is, and notice that no software would have done it.

Exercise 4.2 — Publish one number (this week)

Choose one figure about your group's internal obligations — the total outstanding, the longest-standing balance, the netting efficiency — and put it somewhere everyone can see it. A shared note is enough.

The chapter's claim is that monitoring by members costs nothing when the figures are simply put where members can see them. Test it. Watch what happens to the oldest balance in the first fortnight.

Exercise 4.3 — Delight, on purpose (ongoing)

The pleasure in this chapter is specific and worth naming: it is the moment an obligation you were carrying turns out to loop, and cancels, and was never really there.

Engineer one. Find a genuine loop in your own graph, however small, and close it in person rather than by transfer. Then write one sentence about how it felt compared with being paid.

If the sentence is interesting, you have understood the chapter. Cancellation and payment settle the same obligation and do not feel remotely the same, and the difference is the reason clearing systems keep being reinvented.

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THE TERM PROJECT

One graph, carried the whole way

Choose a real group of at least six people or six small enterprises that you have genuine access to, and map and clear its obligations over a term.

Deliverables.

1. The graph (one page, drawn). At least fifteen obligations between at least six parties, with amounts, gathered from the parties themselves.
2. The arithmetic (600 words plus workings). Gross, net positions summing to zero, cash required, netting efficiency, and the largest cycle with its binding edge and what cancelling it extinguishes. State what bilateral netting would have saved.
3. The denominator (200 words). What your graph does not contain. Whose obligations you could not get, and which direction that biases your efficiency figure. A measurement without this section is not marked.
4. The constitution (one page). Ostrom's eight plus the reserve, written for this specific group.
5. The clearing (done, not described). Cancel at least one real cycle with the consent of everyone on it.
6. The reflection (600 words). What you expected, what the graph actually looked like, what surprised you about who was owed by whom, and what the group said when you showed them.

How it is assessed. Not on the efficiency figure. On whether a reader could reproduce your arithmetic from your page, and on the honesty of section three. A sparse graph with a 12 percent efficiency, measured cleanly and reported with its gaps, is a first-class piece of work. A 90 percent figure whose population is undeclared is not.

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SELF-ASSESSMENT

Score yourself honestly. This is for you.

The two that matter most are the last two. The arithmetic can be learned in a fortnight. Those two are habits, and habits take a term.

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CARRYING IT FORWARD

You will not have trade payables for a while. What you will have, if you do this properly, is:

• The ability to net a set of obligations by hand and check it against zero.
• One real obligation graph, drawn from primary sources, that you gathered yourself.
• A constitution for a small commons that survived contact with the people in it.
• The habit of asking on what population before believing an efficiency figure.

That last one travels furthest. Most numbers you will be shown for the rest of your life are ratios whose denominators were chosen by the person showing you. The person who asks for the denominator, pleasantly and every time, changes what a room can decide — and you can be that person before you have any authority at all.

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APPRECIATIVE QUESTIONS FOR YOUR SEMINAR

1. When has one of us been let off an obligation because it looped — and what did that make possible?
2. Which group that any of us belongs to has the densest internal trade, and how would we prove it?
3. What is already working in how this seminar shares things, and what makes it work?
4. If every one of us drew our obligation graph and we laid them side by side, what would we expect to find — and what would we do about the loops that cross between them?