Stokvel Economics

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Money Rand inflation

Saving is the putting aside of whatever profit one has for a future use. Profit is intricately tied to time since it is merely the summation of the entrepreneurs correct projections that the goods and services (labour and raw materials) he purchased at an earlier time will yield a higher cost in the market in the future once produced (sale price). In the context of the individual and his personal revenue though, it is not consuming all of one’s income, in one single go. Saving therefore involves an element of sacrifice, in the human action aspect, it is the foregoing of one’s endless wants for the action of non-consumption. Saving in the townships I grew up in is exemplified by stokvel.

A group of individuals who on a monthly basis, contribute a certain amount to an individual, on an alternating basis among the entire group. For example, a stokvel of 12 agrees to contribute R1000 p/m, thus everyone will get R11 000 p/m from the scheme. The proliferation of such stokvels that may differ in size and maybe in the model, but the principle of a mutual saving/lending entity is the same. The fact that most of these groups operate on unwritten contracts that are fulfilled in most cases than not is testament to the philosophy of Ubuntu that under girds African legal relationships, a topic beyond the scope of this piece.

These stokvels act as banks for their members, well, a much more economically sound ‘bank’ by modern standards, as I will demonstrate. The modern bank has existed with what Rothbard calls the problem of Fractional Reserve Banking. The basic principle of such a practice is the creation of fraudulent ‘money’ that is not only illegal but has an inflationary effect on the economy whose ultimate manifestation results in the devastation of livelihoods, as every economic depression has proven.

An example best illustrates the phenomenon. Now say there is a Bank. Bank A acts as a deposit and credit facility, Individual B deposits 2 oz gold. Individual C then comes to the bank, an entrepreneur even, looking for a loan of 1oz. The Bank, with reserves of say, 2 oz, lends said 1oz to Individual C, or more aptly, gives said individual a receipt indicating that he now has 1 oz of gold in reserves thus making said receipt exchangeable for other goods or services. Individual B mind you, still has a receipt that states that he has 2oz of gold with Bank A. The effect, from Individual B’s 2 oz, an extra 1 oz, at least in receipts, has been inserted into circulation in the economy.

These receipts are what Individuals use in our hypothetical economy as payment for goods and services, denoting the gold oz represented in them. These receipts are money, and the effect of simply depositing one’s gold in the credit issuing bank is the creation of fraudulent receipts, an unjust activity in principle with devastating societal effects. This credit is only to the  benefit of the bankers who issue it, illegally, to the detriment of Individual B and C or whomever received their receipts as payment, who will only get 1oz when they go redeem their property, which would be 2oz according to the contract between the bank and the depositor. Bank runs resulting in depositors losing their money stem from this practice.

Now stokvels operate on the natural implication of lending one your money. With the non-written contract that the deposit is only claimable after 11 consecutive deposits, those being, the individual lending to the other 11 individuals in the stokvel. Or the payment for the ‘loan’ is repayable over 11 instalments. The relationship between lending and saving is intricately tied. Now there is no illegal action in the duplication of receipts if we apply the example to the stokvel scenario, nor is there any inflationary effect on the economy. All the money given is fully and rightfully the property of whomever receives it, with the implication that they will also continue to lend to other individuals until the cycle finishes itself. Contrasted with the banking relationship, stokvels seem to achieve the same purpose, of being deposit, lending and institutions that at their core, are saving entities. What banks purport to be, without any contracts that hinder Ubuntu in their fraudulent nature.

The credit of the bank is inflationary as it stems from fractional reserve banking, an inherently illegal activity. The credit extended to say member 1 of the 12 group stokvel, with the promise/contract of his continuing to ‘pay back’ the money in instalments of R1000 contributions p/m, violates no law as it creates no fictional money nor does it have the subsequent inflationary effect of such an illegal fiction. Now the basic principle expounded by stokvels is one that is inherent in most individuals across this continent, contrary to popular belief, Africans are savers, they just use different and in this case much more economically sound ways to do so.

Now the modern-day monetary system, is wholly based on the creation of fictional money, constantly subjecting the economic order to perpetual depressions that devastate lives. The practice stems from fractional reserve banking though so even going back to a gold standard on its own, without a strict prohibition on fractional reserve banking, would yield the same problems we are afflicted with currently. A prohibition on such activity mind you, is simply the allowing of any bank that would, under a gold standard, fall victim to a bank run and eventually wind up, stay wound up as punishment for its engagement in activities that clearly did not accord with individual preferences as manifested in their actions. The state should not involve itself in banking, the same way there is no government bailout for stokvels, and rightfully so, there should never be, under any circumstances, bailouts, for banks.

Let us learn from the sound economic practices that do not violate Ubuntu as is exemplified by the stokvels of this great nation. The socialists would have us believe that Africans are naturally socialist when their deep appreciation for social interaction makes them the most steadfast of free enterprisers.

The economic activity of townships is deemed non ‘mainstream’ not because its participants don’t engage in trade but because they do so free from governmental interference, thus they are ‘otherized’ when the economy is spoken of. I would posit it is in the activity, the individual actions of the participants of what is oftentimes termed the township economy, where economics, theorized from the logical implications of human action itself, is concretized. The economics of the stokvel deserve much closer inspection.

Life, Liberty and Property.

The Eloquent Peasant.