Introduction to the foundation and
practice of appropriate economics

by Stephen DeMeulenaere
© 2003

“Local production from local resources for local use.”

E.F. Schumacher
Good Work, 1979

Since the publication of “Small is Beautiful” by E.F. Schumacher in 1973, his presentation of the need for an intermediate and appropriate technology has grown to become a significant movement in development worldwide.  Although his calls for an appropriate application of economics in development were equally revolutionary and realistic, only rarely have we seen them put into practice.  Many microfinance programs still rely on external loans from big banks at high rates of interest rather than developing the capital from within through a program which encourages borrowers to also save their money.  Many economic and technological development programs follow models of economic development that are inappropriate to their particular situation.

Some economists have begun to realize that resources are not being allocated properly.  Herman Daly and Joseph Stiglitz, both former heads of the World Bank, have outlined[1] the destructive effects of the present economic system on cultures and environments around the world.  Many join them in criticizing the negative impacts of economic globalization and the subjugation of third world economies to the global marketplace.  Other renowned economists such as J.K. Galbraith along with philosophers Fritjof Capra and E.F. Schumacher show great concern for the impacts of economics on people, environment and culture.  Meanwhile, all major religions have expressed their concern, in the strongest terms, about the effects of an interest-based economic system on a harmonious way of life, calling for the inclusion of values and ethics in economics, and their opposition to the charging of interest and usury in moneylending.  It sounds good, but how do we put it into practice?

We have heard it many times already that some 1.3 billion people live on less than 1 US dollar a day, and many survive on no monetary income at all.  This over-simplification of the issue of monetary poverty obscures many important questions.  How do people get what they need without money?  Can we get what we need without having to first have money?  Is the lack of day-to-day pocket money the real problem, or is it a lack of access to capital, a lack caused by dependence on external money and the charging of interest on access to it which limits its supply? Are mega-projects the only way to bring large amounts of capital into a low-income country? Is displaying the poverty and weakness of a country the only way to gain the charity of a richer country?  Are agriculture and natural resources exports the only way for a low-income country to earn foreign investment and capital? 

To this, those working towards an Appropriate Economics say no in response to these questions, and demonstrate this by presenting a viable working alternative.  Already, more than 7 million people earn part or all of their income in forms of money that do not include the national currency, in more than 35 countries worldwide[2], and many millions more meet their basic needs through social cooperation and reciprocation.

In the past two decades, this grassroots social and economic movement, which some call a movement for Socio-Economic Solidarity, People’s Economy or Solidarity Economy, which we group under the term “Appropriate Economics” has focused itself on decentralizing economic systems to the local level and using proper processes to include the entire community in economic planning, to put the economy back into the hands of the people.  Economies such as these that facilitate “local production from local resources for local use”, and extend it to include “through participatory processes using local knowledge based on local cultures using local forms of exchange” are what we mean by Appropriate Economic systems.  This may be fine for a starting definition, but what makes this kind of economics appropriate?

To say that something is “appropriate” is to make a value judgement.  Therefore values, which are the expression of what people people consider important and essential to them and ethics, which are the practical application of values, are intrinsic to anything that can be called “appropriate”.  In terms of values, economic systems must be connected to the places, environments, societies, cultures and impacts of its application, and the process for assessing what is appropriate must respect these elements.  In terms of ethics, the process of actively engaging the community in the conceptualization, design and realization of an economy which provides each person with enough, what Herman Daly calls “satisficing” through the combination of the words ‘sufficient’ and ‘satisfied’, is the application of an appropriate economic process. 

Forming an economic network in which all are included, which has both values and ethics embedded in the core concept makes it possible to devise systems which work towards economic solutions to social and environmental challenges.  Appropriate economics is therefore a process of applying broad-based community determined values through an ethical system that has an impact on the economic lives of people.  Unlike conventional economic thinking which divorces social concerns from economic thinking, appropriate economics sees economic relations fundamentally as social relations.  It provides a means for people to relate economically with each other as they would want to relate with each other socially.  In this way, money is seen as media, a form of communication between people.  One can use money that talks down to people, or one can use money that speaks on even terms with people.

Such systems naturally encourage cooperation, which means sharing and working together at the same time, and reciprocation, which means taking turns sharing and working together over time.  In addition, these networks must encourage both self-reliance, which means helping oneself and one’s kin, as well as mutual aid, which means helping people that we do not personally know.  These four elements are the foundation of social interdependence and socio-economic solidarity.  The identification of local human and natural assets in improving the local economy helps local resources to meet local needs, building social capital and socio-economic solidarity in the process by narrowing the gap between those who have more than they need and those whose needs go unmet, to ensure that everyone has enough. 

Appropriate economics means a decentralized, bottom-up process, and must therefore be founded on a wide variety of local assets.  This includes community input, choice, and collaboration, in the identification of issues that concern the community most.  By encouraging community participation in identifying social and economic issues and setting goals, people come back to the center of the economy again, which is why in Asia the movement for an appropriate economics is called a People’s Economy movement.  Starting from the bottom level, it is possible to design systems which achieve the social, economic and environmental goals of the community.  When people’s needs are met at the local level, the regional and national economies are also likely to be much stronger. 

An Appropriate Economic system is not alien to the local culture, rather it must be founded upon these cultures and traditions.  It is important to know how previous generations of people traded or cooperated with each other in designing an economic system that is appropriate and sustainable as it will be founded upon local assets and therefore what is familiar to people.  In this way, local culture and identity are strengthened through economic cooperation and reciprocation, and not discarded and abandoned in the push to join the global economic system.

Appropriate Economic systems must originate at the local level and ensure that, at the household level, every family’s needs are met.  Economist Kenneth Boulding states[3] that the ‘household economy’ is the main driving force behind the market economy.  More hours of work are done, more trade goes on at the household and local level, factoring in favors and women’s work, than at any other level of the economy.  Only when a community feels its needs are taken care of should it seek to develop products for export to other local areas, or beyond to include regional, national or international levels.  In this way, a national economy can be both sustainable and strong, and not rely on export-driven profits to pay for the weak foundations of the economy in the rural agricultural sector.

Appropriate economic systems must be transparent in financial management and make information available to the community.  If the community does not know what is happening in the local economy, how can they have a proper say in the direction the economy is going, and should go?  Most Credit Unions worldwide have already institutionalized this practice of presenting their monthly reports to the public, all appropriate economic systems do the same.  Research must be conducted to establish benchmarks for progress and for setting attainable goals, as well as to build understanding of the system and its impacts.

Appropriate economic systems often use a special local medium of exchange to facilitate reciprocation among people, or a system for accounting exchanges made between people to encourage relative equality and fairness by accounting for an individual’s contribution to cooperative, volunteer and civic participation efforts.  Sometimes a coupon or voucher is used to track contributions over time and encourage exchange between people, other times the amount received is recorded on a ledger sheet and balanced periodically.  As these systems are founded upon individual abilities and local assets, this economy is much more reflective of reality.  This is to ensure equality in contribution according to people’s abilities and to reduce the mentality of charity and the free-rider syndrome, which does not encourage people to take the responsibility for changing their situation into their own hands but rather to wait for a hand-out or a free ride, and is indicative of the extent of inequality between people, the hoarding of opportunities and benefits, and an unnatural justifcation of a social system founded upon excessive social stratification and hierarchy.

By incorporating social and environmental concerns within an economic model, Appropriate Economic systems are much more likely to be sustainable, steady-state economic systems[4].  A steady-state system is one which seeks to reduce external inputs on the one hand and discharging of waste on the other to achieve a balance in local production using local resources to meet local needs in a way that is sustainable.  Whereas the conventional economic system will grow continually until there is a crash or until natural resources have been exhausted to pay for this growth, a steady-state system can continue developing naturally forever. 

To be a steady-state economic system, the charging of interest on debts which go to a private party, whether bank or individual, must be eliminated.  This allows for the charging of a “community tax” to develop a pool of capital for interest-free loans.  The charging of interest on debt is the motor that drives unsustainable growth, therefore ending interest-based debt is the key to a sustainable economy.  An appropriate economic system charges fees in ways to reduce socio-economic stratification while ensuring access to these services.  This means that charging according to use is often a fairer method of recovering the cost of operating the system, as the burden of paying the system is moved from those with limited access to money and capital, to those who employ large amounts of money and capital in the economy.  In the conventional economic system, it is easy to see that those with limited access to capital pay a larger share of the burden of interest.  Moving to the international scale, countries which have limited access to capital pay interest rates of around 20-25%, whereas those with easier access to capital pay much lower interest, in the area of 5-9% per year.  As long as this gap continues, poor countries must rely on extractions of natural wealth for their income as they cannot compete in manufacturing and other capital-driven sectors of the economy, and generally rely on foreign companies opening up subsidiaries within their country.

All of this does not mean that there is no role for organizations from the wealthy countries to assist the less-wealthy countries.  In addition to providing low-interest capital and access to their markets, the job of a good development organization is to supply a community with information on a level that they can understand, giving them the tools to define needs and solutions on their own, through a proces of consultation and collaboration.  The community decides what is appropriate for them and the two collaborate to create and implement an economic system that best meets those needs. 

Appropriate economics therefore is not a utopian system or an “off-the-shelf” solution to all the challenges faced by the community.  It is not possible to bypass processes of learning and experiencing and stages of development to lead a community to what some people think is the best economic system for them.  It is simply not possible to impose or transfer an economic model from one area to another area without following the same process that led to the creation of the model in the first place.  If two communities are thinking the same thing, the system can transfer from one place to another, but both communities need to consider for themselves why that system is best for them first.  In this way, appropriate economic systems are founded upon local realities and strengthened by best practices from similar cases. 

Drawing from culture and traditions but adapted to modern realities and in consideration of best practices from other places, appropriate economic systems adopt what is best without pledging allegiance to any particular ideology, religion or body of knowledge, instead using these elements as a toolbox in designing a solution for each community.

An Appropriate Economic system engages the community to discuss issues and design community-based socio-economic networks founded upon local assets that embed community-determined values and encourage the behaviours of cooperation and reciprocation, self-reliance and mutual aid that build economic solidarity between people while revitalizing cultural identity.  By following proper process in establishing a stable, sustainable economy at the local level, founded upon local production using local resources to meet local needs before seeking external trade, appropriate economic systems lay the foundation for a social harmony, rural reconstruction and a future of sustainable abundance for all.


Daly, Herman.  Steady-State Economics. 2nd Edition.  Washington, DC, Island Press. 1991.

Daly, Herman.  Beyond Growth: The Economics of Sustainable Development. Beacon Press, Boston.  1996.

Lietaer, Bernard.  The Future of Money. Century Press, London. 2001.

Van Arkel, Henk & Ramada, Camilo.  Poor Because of Money.  Strohalm Foundation, Utrecht.  2001.


[1] Stiglitz, Joseph E., "Globalism's Discontents" The American Prospect vol.13 no.1, January 1, 2002.

[2] Much of this is documented at and related links.

[3] Boulding K. 1972.  The Household as Achilles’ Heel. Journal of Consumer Affairs 6(2):110-119

[4] Daly, Herman.  Steady-State Economics. 2nd Edition.  Washington, DC, Island Press, 1991.