MONEY IS TO COCAINE AS
http://freakonomics.blogs.nytimes.com/2009/01/09/this-is-your-brain-on-prosperity-andrew-lo-on-fear-greed-and-crisis-management/
Fear, Greed, and Crisis Management:
A Neuroscientific Perspective
BY Andrew W. Lo  /  January 9, 2009

The alleged fraud perpetrated by Bernard Madoff is a timely and powerful microcosm of the current economic crisis, and it underscores the origin of all financial bubbles and busts: fear and greed. Using techniques such as magnetic resonance imaging, neuroscientists have documented the fact that monetary gain stimulates the same reward circuitry as cocaine — in both cases, dopamine is released into the nucleus accumbens. Similarly, the threat of financial loss activates the same fight-or-flight circuitry as physical attacks, releasing adrenaline and cortisol into the bloodstream, which results in elevated heart rate, blood pressure, and alertness.

These reactions are hardwired into human physiology, and while some of us are able to overcome our biology through education, experience, or genetic good luck, the vast majority of the human population is driven by these “animal spirits” that John Maynard Keynes identified over 70 years ago.

From this neuroscientific perspective, it is not surprising that there have been 17 banking-related national crises around the globe since 1974, the majority of which were preceded by periods of rising real-estate and stock prices, large capital inflows, and financial liberalization. Extended periods of prosperity act as an anesthetic in the human brain, lulling investors, business leaders, and policymakers into a state of complacency, a drug-induced stupor that causes us to take risks that we know we should avoid.

In the case of Madoff, seasoned investors were apparently sucked into the alleged fraud despite their better judgment because they found his returns too tempting to pass up. In the case of subprime mortgages, homeowners who knew they could not afford certain homes proceeded nonetheless, because the prospects of living large and benefiting from home-price appreciation were too tempting to pass up. And investors in mortgage-backed securities, who knew that the AAA ratings were too optimistic given the riskiness of the underlying collateral, purchased these securities anyway because they found the promised yields and past returns too tempting to pass up.

If we add to these temptations a period of financial gain that anesthetizes the general population — including C.E.O.’s, chief risk officers, investors, and regulators — it is easy to see how tulip bulbs, internet stocks, gold, real estate, and fraudulent hedge funds could develop into bubbles. Such gains are unsustainable, and once the losses start mounting, our fear circuitry kicks in and panic ensues, a flight-to-safety leading to a market crash. This is where we are today.

Like hurricanes, financial crises are a force of nature that cannot be legislated away, but we can greatly reduce the damage they do with proper preparation.

Because the most potent form of fear is fear of the unknown, the most effective way to combat the current crisis is with transparency and education. In the short run, one way to achieve transparency is for our president-elect to convene a “crisis summit” once in office, in which all the major stakeholders involved in this crisis, and their most knowledgeable subordinates, are invited to an undisclosed location for an intensive week-long conference.

During this meeting, detailed information about exposures to “toxic assets,” concentrations of risky counterparty relationships, and other systemic weaknesses will be provided on a confidential basis to regulators and policymakers, and various courses of action can be proposed and debated in real time. Afterward, a redacted summary of this meeting should be provided to the public by the president, along with a specific plan for addressing the major issues identified during the conference. This process would go a long way toward calming the public’s fears and restoring the trust and confidence that are essential to normal economic activity.

In the long run, more transparency into the “shadow banking” system; more education for investors, policymakers, and business leaders; and more behaviorally oriented regulation will allow us to weather any type of financial crisis. Regulation enables us to restrain our behavior during periods when we know we will misbehave; it is most useful during periods of collective fear or greed and should be designed accordingly. Corporate governance should also be revisited from this perspective; if we truly value naysayers during periods of corporate excess, then we should institute management changes to protect and reward their independence.

If “crisis is a terrible thing to waste,” as some have argued, then we have a short window of opportunity — before economic recovery begins to weaken our resolve — to reform our regulatory infrastructure for the better. The fact that time heals all wounds may be good for our mental health, but it may not help maintain our economic wealth.

CONTACT
Andrew Lo
http://web.mit.edu/alo/www/
http://web.mit.edu/alo/www/articles.html
http://lfe.mit.edu/
email : alo [at] mit [dot] edu

Brian Knutson
http://www-psych.stanford.edu/~knutson/
email : knutson [at] psych.stanford [dot] edu

NEUROFINANCE
http://www.iht.com/articles/2006/02/01/bloomberg/bxbrain.php
Sex, drugs, money: The pleasure principle
Theory of ‘neurofinance’ draws doubts on Wall St.
BY Adam Levy  /  February 2, 2006

Palo Alto, California: Late at night, in a basement laboratory at Stanford University, Brian Knutson was sending his students through a high-power imaging machine called an fMRI. Deep inside each volunteer’s head, electrical currents danced through a bundle of neurons about the size and shape of a peanut. Blood was rushing to the brain’s pleasure center as the students executed mock stock and bond trades. On Knutson’s screen, this region of the brain, the core of human desire, flashed canary yellow.

The pleasure of orgasm, the high from cocaine, the rush of buying Google at $450 a share – the same neural network governs all three, Knutson, a professor of neuroscience and psychology, concluded. What’s more, our primal pleasure circuits can, and often do, override our seat of reason, the brain’s frontal cortex, the professor said. In other words, stocks, like sex, sometimes drive us crazy.

That is something those in the world of finance need to know, according to Andrew Lo, a professor of finance and investment at the Sloan School of Management, at the Massachusetts Institute of Technology, who thinks conventional financial analysis fails to take into account human behavior. “Finance and economic research has hit a wall,” said Lo, who runs AlphaSimplex Group, a hedge fund firm based in Cambridge, Massachusetts. “We can’t answer any more questions by running another regression analysis. Now, we need to get inside the brain to understand why people make decisions.”

Still, Knutson said he knew how heretical his findings were. Wall Street is dedicated to the principle that when it comes to money, logic prevails, that intellect matters in investing. The idea is enshrined in the economic theory of rational expectations, for which Robert Lucas was awarded the Nobel Prize in Economic Sciences in 1995. Lucas, a professor of economics at the University of Chicago, maintains that people make economic choices based on all the information available to them and learn from their mistakes. As a result, their expectations about the future – from the price of Citigroup stock next week to the earnings of General Motors next quarter – are, on average, accurate.

Or so the theory goes. In practice, of course, investors do foolish things all the time. Some gamble away fortunes on money-losing investments, doubling down when logic tells them to fold, or letting winnings ride when the rational person would cash out.

Others seem to have an uncanny knack for knowing when to buy and sell. In the 1970s, Richard Dennis parlayed an initial stake of several thousand dollars into a $200 million fortune trading commodities in the Chicago futures pits. In the 1980s, the hedge fund icon Paul Tudor Jones made $80 million by betting against U.S. stocks just before the market crashed. In the 1990s, the billionaire investor George Soros, the man who beat the Bank of England, made $1 billion in an afternoon by shorting the British pound.

The question that keeps nagging Knutson is this: Why do some traders get rich while others walk away losers? The answer, he said, may lie somewhere in the 96,000 kilometers, or 60,000 miles, of neural wiring inside our brains. The results of the Stanford study, conducted in 2004 and published in September’s issue of Neuron magazine, have caused a stir among the small group of neuroscientists and psychologists who are mapping the human brain in hopes of understanding investor behavior.

This controversial field, called neurofinance, may represent the next great frontier on Wall Street, said Daniel Kahneman, the 2002 Nobel laureate in Economic Science for his pioneering work in behavioral finance, which fuses classical economic theory and studies of human psychology. “The brain scientists are the wave of the future in the financial world,” Kahneman said. “If you seek to maximize understanding, whether you’re in academia or in the investment community, you’d better pay very serious attention to them.”

To proponents like Kahneman, the potential of neurofinance seems virtually limitless. One day, brain science may help money managers spot shifts in investor sentiment, said David Darst, chief investment strategist for the individual investor group at Morgan Stanley. Armed with brain scans, psychotherapists may be able to hone traders’ natural impulses of fear and greed.

Neuroscientists may even develop psychoactive drugs, or neuroceuticals, that make people better, more-profitable traders, Knutson and other psychologists say. Look at Prozac. In the space of a few years, Prozac and other drugs have not only revolutionized the treatment of depression but also profoundly changed the way we view the mind.

People recognize that chemistry drives their brains, moods and behavior – and that chemistry can change them. Similar drugs, ones that improve a trader’s decision making by 20 percent to 30 percent, may be just a few years away, said Zack Lynch, managing director of NeuroInsights, a consulting firm based in San Francisco that tracks the $100 billion neurotechnology industry. If these neuroceuticals work, they could rock Wall Street. “The whole investment community will be scrambling to get these things,” Lynch said.

So far, the hopes and claims of neurofinance have far outpaced its science. Few investment professionals have even heard of the field. Many who have dismiss it as hokum. “It’s the latest malarkey,” said Richard Michaud, president of New Frontier Advisors, based in Boston. Michaud, who has a doctorate in mathematics from Boston University, said neurofinance and its forerunner, behavioral finance, have no place on Wall Street.

“I find these so-called disciplines to be more of a marketing tool, a way of taking an ages-old market valuation problem and calling it something space-age,” Michaud said. “I doubt it will be fruitful.” Knutson’s response: Just wait. “Investors want to beat the market and become better traders,” he said. “The first step is to know how the machinery works. The applications to exploit the machinery will soon follow.”

For Wall Street, brain science eventually could mean big money, said Darst of Morgan Stanley. Securities firms spend millions of dollars annually researching companies and crunching numbers in an attempt to predict the financial future. “Meanwhile, we spend peanuts on human psychology,” said Darst, author of “The Complete Bond Book: A Guide to All Types of Fixed-Income Securities.” “We have to take account of the deep atavistic and visceral traits and instincts that are triggering the buying and selling of securities.”

Knutson’s Stanford study caused a buzz in September at the third annual conference of the Society for Neuroeconomics, held at the Kiawah Island Golf Resort in South Carolina. The three-day event drew 115 people, mostly from academia. The sole Wall Streeter was Arnold Wood from Martingale Asset Management in Boston, who said he was confident neurofinance would catch on.

BEES GET HOOKED, DO LITTLE CRACK DANCE
http://www.nytimes.com/2009/01/06/science/06bees.html
Food Dance Gets New Life When Bees Get Cocaine
BY Pam Belluck  /  January 6, 2009

Buzz has a whole new meaning now that scientists are giving bees cocaine. To learn more about the biochemistry of addiction, scientists in Australia dropped liquefied freebase cocaine on bees’ backs, so it entered the circulatory system and brain. The scientists found that bees react much like humans do: cocaine alters their judgment, stimulates their behavior and makes them exaggeratedly enthusiastic about things that might not otherwise excite them.

What’s more, bees exhibit withdrawal symptoms. When a coked-up bee has to stop cold turkey, its score on a standard test of bee performance (learning to associate an odor with sugary syrup) plummets. “What we have in the bee is a wonderfully simple system to see how brains react to a drug of abuse,” said Andrew B. Barron, a senior lecturer at Macquarie University in Australia and a co-leader in the bees-on-cocaine studies. “It may be that when we know that, we’ll be able to stop a brain reacting to a drug of abuse, and then we may be able to discover new ways to prevent abuse in humans.”

The research, published in The Journal of Experimental Biology, advances the knowledge of reward systems in insects, and aims to “use the honeybee as a model to study the molecular basis of addiction,” said Gene E. Robinson, director of the neuroscience program at the University of Illinois at Urbana-Champaign and a co-author with Dr. Barron, and Ryszard Maleszka and Paul G. Helliwell at Australian National University.

The researchers looked at honeybees whose job is finding food — flying to flowers, discovering nectar, and if their discovery is important enough, doing a waggle dance on a special “dance floor” to help hive mates learn the location. “Many times they don’t dance,” Professor Robinson said. “They only dance if the food is of sufficient quality and if they assess the colony needs the food.”

On cocaine the bees “danced more frequently and more vigorously for the same quality food,” Dr. Barron said. “They were about twice as likely to dance” as undrugged bees, and they circled “about 25 percent faster.” The bees did not dance at the wrong time or place. Cocaine only made them more excited about the food they found. That’s like “when a human takes cocaine at a low dose,” Dr. Barron said. “They find many stimuli, but particularly, rewarding stimuli, to be more rewarding than they actually are.”

Now, scientists are studying whether bees begin to crave cocaine and need more for the same effect, like humans. The testing occurred in Australia, and, Dr. Barron said, “my dean got extremely twitchy about holding cocaine on campus. It’s in a safe bolted to a concrete floor within a locked cupboard in a locked room in a locked building with a combination code not known even to me. A technician from the ethics department has to walk across campus to supervise the release of the cocaine.”

That, Dr. Barron said, for a bee-size supply of “one gram, which has lasted me two years. One gram, a human would go through in one night. I’m not like the local drug lord.”

TRADITIONAL WAGGLE DANCE
Dancing Honeybee Using Vector Calculus to Communicate

http://www.youtube.com/watch?v=4NtegAOQpSs


http://www.youtube.com/watch?v=ywdTfEBVcSY

NON-SCIENTIFIC FIELD STUDY, CRACKHEADS DANCING

http://www.youtube.com/watch?v=fDr4UTPb1Rw


http://www.youtube.com/watch?v=xe-zdS3RunI


http://www.youtube.com/watch?v=wgdNJDafL_I


http://www.youtube.com/watch?v=lil8NA5KWng

ADDICTED TO INSECT REPELLENT
http://jeb.biologists.org/cgi/content/full/212/2/i
BY Kathryn Knight  /  December 26, 2008

Since its discovery in the 18th century, cocaine has been a scourge of western society. Strongly stimulating human reward centres in low doses, cocaine is extremely addictive and can be fatal in high doses. But this potent compound did not evolve to ensnare humans in addiction. Andrew Barron from Macquarie University, Australia, explains that cocaine is a powerful insect neurotoxin, protecting coca bushes from munching insects without rewarding them. Knowing that foraging honey bees are strongly motivated by rewards (they dance in response to the discovery of a rewarding nectar or pollen supply) and that this behaviour is controlled by similar mechanisms to the ones that leave humans vulnerable to cocaine addiction, Barron and Gene Robinson from the University of Illinois at Urbana-Champaign wondered whether bees may be vulnerable to cocaine’s allure at the right dose. Teaming up with Ryszard Maleszka at the Australian National University, Barron set about testing how honey bees respond to cocaine (p. 163).

Setting up his hives on a farm just outside Canberra, Barron trained the insects to visit a feeder stocked with a sugar solution. Then he gently applied a tiny drop of cocaine solution to the insect’s back, and waited to see how enthusiastically the foraging insects danced when returning to the hive. Amazingly, low doses of the drug stimulated the insects to dance extremely vigorously. They behaved as if the sucrose solution was of a much higher quality than it really was. The cocaine seemed to be hitting the insects’ reward centres, but were they really responding to the drug like humans or was the drug stimulating some other aspect of the insects’ behaviour to look as if they were becoming addicted?

Working with a team of undergraduate students, Barron tested whether cocaine stimulated the insects’ locomotion centres by monitoring their movements after a dose of the drug. The insects behaved normally, so the drug probably doesn’t affect their movements. However, when Paul Helliwell tested the bees’ sensitivity to sugar solutions, the drugged bees responded more strongly than the undrugged insects, so cocaine was increasing their sugar sensitivity. But was it only increasing their sensitivity to sugar, or increasing their response to all rewards? Barron offered the drugged insects pollen to see if cocaine increased their sensitivity to other floral rewards and found that the foragers were equally overenthusiastic, dancing as if the pollen quality was much better than it really was.

Finally Barron and Helliwell wondered whether bees that had been on cocaine for a few days had become dependent and went into withdrawal when the drug was withheld. Testing the insects’ ability to learn to distinguish between lemon and vanilla scents, they found that the bees were fine so long as their cocaine supply was maintained. But as soon as the drug was withdrawn the bees had difficulty learning the task, just like humans going into withdrawal.

Barron is confident that honey bees are as susceptible to cocaine’s allure as humans, and is keen to find out more about the drug’s effects. He hopes to identify the neural pathways that it targets to find out more about the mechanisms involved in human addiction and to find out whether the drug has as devastating an effect on honey bee society as it does on human society.

CONTACT
Andrew Barron
http://galliform.bhs.mq.edu.au/~andy/Site/About.html
email : andrew.barron [at] mq.edu [dot] au

Gene Robinson
http://www.life.uiuc.edu/robinson/labbios/gene.html
http://www.life.uiuc.edu/robinson/
email : generobi [at] uiuc [dot] edu

ABSTRACT
http://jeb.biologists.org/cgi/content/abstract/212/2/163?ijkey=eebe4aa2710300378808d15b75830474c69a9934&keytype2=tf_ipsecsha
Effects of cocaine on honey bee dance behaviour
BY Andrew B. Barron, Ryszard Maleszka, Paul G. Helliwell, and Gene E.
Robinson  /  22 November 2008
“The role of cocaine as an addictive drug of abuse in human society is hard to reconcile with its ecological role as a natural insecticide and plant-protective compound, preventing herbivory of coca plants (Erythroxylum spp.). This paradox is often explained by proposing a fundamental difference in mammalian and invertebrate responses to cocaine, but here we show effects of cocaine on honey bees (Apis mellifera L.) that parallel human responses. Forager honey bees perform symbolic dances to advertise the location and value of floral resources to their nest mates. Treatment with a low dose of cocaine increased the likelihood and rate of bees dancing after foraging but did not otherwise increase locomotor activity. This is consistent with cocaine causing forager bees to overestimate the value of the floral resources they collected. Further, cessation of chronic cocaine treatment caused a withdrawal-like response. These similarities likely occur because in both insects and mammals the biogenic amine neuromodulator systems disrupted by cocaine perform similar roles as modulators of reward and motor systems. Given these analogous responses to cocaine in insects and mammals, we propose an alternative solution to the paradox of cocaine reinforcement. Ecologically, cocaine is an effective plant defence compound via disruption of herbivore motor control but, because the neurochemical systems targeted by cocaine also modulate reward processing, the reinforcing properties of cocaine occur as a `side effect’.”

COCA IS TO MONEY AS

1 GRAM OF COCA PASTE = 1 BOTTLE OF COCA-COLA
http://www.telegraph.co.uk/news/worldnews/southamerica/colombia/2135436/Town-where-cocaine-is-the-only-currency.html
Town where cocaine is the only currency
Guerima, a remote Colombian settlement, wants its Marxist rebels back.
With the national army deployed in a stranglehold around the town,
there is nobody to traffic the town’s only commodity – drugs.
BY Jeremy McDermott  /  15 Jun 2008

More than 1,000 people live in Guerima, carved out of the Amazonian rainforest. Its clearings are filled with coca bushes, the basis for cocaine. This was once the heartland of the 16th Front of the Revolutionary Armed Forces of Colombia (Farc), the Marxist guerrilla movement that has fought in Colombia’s jungles for the past 44 years. But now the troops of the 58th Counter-Guerrilla Battalion patrol the dirt streets.

Their presence has stirred deep resentment, revealing the complexities of Colombia’s war against Left-wing rebels and drug lords. Countless ordinary people depend on the coca trade. “We are sitting on a mountain of coca and a series of Farc ‘IOUs’ “, said one local. “We need the rebels back to pay the debts and buy the coca, otherwise the town will die.”

No money has reached Guerima for months and transactions are conducted in coca, with one gram enough to buy a soft drink.

Major Edgar Gomez, who commands the troops, knows the community feels under siege. He also knows that most locals have friends or family among the rebels. But the major is also aware that his presence in Guerima is hitting the guerrillas’ finances. The rebels here once earned £10 million a month from cocaine. Now they will be lucky to get £1 million.

But the local people would prefer a return to the days when their fate was in the hands of the Farc. Tomas Medina, the local guerrilla commander, was seen as a Robin Hood-style hero, maintaining the drug economy and imposing law and order. “Before the army came there was no crime,” said one man. “Now the soldiers steal from us. Two girls have been raped. “This would not have happened before and if it did the criminals would have been punished, perhaps shot.”

There was no confirmation of the man’s claims and Major Gomez said that winning over the locals was more important than driving out the rebels. “I know these people live on coca,” he said. “The government has to offer them a viable alternative and we are just the first presence of the state. “Healthcare, education and economic investment must follow.”

COMMODITY MONEY EXCHANGE RATE

1 GRAM OF COCAINE = 4 SQ. METERS
OF DESTROYED COLOMBIAN FOREST
http://www.guardian.co.uk/world/2008/nov/19/cocaine-rainforests-columbia-santos-calderon
Cocaine users are destroying the rainforest – at 4 square metres  gram
BY Sandra Laville  /  19 November 2008

Four square metres of rainforest are destroyed for every gram of cocaine snorted in the UK, a conference of senior police officers as told yesterday.

Francisco Santos Calderón, the vice-president of Colombia, appealed to British users of the class A drug to consider the impact on the environment. He said that while the green agenda would not persuade addicts to give up, the middle-class social user who drove a hybrid car and was concerned about the environment might not take the drug if they knew its impact. Santos said 300,000 hectares of rainforest were destroyed each year in Colombia to clear land for coca plant cultivation, predominantly controlled by illegal groups, including the Revolutionary Armed Forces of Colombia, known as Farc. Officers were told cocaine and heroin use cost the British economy around £15bn a year in health and crime bills.

Santos outlined to the Association of Chief Police Officers how lives were lost in the illegal cocaine trade in Colombia. He said landmines that were used to protect crops and processing labs killed almost 900 civilians this year. Farc and other groups funded by narcotics production were also involved in kidnapping. The Colombian-French politician Ingrid Betancourt was held for more than six years before her release earlier this year, and Santos himself was kidnapped and held by a cocaine gang for 18 months in the 1990s. He told the Belfast conference: “If you snort a gram of cocaine, you are destroying four square metres of rainforest and that rainforest is not just Colombian – it belongs to all of us who live on this planet, so we should all be worried about it. Not only that, the money that you use to buy the cocaine goes into the hands of Farc, of illegal groups that plant mines, that kidnap, that kill, that use terrorism to protect their business.”

Santos said many middle-class Britons who used cocaine were unaware of its environmental impact. “For somebody who drives a hybrid, who recycles, who is worried about global warming – to tell him that that night of partying will destroy 4m square of rainforest might lead him to make another decision.” Santos said Europe was experiencing a boom in cocaine use among more affluent people that was comparable with that seen in the USA 25 years ago. Everyone, he said, had a duty to change their behaviour to halt a rise in demand that was destroying his country. “We call it shared responsibility, We can’t do it on our own. We need everybody’s action; police here, police in Colombia, the authorities in both countries and the consumers too. If there is no consumption, there will be no production.

“There is a sense of frustration, because here drug use is seen as a personal choice and to some extent cocaine is seen as the champagne of drugs which causes no effect and is a victimless crime. It is not victimless.” Bill Hughes, the director general of the Serious and Organised Crime Agency, told the conference that the UK was a very attractive market for drug traffickers. “There is still a lot of disposable income; the risk compared to the US if you are caught is felt to be much less,” he said.

The £15bn cost to the economy reduced the amount of money available for schools, teachers and police officers. He said traffickers moved their drugs from South America to west Africa, and then to the EU and Britain, often operating through insecure countries with poor law enforcement. Spain, Portugal and the Netherlands were major staging posts on the trafficking routes and much of the synthetic drug market was supplied from the Netherlands. Hughes said the proceeds of crime were undermining or corrupting governments globally, with the trade worth £4bn-£6.6bn in the UK.

NO MONEY FOR MILES
http://query.nytimes.com/gst/fullpage.html?res=9F04E1D81238F93BA35754C0A9679C8B63
The World; Where a Little Coca Is as Good as Gold
BY Juan Forero  /  July 8, 2001

The Drug Center, the only pharmacy in the stiflingly hot jungle town of Camelias, deep in southern Colombia, looks ordinary, with wide glass counters and shelves stacked high with medicines. Then the customer pays the bill. The customer produces one of the clear plastic bags in which people here carry around coca paste. The pharmacist, Socrates Solis, scoops out a bit of the paste, weighs it on a digital scale and gives back change — the excess he had ladled out.

Welcome to the Caguan River valley, a swath of jungle towns and coca fields in far-flung Caqueta province, a part of Colombia with no government presence, only guerrillas. The economy is built on coca production, and coca paste has become a main currency. In the pharmacy, for example, everything is priced in grams. Expensive antibiotics retail for 45 grams, worth roughly $36; a bottle of aspirin costs a little more than a gram, or $1; medical exams are given to prostitutes for 12 grams, or $10.

”I was speechless when people would drop by the pharmacy and pay for the doctor’s bills or their medicines with coca instead of money,” Mr. Solis, 35, told the photographer Carlos Villalon when he visited the town. ”The first three months I worked here we collected six and a half kilos of base.”

In this part of Colombia, the Revolutionary Armed Forces of Colombia run things, patrolling roads, punishing law breakers, even building bridges over creek beds. Perhaps most controversially, the rebels regulate and tax a thriving trade in coca leaves and coca paste. Traffickers buy the paste, process it into cocaine and ship it by the ton to quench the United States’ insatiable appetite for the drug. It is a business that President Andrés Pastrana’s government says fortifies the rebel army and helps fuel Colombia’s brutal civil conflict.

But in a dozen towns in the region, coca paste is seen in much less nefarious terms. Paper money is in short supply, since conventional businesses are few. Instead, everything revolves around coca, as evidenced by thousands of acres of coca fields and the coca-processing laboratories in the jungles.

It is not unusual for people to be paid for their work in coca. They, in turn, pay for necessities with the paste, which is soft and powdery like flour. Need a pair of shoes for the little one? El Combate general store in Sante Fe takes coca paste. Groceries at Los Helechos in the village of Peñas Coloradas? Just drop the powder on the scale, the merchant says with a smile.

It feels quite normal for Wilber Rozas, 34, of Peãs Coloradas to spend 1.08 grams (worth 90 cents), for a large glass of juice at the Peñas Juicery. Or for villagers at the annual festival in Santa Fe to lug bags of coca paste to buy clothing from traveling salesmen or to bet in the cock fights. ”I would like to always take cash, but if I do not receive coca base I might as well shut down my restaurant,” said Selmira Vasquez, who owns the Buenos Aires restaurant in Peñas Coloradas.

As a currency, the coca paste is as good as gold. When traffickers arrive every few weeks to buy coca paste, they pay with a wad of bills — and soon money is flowing again. The merchants have cash. So do workers. The value of the paste, however, is unpredictable. ”The price of paste can go up or down, like having money in the bank,” explained Ms. Vasquez. ”When the dealers show up, the prices could be lower or higher than when I bought, so it is like gambling.”

The region’s bartering system does not mean the inhabitants themselves are cocaine addicts or gang members. The rebels keep the peace by prohibiting drug consumption. Those who violate the ban end up on road-paving or bridge-building duty.

The guerrillas also forbid those most susceptible to drug use — the young, single men who have come from across Colombia to pick coca leaves — to be paid in coca paste. They receive coupons they can cash once the traffickers arrive with money. ”That is the way it works in the Caguan river region,” explained Jose Sosias, 28, a villager. ”We are a coca culture. Our money, some times during the year, is coca base but we just use it as currency. No one here consumes the drug.”