In his book The Future of Money, Lietaer points out – as the government did yesterday – that in situations like ours everything grinds to a halt for want of money. But he also explains that there is no reason why this money should take the form of sterling or be issued by the banks. Money consists only of “an agreement within a community to use something as a medium of exchange”. The medium of exchange could be anything, as long as everyone who uses it trusts that everyone else will recognise its value. During the Great Depression, businesses in the United States issued rabbit tails, seashells and wooden discs as currency, as well as all manner of papers and metal tokens. In 1971, Jaime Lerner, the mayor of Curitiba in Brazil, kick-started the economy of the city and solved two major social problems by issuing currency in the form of bus tokens. People earned them by picking and sorting litter: thus cleaning the streets and acquiring the means to commute to work. Schemes like this helped Curitiba become one of the most prosperous cities in Brazil.
But the projects that have proved most effective were those inspired by the German economist Silvio Gessell, who became finance minister in Gustav Landauer’s doomed Bavarian republic. He proposed that communities seeking to rescue themselves from economic collapse should issue their own currency. To discourage people from hoarding it, they should impose a fee (called demurrage), which has the same effect as negative interest. The back of each banknote would contain 12 boxes. For the note to remain valid, the owner had to buy a stamp every month and stick it in one of the boxes. It would be withdrawn from circulation after a year. Money of this kind is called stamp scrip: a privately issued currency that becomes less valuable the longer you hold on to it.
One of the first places to experiment with this scheme was the small German town of Schwanenkirchen. In 1923, hyperinflation had caused a credit crunch of a different kind. A Dr Hebecker, owner of a coalmine in Schwanenkirchen, told his workers that if they wouldn’t accept the coal-backed stamp scrip he had invented – the Wara – he would have to close the mine. He promised to exchange it, in the first instance, for food. The scheme immediately took off. It saved both the mine and the town. It was soon adopted by 2,000 corporations across Germany. But in 1931, under pressure from the central bank, the ministry of finance closed the project down, with catastrophic consequences for the communities that had come to depend on it. Lietaer points out that the only remaining option for the German economy was ruthless centralised economic planning. Would Hitler have come to power if the Wara and similar schemes had been allowed to survive?
(via Recession Hacking Wiki)
February 27, 2009 at 10:55 pm
Just hired an artist/designer to craft our first series of Community currency notes. Exciting stuff and next week our first issue of Community Currency magazine arrive online.
Great snag on this article Klint, alternative currencies are coming alive this year, no doubt about that one.
Cheers.
Mark Herpel
February 27, 2009 at 11:56 pm
Having given the subject some thought over the years, I think that more fundamental change than local currency has to be considered. Here is a brief essay of my thoughts;
I first began questioning economic orthodoxy by trying to figure out how Paul Volcker cured inflation by raising interest rates. Yes, inflation is caused by loose money, but higher rates hurt demand, ie, the borrower, while rewarding supply, ie, the lender. How do you cure an oversupply by reducing demand through higher cost and rewarding supply? You don’t. What cured inflation was Reagan’s deficit spending. Not only was it direct demand for capital, but the public spending had a multiplier effect in the private economy. Meanwhile those loaning the money have its value supported and get paid interest. Interesting how a surplus of currency gets blamed on those lacking wealth, while those with a surplus of capital get rewarded. So I’m concerned that Volcker is now President Obama’s financial guru.
One of my arguments over the years has been that money has become a tax based public utility and our current financial system is a transition state between private banks issuing private currency, to now a publicly supported currency leased out to a private banking system and the next step will be a public banking system that will be incorporated at all levels of government, so that profits are re-cycled back through the communities which created them and depositors would naturally bank with those institutions that support the services they are most likely to use. Competition would be a function of the various communities trying to provide the best environment for people and business.
That is why it is interesting to watch the banking system being rapidly nationalized. Rather than spending untold wealth to restore it to health and return it to the private sector, it needs to be broken up and distributed to the various levels of government, from counties and towns, to cities and states, with some degree of federal oversight of the banks and control of the currency. Though even the function of currency might be dispersed as well, with state and regional currencies supplementing a broad national currency.
The problem with supply side economics is that money is saved by investing it. This means loaning it to someone else. Therefore total savings are determined by how much can be prudently loaned, not by how much can be reserved from earnings. In order to accommodate surplus savings, loan standards were lowered and fantasy investment vehicles were created, resulting in a bubble of excess circulation far greater than a few trillion can patch up. The borrower is the foundation of capitalism and when the borrower is tapped out, it’s like planting seed in barren soil.
That is why it is necessary to understand money as the public commons/wealth that it is, not the private property we have been led to believe. As an analogy, you own your house, car, business, etc. but not the roads connecting them. Money is similar to the roads. It’s the interchangeability that makes it work. It is both medium of exchange and store of value, but as store of value it amounts to fat cells in the economy. Necessary in moderation and broadly dispersed, but dangerous in excess and concentration. If those administering transportation systems insisted on squeezing as much profit from the rest of the economy as possible and that they were the only ones capable of making it work, it would be viewed as corruption, pure and simple. In fact, that’s what the railroads did and it was.
Viewing money as a public utility would incline us to store wealth in our communities and environment, rather than drain value out to put in a bank. Like democracy, it’s about strengthening the bottom up growth process, while defining the top down control mechanism to its most efficient functions.
Growth is bottom up, not top down. The problem with treating the economy like a game of Monopoly is that when one person owns everything, the game is over and then starts again. In real life, this stage is called revolution. The economy must function as a convective cycle of rising assets and precipitating benefits, otherwise we have the current situation of large storm clouds of marginally productive wealth hanging over a parched economy.
This isn’t an ideology, just an observation of how to differentiate between public and private functions. There are potential problems with any model, but this seems to me to be what the next step up the evolutionary ladder entails.
March 3, 2009 at 5:09 am
Glad the article proved interesting. I have kept my eye on a number of developments but didn’t really have an outlet for them. I’ve signed up to the wiki and will drop more in as I scrape it all together.