posted 4 May 2008 by Paula | link to this
tags: local currencies
This past Saturday, Tim Harford, author of the book The Undercover Economist and of Slate’s blog by the same name, published an entry titled It’s Like Money, but With No Dead Presidents in which he asks the question: Do “local currencies” really help the communities that use them?
I was pretty taken aback to find the issue of local currencies on the radar of a mainstream site like Slate, but things became more clear as I read through the article. The answer from Harford at Slate is, of course, that they don’t, served up with a nice side of “duh.” One comes away from the entry with a feeling that not only do local currencies not help their localities, but that they can’t be of any help and are therefore not worth pursuing.
I suppose I should point out here that at the bottom of the blog entry page sits a copyright notice for the Washington Post.Newsweek Interactive Co., LLC, which is, as are all national media, wholly dependent upon the advertising of national products to stay in business; ergo, it is against the Washington Post.Newsweek Interactive Co.‘s economic interest to suggest that local currencies may indeed be of benefit to any community, lest consumers shift their purchasing from national products with national currency to local products with local currency, thus costing their advertisers in lost sales and themselves in lost advertising dollars.
But in any event, Harford’s article is a mixture of observations, speculation and outright falsehoods; probably the best way to address these is to go through them one by one.
Harford writes:
That seems plausible: The money (Brixton bricks) goes ‘round and ‘round Brixton and isn’t sucked away by the insidious multinationals of neighboring Clapham. But this is one of those cases in which common sense lets us down. Money, whether pounds or Brixton bricks, isn’t wealth. It’s just a way of keeping accounts, and swapping one system of accounts for another isn’t going to alter the basic productive potential of Brixton.
It’s true that introducing a local currency does not change the basic productive potential of Brixton. What a local currency changes is ownership of the actualization of that potential. When “insidious multinationals” profit from a local outlet, it means they have indeed sucked money out of the local economy, reducing locals’ opportunities to actualize their community’s productive potential. It is then left to those who do have money — more “insidious multinationals” — to come into the community from outside and harvest its productive potential at a profit, thereby removing even more money from the local economy. The logical conclusion of this cycle is the complete loss of a community’s productive potential to people who do not live there, a process that has run through its full course in many American towns: they are shuttered and decimated, their residents bitter and impoverished, while the wealth that was once theirs sits in a private bank account in the Cayman Islands.
Introduction of a local currency thwarts this cycle by restoring locals’ ability to actualize their own productive potential. Moreover, it protects the local economy from future losses because the system of accounts cannot be transferred out of the community. Brixtonites retain ownership of their own productive actualization — market cap of those “insidious multinationals” be damned.
True, community currencies may very gently encourage trade with locals rather than strangers. But the gains from more trade with locals are more than offset by the losses from less trade with strangers. Otherwise, economic sanctions would be a blessing. That is why no community-currency movement tries seriously to restrict broader trade. Everyone knows that is a recipe for return to the Dark Ages.
This is a straw man argument that has no bearing on the issue at hand. Local currencies are not designed to restrict anything — they are designed to make more economic activity possible, not less. A community that loses its wealth to the bottom lines of national or multinational chains cannot engage in trade, because it has nothing to exchange. This is precisely the situation in the United States right now — the word for it is “trade deficit,” and it is a problem so large it is literally incomprehensible. The gains made from more trade with locals is what makes trade with strangers possible in the first place. Moreover, any community, region, or nation that owns its own productive actualization is protected from the effects of economic sanctions. Sanctions are effective only when the sanctionee is economically dependent.
…few serious economists think that the optimal currency area is the size of Brixton or the southern Berkshires.
This is another straw man argument. No advocate of community currencies has ever suggested — at least so far as I am aware — that his or her respective community should be walled off from the rest of the world. Local currencies are called “local,” “alternative,” and “complementary” for a reason… if anyone thought they should be made the sole method of exchange in an area, they would be called THE currency, or perhaps THE NEW currency.
Nor are the environmental benefits of community currencies terribly persuasive. Local trade sounds environmentally friendly, but it is a distraction: The environmental cost of driving to the shops or growing food on inappropriate local land is far greater than the cost of the carbon emissions of long-range shipping.
The issue about food miles has been covered to death elsewhere and I won’t go into it here.
What I’m not understanding here is Harford’s notion of “inappropriate local land.” What does that mean exactly? In my experience of local agriculture, plants that are inappropriate for a particular piece of land simply won’t grow there. If he means that local farmers dump all kinds of chemicals on a crop to make it grow where it otherwise wouldn’t, he should be aware that this is not cost-effective for most small farmers and therefore most don’t operate that way. He should also be made aware that much of the local foods movement is founded on the premise of caring properly for the land so that it will yield more nutritious and tasty foods, not just this year but forever. There is no environmental cost to growing foods locally if it is done sustainably, which is kinda the entire point. Perhaps he is suggesting that all local land is inappropriate, and that growing food is something better left to massive corporations in faraway places?
But ultimately, shipping and land use are only symptoms of the larger environmental problem that a community currency can help address. Our monetary system is devised such that no money comes into existence without an attached interest rate which must be repaid. It is not enough to produce value enough to pay off the original principal; additional value must come from somewhere to pay the interest, which is why the economy grows — growth is required to pay off the interest. This growth comes from two places: other people who lose in the economics game, and from natural resources. If we stopped raping and pillaging the Earth, the economy would collapse. A community currency can be structured such that this kind of growth is not necessary; even more, that increases in environmental health translate into monetary gains. There is no physical law which mandates that currencies must be debt-with-interest based. A currency could be devised with negative interest, for example, which would encourage users to exchange them for things that last as long as possible, thereby reducing consumption while simultaneously increasing wealth.
Collom’s work looks, at first glance, like bad news for the community-currency movement. He has found, for example, that most currency schemes in the United States last only a few years before collapsing. The ones that thrive are in places which already have strong, liberal, middle-class communities, such as Portland, Ore., or Ithaca, N.Y. In the Rust Belt areas that would seem to need them more, they have not taken root. The schemes take a lot of effort to set up: Brixton LETS, for instance, remains nascent.
I would argue that here in the Rust Belt, the vast majority of media available to us is restricted to 24/7 AM talk radio: Rush Limbaugh, Bill O’Reilly, and others of their ilk who have prevailed in the culture to such a degree that the merest hint of anything “liberal” is automatically rejected out of hand. West Coast and Northeast ideas like “community currencies” really must be evil since they are going on there. This makes economic sense, of course: if the Rust Belt were to restore its own productive capacity with an alternative currency, the stocks of those multinationals profiting from Rust Belt debt and dependence upon foreign goods would tank. It would also provide one hell of an example for the rest of the world, who might follow the Rust Belt’s footsteps and win back their local wealth in a fair market competition. This simply cannot be allowed to happen, and so we in the Rust Belt are kept in the dark and fed bullshit about how immigrants, gays, feminists, Muslims and liberals are the cause of our economic woe while no mention whatever is made of the fact that the goods we buy at Wal-Mart are the very ones we ourselves were making not long ago, and which we could make again if we would turn off the radio and the TV and use that time to drum up some angel or venture capital.
In the end, though, I guess I cannot expect any mainstream press coverage of truly good ideas except to try to shoot them down, as Harford tries but fails to do at Slate. Local economic resiliency may be very good for the vast majority of people on the Earth, for the Earth itself, and for future generations, but it is not good for Wall Street, which measures its profits in ruined lives. I would expect that as the economy worsens and people on Main Street become more determined to pull themselves up by their bootstraps, attacks against community currencies will become more frequent from the mainstream press. I’m sure Mr. Harford is only the first of many others to follow. 