Currency - Proutist Economic Development

There are other kinds of money besides the traditional note and coin with which we are all familiar. This presentation introduces some new kinds of currency that may be useful for communities under certain circumstances.

Many interesting ideas can be found in the book "The Future of Money" by Bernard Lietaer. Lietaer was involved in the introduction of the euro currency in Europe. He now has a professorial position at Berkeley University in California. The essential message in the notes that follow is that economic decentralisation requires monetary decentralisation.

It is argued that a centralised monetary system cannot support economic decentralisation. Local communities require some control over their local monetary system.  An important part of the commercial economy is management of balance of trade and payments, capital formation and loan policies, government intervention, monetary and fiscal policy, banking, capital supply, the barter system, the international monetary system.

Money is typically defined as having three functions:

1) it is a means of exchange. 
2) it is a store of wealth. 
3) it is a means of accounting. 

Different kinds of money can emphasise one of these functions over the others. We are interested in money as a tool to catalyse community trading and hence stimulate the local economy. One of the messages in Bernard Lietaer's book is that different money systems suit different purposes.

Our purpose is not to look at traditional money. Rather to introduce three new kinds of currency:

producer currencies;
stamp currencies;
mutual credit.

There are similarities.

Producer currencies are money backed by commodities. The workers in a factory, for example, could be partly paid with money denominated in the commodities they produce. Such a system was developed in Germany in the 1920s during a period of hyper-inflation. The manager of a mining company arranged to pay his workers in paper notes denominated in kilograms of coal. The notes were known as "wara". The workers were able buy food from local stores that accepted wara which they could redeem for coal. 

A second example of a producer currency occurred in the 1960s in Dublin. During a bank strike there was no money to pay workers at a Dublin brewery. Instead they were paid in notes denominated in bottles of beer. These could be redeemed in pubs which also sold food and other household items.

An important property of a dollar note or coin is that it is transferable. Therefore, a one dollar note can facilitate the exchange of several dollars worth of goods as the note passes from person A to person B to person C and so on. The total value of transactions catalysed by the average one dollar note is referred to as the velocity of money. Sarkar places particular emphasis on 'keeping money rolling', i.e. to increase the velocity of money. The velocity of money declines when people hold on to it. Therefore a mechanism is required to prevent people from hoarding money.

Stamp currencies achieved this objective by making it costly to hold on to money. The idea was introduced in the Austrian town of Wörgl deep in the depression. The town mayor introduced the currency backed by Austrian shillings he had in a vault. If he had released the Austrian shillings, they would rapidly have left the community and done no good. The stamp currency, was however only legal within the town. A holder of a note had to affix a stamp once a month in order for the note to remain valid. Stamps were affixed in the top right portion of the note and there were empty spaces for more stamps. The scheme was very successful and Wörgl was the first town to reduce its unemployment during the depression. Other towns copied the scheme. It became so successful that the Central bank of Austria became fearful that it would lose its monopoly on the printing of money. So it persuaded the government to ban the scheme.

Graphs have been produced which show the parallel between the increasing levels of unemployment in Germany and the rise of the vote for the Nazi party. Had the central banks of Germany and Austria not banned two successful schemes (wara and stamp currency) that were reducing unemployment, perhaps the tragedy in Europe could have been avoided with the help of these systems.

LETS is a third kind of money system. LETS is just an accounting mechanism to keep track of trading in a community. For any single trade between two persons, one person's account will decrease and the other's will increase by the same amount. Thus the sum total of all balances for all persons in the system will be zero. There is no currency circulating as such. These kinds of accounting systems are known as "mutual credit". The unit of currency can be decided by the local community but is usually tied to the national currency. LETS schemes facilitate trade when bank money is not available.

The number of alternative currency schemes around the world since 1984 has increased. There is an interesting graph in the book "The Future of Money".

Maleny, a small town 150 kilometres north of Brisbane, Australia, has both a cooperative bank (credit union) and a LETS system in the same building. A small LETS system requires minimal hardware - just a computer program.  There are international versions of LETS also (but their charges need to be carefully checked).

Another important message in Bernard Lietaer's book is that a hierarchy of currencies can be useful in catalysing trade at each level: international, national and local.

What about South America?  The Brasilian city of Curitiba has experimented with several alternative forms of money. One example is the exchange of wastes in slums for bus tokens. Bus tokens can be used by poor people to get to work in other parts of town. But they are also exchangeable and hence become a form of currency.

There has been some discussion about the introduction of a South American currency. Is this is a good idea or a bad idea? It depends on the manner in which it is introduced.  If the idea is a euro equivalent for South America, then the idea has long term merit but it is much too soon for the introduction of such a scheme. There are three major objections to the introduction of a "euro style" currency in South America:

1) it shifts power from democratically elected governments to non-elected institutions such as the Central Bank. 
2) it erodes the ability of member states to implement local solutions to their economic problems. 
3) it makes it easier for transnational corporations to accumulate wealth. 

In centralised money systems where there is imbalance in the economy, capital goes to the centre in search of higher profits and jobs go to the periphery where labour is cheap.

On the other hand if the proposed South American money zone is restricted for trading purposes, then the idea has much merit. Such a plan would facilitate trade between the countries of South America without making them dependent on the US dollar. Nor would it erode the ability of member countries to manage their own economies. See Bernard Lietaer for more information on how such a scheme would work. He proposes an international form of money known as the Terra.