Growing Economies with Local Currencies
History shows that local currencies can work, and aren’t ravaged by the inflationary trends that affect our current money supply.
All currencies do not need to be scarce. For instance, a currency can be designed to be always in sufficiency, because it is created at the moment of exchange as a credit for the seller and as a debit for the buyer.
Illustration By Annie Bissett
We fear scarcity, the sense that there is never going to be enough for everyone. The sense of scarcity has driven human competition since the dawn of civilization—for water, for hunting territory, for women, for land. On Spaceship Earth, scarcity is a fact of life. Fossil fuels are increasingly scarce, along with sweet water, rainforests, precious metals and fine jewels. Other things will always be scarce—good pitching arms, original Rembrandts, Cliff Walk properties in Newport, operatic sopranos, true genius. When there are a lot of people who want very scarce things, the value of the scarce resource goes up relative to other resources—this is simple supply and demand economics.
Money is also scarce. There is never enough of it for everything people need. We all are so accustomed to money being scarce that it’s hard to imagine a world where there is enough money for everyone. One of the important lessons all students learn in Economics 101 is that when money supply increases, inflation increases, so there’s a good reason for money to be scarce—we don’t want its value compromised by too much inflation.
But what if inflation is only the result of too much of a particular kind of money—this bank-debt money we accept without question? There are other units of exchange that aren’t ravaged by inflationary trends. Is inflation the result of a lot of money in circulation, or is the type of money in circulation responsible for inflation? In fact, to retain its value, bank-debt money needs to be scarce.
Local Currencies in History
At least twice in history, a form of money has existed where there was no incentive to accumulate it as a store of value because it didn’t earn positive interest in bank accounts. Instead, it had the equivalent of a negative interest rate (known as demurrage)—the longer you held on to it, the more you would have to pay—similar to a parking fee on money. This gave people who were paid in this currency a strong incentive to spend it or to invest it—preferably in things that would continue to be valuable over the long term. The velocity of this type of money, in other words, was quite high. Since people didn’t hoard it, it also was not scarce—there is strong evidence that its existence fostered long periods of prosperity in Dynastic Egypt and during the Central Middle Ages (10th-13th centuries) in Europe.
In the first example, from Egypt, people would receive shards of pottery with a date on them when they put their grain into the storehouse. The longer the grain was stored, the more the charge was for the guards and waste as the grain spoiled. Called ostraka, these shards circulated alongside the precious metals rings and bars that were used for trade with foreigners. The Greeks, Egypt’s main trading partners at that time, would mock the plain clay Egyptian currency. Yet the Egyptians thought the Greek obsession with metals was strange, “a piece of local vanity, patriotism, or advertisement, with no far-reaching importance,” as Henry Ford noted in his 1922 autobiography My Life and Work. They would accept Greek coins, but only for their metal content. The ancient Egyptians enjoyed an abundant and prosperous life. They lived in a fertile valley, producing grains, meat, wine, and beer in quantities sufficient for all levels of society, and they were well-educated. They invested in quality public works and their irrigation systems were the envy of the world. When they built something to last, they built it to last forever—the pyramids and temples of this ancient culture survive today.
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