Over the weekend, I attended a presentation by Steve Burke, the man who invented Ithaca Hours– a local currency advocate on the virtues of a local currency. Its an interesting move to medievalism. It disturbed me enough into blog posting.
A local currency is not a new concept. historically every medieval european potentate issued his own currecny. most indian royalty isuued currecny local to them. Every credit card transaction..and every virtual money transaction is a fungible(transferrable into US dollars) local currency. So what is so different about ithaca hours?
The concept is very simple. Ithaca hours are issued by a central issuer in Ithaca(New York) and promises to pay one hour of the issuer’s labor in exchange for the note of “an Ithaca hour”. I can therefore take an hour’s bill to , say, a plumber , who will work for an hour at my home and take the ithaca hour as currency. now that he has the ithaca hour, he can go to a restaurant in Ithaca , that accepts the ithaca hour, and eat a meal, the restaurant can then use it to get its pipes fixed..or its washing done …or its deliveries taken care of.
The economic fundamentals of a local currency
The effect of having a local currency work for a city is that the barter trade is monetized effectively. most small towns function on a barter system that have economics independant from the dollor and cent economies that include credit cards and instalment payments(and inflation). Often my need for a loaf of bread,which can be locally supplied, is independant of what I can charge for my labor, In other words, no matter who pays me what, I still need to be able to feed myself and am willing to work for this . also, if I can accumilate enough earned “subsistence barter wages” I am safe in a hyperinflationary world.
The textbook case for hyperinflation goes back to the weimar republic when a well and truly screwed up german central bank, in the Mid 30’s issued currency which , between the morning and the afternoon lost half its value. people went back to barter trade and the money became worthless as it was printed.
Are there fears that this will happen in the united states with the latest administration taking on enoromous quantities of debt?
US federal debt
America’s federal debt is expected to grow to $ 11 trillion at the end of Obama’s Stimulus bill. with this, the Government component of the gross domestic product is likely to be about $ 5.4 trillion.(about half the US GDP- of every dollar spent in america the federal government is a counterparty EVERY SINGLE TIME) The fear in the boonies, therefore is a legitimate one. with the government controlling so much , it is easy for value to be manipulated stolen taxed or converted into federal ownership. Obama is , after all, a “tax and spend liberal” an anti rush limbaugh . maybe the anti christ.
The virtue of a local currency
a local currency is , however much more than the sum of all our fears. It is a way to price a local economy of goods and services independantly of the national economy for them. An national Angies list of plumbers is useless if I only want a plumber within the 25 mile radius of my house. A functioning local currency provides me not only a benchmark for local apples and local restaurant meals, it also gives me an indication of what local labor and services are higher priced and which available. A valuable guide for living locally.
And local is a misnomer. Walmart can issue a local currency for its shoppers/suppliers and it would be a functioning universe complete with a central bank and currency fluctuation. A group of university town can issue a local currecny to price the value of books services and lodging it can provide to its students(who might pay in “university hours” for tution). A tourist map may provide the local currecny for a backpacker working hiw way through a round the world trail….thus a local currency in an increasingly global world is an idea well worth pursuing if only to maintain economies independant of supply and demand shocks that need not directly impact them.
The question of legality This comes up not only on count of the central bank’s ability to regulate a local currency (if a mexican drug cartel issued a local currecny, would it be an illegal one?) and taxation(how would you tax and pay taxes in a local currency? would you work off your tax burden by cleaning the IRS toilet for two hours?) but also in terms ot the legality of small things. who prices the value of labor? what is the quality of labor certified in the local currency? there is also the question of how one person/ business that is much in demand being able to wipe out the currency from the city by , quite suddenly owning all of it, and the inevitable question of how a corrupt local central bank can enrich itself and pretty much enslave all it’s constituents by flooding the market with spurious “ithaca hours”
The takeaways from the thought experiment about local currencies is that it is possible to develop a sense of the local by promoting them as a tool to monetizing the local economy and pricing local goods and services. It helps keep local goods valuable in times of economic stress and hyperinflation, and maybe seperate out needs and suppliers that are local (where economic interdependencies are unnescesary) from those that call for nescesary interdependancies with a national economy. They also encourage the formation and maintanance of local market structures and in the age of the Internet, they can be used to maintain markets that are local to an Idea and an interest rather than merely to a geography.
A local currency can also be a guide to which part of our mega economies are overheating and can be a valuable tool used to isolate the problems caused by crisises such as the mortgage crisis, pretty soon. People could go dollar bankrupt with more ease , because they could subsist on their labor hours.
Interesting times call for interesting strategies.