Unleashing the Velocity of Money

026John Lett (About) (Sessions) (tarotworldtour YouTube)

I recently read a pre-release manuscript that has since been published. Rethinking Money: How New Currencies Turn Scarcity into Prosperity is easily the best book I have read this year. Financial systems and currencies are not new topical areas for me but I was pleasantly surprised and then outraged with what I learned from some case studies in this new release by Bernard Lietaer and Jacqui Dunne. Many of you reading are already familiar with the Chiemgauer, Brixton pound, and other alternative, local currencies in operation right now in the US, Germany, UK, and elsewhere. We are also regularly informed that a solution to long-term economic stagnation is to go back to gold-backed currency and that devaluation is primarily attributed to the floating currency policies initiated in the 1960s and 70s. However, these authors convincingly argue otherwise with both startling historical precedents and emergent strategies taking place in the present day.

The crux of the argument of the book is that local currencies have far greater velocity or turnover than national currencies. The key factor that seems to underpin a successful operation, in addition to mutual trust, is a slight demurrage fee, meaning in this case that the currency must lose a small portion of its value in 30 to 90 days in order to encourage movement, which is the essential factor in wealth creation (or sensation).

The most sensational and disturbing portion of the book is worth outlining – the authors cite a case I had never heard of. In the 1920s and 30s, the German-speaking world was economically decimated through both losing World War I and the reparation debts that famously created nightmarish inflation in the Weimar Republic era. At this time, inflation was so intense that people were paid twice daily and had to scramble to the Lebensmittelgeschäft (grocery store) while prices skyrocketed. What is not known is that many German and Austrian towns developed their own currencies to avoid business closures and to meet their municipal budgets.

In the case of Wörgl, Austria, in the Tyrolean Alps, in 1932, a situation developed that was later called “Miracle of Wörgl” (chronicled in the book in pages 177-8 and reiterated here). Facing 30% unemployment and an inability to meet payroll for the employees of the city, the town’s mayor, Michael Unterguggenberger, employed an economic theory of Silvio Gesell of “Freigeld” (free money), issuing labor certificates. The result was more powerful than the creators probably imagined or intended. Within a couple of months, the town was the only one in Austria with full employment and they encountered the peculiar situation of people paying their taxes early. “[W]hen people ran out of places to spend their local currency, they would pay their taxes early, resulting in a huge increase in the town’s revenues” (pg. 178). The town carried out all of their intended projects, but also built additional houses, a reservoir, a ski jump, and a bridge which still stands today. It was estimated that this money circulated 12-14 times more than Austrian money and the situation drew so much attention that it brought about a special visit from the French Prime Minister, Edouard Dalladier. However, the Austrian Central Bank shut down the operation one year later and within a couple of months the town faced 30% unemployment again.

The most terrifying thing about this and other less notable experiments is that there may be a connection to their failure and the rise of fascism. Cooperative currencies were in use in Germany and Austria primarily from the 1924 to 1930, according to Lietaer and Dunne, and during this time the support and representation for the National Socialists fell from 6.6% to 2.6% in Germany. When alternative currencies were outlawed , employment increased by 500% in three years and the percentage of seats for the Nazi Party went from 18.3% in 1930 to 43.9% by 1933, the year that Hitler consolidated power.

Most hauntingly perhaps, as I learned here, the plaque at the bridge proclaims “This bridge was built with our own Free Money.”013

There are other examples in the book of Switzerland having an inter-business currency that helped them stave off instability in the 2008-present crisis, particularly when the Swiss franc overheated in 2011, and then also an alternative banking system in Sweden whereby an operation somewhat similar to a credit union run by volunteers charges low or no interest, but requires loan seekers to hold deposits for several years before partaking in a mortgage of 15 years, and then having to keep the title to the house in the “bank” a further 12 years (thus funding other mortgage seekers), before being able to pull out the money, and thus having a huge savings package available.

One possible ideal scenario they advocate is a situation whereby several currencies are used for different functions. There could be a global reference currency, three main international currencies, scores of national currencies, dozens of regional currencies, even more local cooperative currencies, and a wide range of functional currencies dependent upon how the funds are to be used (199).

The message here is one which I try to drive home but where the authors have succinctly backed up through empirical evidence. Value and unlimited potential are literally omnipresent and centralization – mechanisms which pull money to one administrative location and then try to divvy it out – is not the way to handle our collective wealth-producing capacities.

John Lett (About) (Sessions) (tarotworldtour YouTube)

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6 Responses to Unleashing the Velocity of Money

  1. Lisa Falour says:

    This is very interesting, and I am old enough to remember some alternative currencies, such as Ithaca Dollars and the LETS system in the UK. It reminds me a BIT of a project by Citicorp/Catholic Charities right at the beginning of the ’80s in NYC. They gut-rehabbed abandoned buildings in dead, scary neighborhoods and turned them into forms of J-51 co-op apartments. I applied and got one for six thousand dollars down a few years later, and it was carefully means-tested. They wanted “the working poor” to get involved and rebuild bad areas and I was not able to sublet, had to participate in the all-volunteer co-op board, and was given tax grace for a decade but no right to sell, EVER, for profit. I could only get back the capital paid in, no more, no less. It was a terrifying neighborhood sort of between Windsor Terrace and Sunset Park, Brooklyn by the old Green-Wood cemetery (and crematorium) and was known as “Little Vietnam” because it was a war zone. We negotiated with the police to get two beat cops, a man and a woman, who merely stood on a corner in uniform, armed, and observed everything. Businesses returned to the area and the few feeble ones which had been struggling there thrived. There was a stunning view of the Statue of Liberty and the Staten Island Ferry in the bay from there, the highest point in Brooklyn, and the proximity to Prospect Park was another plus. The neighborhood turned around in less than five years and is now highly desirable. Even though the long, horrible recession of ’87-’92 wiped out half the small- to medium-sized businesses in New York City then, including that emerging neighborhood, it did recover and just kept getting better and better. I miss it and said goodbye to the merchants and my neighbors with tears in my eyes. My current spouse was just amazed with the flavor of that whole area and although he didn’t get to see my co-op ever, as I yielded it to my ex in order to get out of paying HIM alimony. sigh But I lived nearby in a rental and was happy to see that whole area come up again. Believe me, it was on the brink, and worse!

    • I can’t believe how low your rent was in NYC at the beginning, but then again, it was sort of at one’s own risk I imagine.

      At present, I do not know what the co-op story is in the US now. I had friends who qualified for such housing in the early 2000s and were able to secure it. There was some tiny stream for profit, I believe, and of course, rent or HOAs were determined by income after this deposit money. I do like hearing Catherine Austin Fitts’ stories about HUD, also.

      Alternative currencies or multiple currencies seems to be the answer about how to slow the flow of outbound capital [from a community].

      • Lisa Falour says:

        Overall, I do not care for co-ops but now live in a country where there are neither co-ops nor condos but something which exists in a more Communist, non-Anglo-Saxon legal framework.

        My own experience did help a devastated area of Brooklyn, however.

        The rules were very clear and some co-op neighbors did want to take us off that but were voted down. They moved out but before that were a boon to the area and were able to get back their capital.

        Here in this country where I am now, the economy has been pretty stagnant since the late ’80s. Alternative currencies and “off the books stuff” are not favored. When there is any pickup, as there was here in late ’10, people do hop to it, generally. Benefits are low and slim and this is a very work-ethic culture.

        I’ve participated in alternative currencies and barter systems before (in the U.S.) and they didn’t work and I lost money. There was no legal framework there to be able to do a thing about it.

  2. Fascinating read.I don’t know much about finance but I seem to be surrounded by people who understand it way better than I do. One of my close family member is in the financial industry and he always say that market is driven by sentiment – currencies fluctuate a lot and you can either make a lot or lose a lot if you speculate on currencies. Apparently, the price of gold is not as high as it should be. Inflation in Asia is way higher than it was say 3-4 years ago (based on my personal experience). Prices of food has gone up quite a lot.

    • We have been looking for more food blogging from you when there is time to let your hair down and show your abilities of identifying quality!

      A client I was working with in Vancouver who was originally from outside Beijing said that her mother liked circumstances better in Canada because it is not inexpensive in China at all and the provenance of all goods was constantly called into question, which will hinder spending power and long-term, genuine economic growth there.

  3. “When alternative currencies were outlawed , employment increased by 500%….”
    Do you mean UNemployment?
    Money is whatever the users deem it to be…..and it has always had elements of trickery and theology about it….

    Lietaer rehashes most of the possible formulations of ‘fiat money’…ie that which the State approves of …but he is not an innovator in the field of ‘collaborative money’…that which the users approve of (Bitcoin and the like….)

    So, while his analysis may be correct, he is behind the curve and both his diagnosis and prognosis and treatment plans are likely to be theological and unhelpful…sadly…. Interesting to note that all of the approving reviews come from his fellow complainers/travellers only….

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