Blogs > Liberty and Power > Questions on Mises X: Now with Current Events Tie-Ins

Jan 5, 2007 1:37 pm

Questions on Mises X: Now with Current Events Tie-Ins

More Mises. Extra libertarian teaser: Private money!

Now read, already.

Via the excellent (but sometimes NSFW) Towleroad, I found the following:

PROVINCETOWN — A pocketful of pirate “gold” might pave the road to a new form of local currency aimed at stretching residents’ finances and bringing the community together.

The Unitarian Universalist Meeting House is behind the idea — slated to be rolled out on Jan. 15 — to create a local, legal barter currency that residents can use to exchange skills and services. UU Meeting House Rev. Alison Hyder said most people living in town have a skill, resource or interest that could be of use to someone else. By using the paper barter currency, called “dune doubloons,” residents can pay for a pie or putting up storm windows or guitar lessons without using real cash.

Fascinating. Compare Mises' discussion of the demise of an unsound money (TM&C ch 13):

The emancipation of commerce from a money which is proving more and more useless in this way begins with the expulsion of the money from hoards. People begin at first to hoard other money instead so as to have marketable goods at their disposal for unforeseen future needs—perhaps precious-metal money and foreign notes, and sometimes also domestic notes of other kinds which have a higher value because they cannot be increased by the state (for example, the Romanoff ruble in Russia or the"blue" money of com munist Hungary); then ingots, precious stones, and pearls; even pictures, other objects of art, and postage stamps. A further step is the adoption of foreign currency or metallic money (that is, for all practical purposes, gold) in credit transactions. Finally, when the domestic currency ceases to be used in retail trade, wages as well have to be paid in some other way than in pieces of paper which are then no longer good for anything.

The collapse of an inflation policy carried to its extreme—as in the United States in 1781 and in France in 1796—does not destroy the monetary system, but only the credit money or fiat money of the state that has overestimated the effectiveness of its own policy. The collapse emancipates commerce from etatism and establishes metallic money again.

No, the end isn't near. The experiment seems driven less by a fear of worthless dollars than... by what? It's hard to say.

There are also sound reasons to believe that the whole experiment will fail; consider the following:

The dune doubloon program is based on a successful barter system that originated in Ithaca, N.Y., where over 900 participants accept “Ithaca Hours,” the local barter currency aimed at promoting local economic strength and community self-reliance. It also keeps the money “local,” which could be an asset in Provincetown, Hyder said, where people with myriad skills have little to do in the winter.

The theory of comparative advantage suggests quite strongly that there is little to gain in keeping an economy"local:" While locality has a definite emotional appeal, this appeal does not necessarily correspond to any economic benefit, and when comparative advantage comes into play, whatever benefits there are to locality are often entirely swamped.

And then there's this:

The program will kick off with a potluck dinner at 5 p.m. Monday, Jan. 15, at the UU Meeting House, 236 Commercial St. People and stores that sign up for the program will receive $50 in dune doubloons free.

The gold doubloons will be worth $10 and the silver $5. However, the idea is that each hour of service or time spent creating a product is worth $10, Hyder said.

“Everybody is treated the same and everyone’s time is worth the same,” she said.

Question: Supposing that various individuals face various levels of demand for their labor, what is the likely outcome of this setup? It seems plain to me that the uniform wage must disappear almost immediately. That, or the more productive laborers, those whose work is in the highest demand, will find that they can always work for more doubloons -- while those whose labor is less valuable will find themselves unable to participate in the system at all.

So, a question: Why are they doing this? I find the stated reasons puzzling and unsatisfactory. I'm wondering what's going on. Ideas?
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Andrew D. Todd - 1/11/2007

Reading note for an analogous book
Muldrew, Craig, The economy of obligation: the culture of credit and social relations in early modern England (Basingstoke: Macmillan; New York: St. Martin's press, 1998)

In the towns of late medieval England, and an undetermined distance out into the countryside, credit worked rather like primal honor (vide Bertram Wyatt-Brown). People of extremely modest means were enmeshed in networks of modest borrowings and lendings, primarily in the form of trade credit, eg. a small cobbler who sold shoes on credit and in turn obtained both leather (raw material) and food (personal consumption) on credit. It was normal for almost everyone to both owe to many people, and be owed by many people, total sums on the same order of magnitude as their net worth or their annual income. These debts could be continued more or less indefinitely, provided the debtor retained the reputation of an upright and honest man. It was only with probate that accounts were finally settled. This system was held together by a network of mutual trust. It was important to be seen to be an upright man within a small face-to-face community. This implied being seen to be a hard worker, and simultaneously, a modest consumer. Someone who did not behave in the approved fashion was likely to have a creditor demand payment, whereupon other creditors would demand payment, and in the end the debtor might be hauled off to debtors' prison.
At the end of the sixteenth century, and the beginning of the seventeenth, this system was breaking down. Litigation reached an all-time high, as people began to panic about the consequences of being linked through chains of credit to strangers of whom they knew nothing. The rate of imprisonment for debt also soared.
The courts eventually became the nucleus of a new system of credit. First, they served as a mechanism of identifying deadbeats, then lawyers became experts in creditworthiness, and then the lawyers went into business for themselves as "writers," ie. proto-bankers. At the same time, the national government began to permanently fund its debt, and this became a locus for investment. In the long run, government paper became the medium of exchange, allowing individuals to simplify their finances.
This book has a solid core of statistical evidence (tax, probate, and court records, or one sort or another) from King's Lynn, in Norfolk, but it is fleshed out by statistics from other towns, and anecdotal sources from all over England.

Andrew D. Todd - 1/11/2007

Below is a quick search-list for Ithaca Hours, the most well-established and well-documented local currency. Ithaca Hours seem to circulate among a fairly definite social strata, approximately the small college-dropout-shopkeeper class in a college town. This is a group which knows each other socially, and in any event, would be trading among themselves on a basis not available to the general public. The effect of the Ithaca Hour is that, instead of negotiating "neighbor discounts" on a case-by-case basis, they can let the discount rate float. It is a means of regularizing their pre-existing practice. There is probably a nontrivial support from state-paid liberal academics whose social position requires them to buy Ithaca Hours for dollars and to be seen to spend them. I suspect it's a bit like being in the local food co-op. We are talking about socially embedded transactions. Orthodox Jews do not eat ham and cheese sandwiches, no matter how cheap they are. End of discussion. For a local merchant, there are substantial economic consequences to being part of the local "old-boy network," such as referral business, access to non-bank credit, etc.

At a guess, Provincetown, Mass., might have a similar social stratigraphy. I believe that, at one point, Kurt Vonnegut lived there. The "Dune Doubloon" might well prove to be viable, within similar limits.
Jeffrey Jacob, Merlin Brinkerhoff, Emily Jovic and Gerald Wheatley, The Social and Cultural Capital of Community Currency: An Ithaca HOURS Case Study Survey">

A basic study of who trades in Ithaca Hours, to what extent, etc.

Keith Hart, IE + IT = ED?: Is informal economy plus information technology a path towards economic democracy?">

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