Monetary Policy

Competing Currencies

A new book draws the wrong lessons from privately issued money.

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Rethinking Money: How New Currencies Turn Scarcity Into Prosperity, by Bernard Lietaer and Jacqui Dunne, Berrett-Koehler, 288 pages, $27.95.

In the charming town of Great Barrington, among the hills of Berkshire County in western Massachusetts, you can buy antiques, organic produce, and gourmet pizza. If you want, you can pay for them with the most successful local currency in the United States, the "Berkshare." Denominated in U.S. dollars and accepted at more than a hundred establishments in and around the county, Berkshares are issued by a local non-profit group and can be exchanged for dollars at the branches of local banks. Anyone who recognizes that money is naturally a creature of commerce, not government, has to admire the way that the Berkshares project keeps some of the profit on currency from going to the Federal Reserve System and the U.S. Treasury. Private banknotes circulated just about everywhere in the 19th century. Like the private notes that continue to circulate today in Scotland, Northern Ireland, and Hong Kong, Berkshares show by example that privately issued currency remains feasible in the 21st century as well.

In Rethinking Money, economist Bernard Lietaer and journalist Jacqui Dunne offer interesting accounts of community currency projects more or less like Berkshares around the world. But they admire them for rather different reasons. The dominant monetary system is problematic, in their view, because it "perpetuates scarcity and breeds competition," stifles cooperation, makes life stressful, concentrates wealth at the top, causes financial instability, and threatens the environment. It does so chiefly because the need to pay interest is "structurally embedded" in the system. In many ways their new book is a popular restatement of the message of Lietaer's 2001 book The Future of Money. A reader who approaches either book hoping to find common ground with modern arguments for free banking will unfortunately find very little.

Today's government-dominated monetary and financial systems do of course exhibit instability. But the book's other indictments of them are more dubious. Any monetary system "perpetuates" (does not abolish) "scarcity," as economists use the term, and so too does any barter system. Scarcity, meaning that we do not have enough time and resources to accomplish all of our imaginable goals, is an ineluctable feature of human life. Competition is not a problem: Indeed, to bring about greater prosperity we need more competition, not less, and especially so in money and banking. Freer competition promotes rather than stifles greater social cooperation. Free-market banking and money-issue would end the government's monopoly on basic money and its control over the interbank transfer system. It would end both special privileges for commercial banks and special restrictions on their activities. Greater efficiency, stability, and prosperity would follow. But to think that "monetary scarcity can be a thing of the past" is to engage in wishful thinking.

The book's greatest conceptual problem is its confused thinking about interest rates. It gives only passing lip service to the key non-monetary reasons that interest rates are positive apart from risk. It fails to understand the vital role that interest rates play as signals of the time-value of resources. To the authors, interest is "a built-in feature of the monetary system." They write that the discounting of future goods "is due only to the interest feature of the money used," as though interest—and its flip side, discounting—would not exist under barter or in a monetary economy using only coins (as in the centuries before money-issuing banks). In place of an economic argument they offer a parable suggesting that interest is due to the scarcity of money, and that the scarcity of money is an artificial contrivance, even a conspiracy, to force people to pay interest. From this staring point they proceed to a number of false conclusions.

The authors declare ruefully: "Debt-based money requires endless growth because borrowers must find additional money to pay back the interest on their debt." This sentence harbors multiple confusions. "Debt-based money" refers to checking account balances, which are spendable IOUs owed by banks to their checking depositors. There is no 1:1 correspondence between checking accounts (one kind of bank liability) and bank loans (one kind of bank asset). Banks use only some of the funds given to them by depositors to make loans; the rest they mostly use to purchase securities and to hold reserves. Meanwhile "borrowers" in our economy have many debts to non-bank lenders, such as consumer and car loans from finance companies and home mortgages held by investors in mortgage-backed securities. What borrowers must do to repay their loans is independent of whether the loans are funded by bank deposits.

The notion that bank lending creates a shortage of income needed to repay the loans with interest (the point of the above-mentioned parable) is a very old fallacy. It implies that banks burn their interest income. In fact they recycle it by paying out interest to depositors, wages to employees, and (to the extent that profit is left over) dividends to shareholders. There is no need to print extra money each period so that borrowers can pay their debts.

Even without bank-issued money, risk-free interest rates are normally positive. They are positive even in an economy that is not growing. They are positive so long as savers are impatient at the margin (preferring one more unit now to one more unit later) when given a zero reward for waiting, and investors have opportunities to produce more output by taking more time. People who want shelter (say) are naturally willing to pay more to get 1,000 board-feet of lumber delivered today than to get 1,000 identical board-feet delivered 10 years from now.

It only discredits a case for monetary reform to found it on the paranoid notion that it is sinister to pay a premium for present stuff when borrowing, or receive one when lending. We do need decentralizing monetary reform, but it is vain to hope that monetary reform would abolish the premium on present goods.

The authors' account of how fractional-reserve banking works is about half correct, half erroneous. They correctly note that banks fund their loans partly with the money lent to them in the form of checking account balances. But they commit a non sequitur when they say that if all bank loans were repaid then "money would simply disappear." Not only would the basic circulating currency still exist, but banks could and presumably would use checking account funds (to a greater extent than they already do) to purchase and hold securities instead of making loans.

The fourth chapter begins with an epigraph suggesting that any scarcity of money is artificial, attributed (but with no specific publication cited) to the American poet and fascist Ezra Pound. I could not find the quotation in Pound's works. Pound did denounce interest as "usury" and issued a booklet entitled Social Credit: An Impact promoting the crackpot ideas of the inflationist Major C.H. Douglas. Ezra Pound and Major Douglas are not reliable sources for understanding or reforming money.

But Lietaer and Dunne have little use for orthodox economics. They declare that economists share a "collective blindness" because they "define money by what it does…rather than what it is." This is a curious charge given that they themselves tacitly adopt the same approach some pages later, defining money as "not a material object" but anything commonly accepted as a medium of exchange. They assert that textbooks and "traditional economics" have "never decoupled" the various roles of money (conventionally listed as commonly accepted medium of exchange, unit of account, and store of value) and have never questioned "the assumption that the same monetary tool is needed to play all three roles." It is a shame that the authors are unaware of the large economics literature since 1980 that has in fact debated the feasibility and desirability of payment systems that decouple the media of exchange from the unit of account and the medium of redemption.

The authors create a conceptual muddle when they characterize the status quo system as grounded on "fiat, scarcity-based, interest-bearing national currencies." Fiat, yes. Scarcity-based? Economic reality is scarcity-based, so in that sense all workable kinds of money are scarcity-based. Interest-bearing, no. Federal Reserve notes do not pay interest, nor do any nation's fiat currency notes. (The Fed has begun paying interest on bank reserves, but the authors never refer to that.) Elsewhere they write of "the monopoly of one type of money, namely, national currencies, all created through bank debt." National currencies like Federal Reserve notes are irredeemable fiat currencies, created by slapping ink on paper, and not debt. Checking accounts are bank debt, but their creation is not a monopoly.

The book embraces community currency projects that charge a "demurrage fee" for holding a currency note too long, to penalize its use as a store of value and thereby to confine its use to that of a rapidly circulating medium of exchange. This idea is historically associated with Silvio Gesell, not cited in the book, another monetary crackpot.

In sum, Rethinking Money misses the opportunity to mount an effective critique of our monopolistic monetary system and propose reforms that can appeal to both progressive and libertarian critics of central government domination. Lietaer and Dunne could have developed an interesting critique and positive program from their correct observations that conventional economists fail to critically examine the government's present monopoly issue of basic money, and that such a system has the fragility of an undiversified ecosystem. They unfortunately never mention F.A. Hayek's unconventional work The Denationalization of Money, nor any of the literature of the last 30 years concerning non-fiat, redeemability-based free banking. They might also have drawn on Nassim Taleb's very relevant observations on the fragility of our financial system due to one-size-fits-all regulation and "too-big-to-fail" policies. The path to greater prosperity that they offer is paved with sincere intentions but illuminated by moonbeams.

NEXT: Hunt for Dorner Continues in Big Bear Mountains

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  1. It’s amusing that progressives are attracted to this idea that scarcity is some kind of evil plot by capitalists imposed via the monetary system. Primarily because progressive political philosophy is structurally incapable of distributing scarce resources. They believe everyone has a “right” to food, shelter, healthcare, and so on, and thus cannot acknowledge that food, shelter and healthcare might be limited resources and there might not be enough to go around. Thus, since they can’t acknowledge the fundamental scarcity of resources, they have to explain the appearance of scarcity is a conspiracy imposed by evil bankers.

    1. One of the communist trolls used the phrase ‘relative poverty’ a few days ago. I have been thinking about the absurdity of that notion.

      If you make 200k per year, you are still in poverty because other people are making millions. They are really arguing in favor of is equality. T o n y’s utopia looks like Mao’s china, and that is no exaggeration.

      The root of inequality is scarcity. That is the nature of the universe we live in. Of course they must invent a plot by evil kapitalists to explain scarcity. Acknowledging that it is built into the workings of nature would explode their entire philosophy.

      This is what puzzles me so much about them. The very first thing you must do to embrace their philosophy is to deny reality.

      1. Their mental well being is focused on social dominance and one upmanship, not material well being. In that context it makes perfect sense.

      2. You seem to be relatively obsessed with trolls.
        Would you like to talk about it?

      3. There was a certain point in the history of popular leftist thought where they adopted this new-age spiritualistic approach to reality. All you had to do was “imagine” a better world, like the John Lennon song. Just IMAGINE there’s no scarcity. Reality, to them, if fundamentaly a product of what people think it is, it is not grounded in any sort of physical reality. In fact, you can find a shit ton of people on the left who think EVERYTHING is amenable to “manifesting” change by concentrated wishful thinking. Energy healers and metaphysical quacks of all sorts are uniquitous in the organic, environmentalist, wing of the movement.
        There hasn’t been any commitment to a hard scientific view of reality on the left for decades. Even the ones that aren’t new age boobs are so caught up in perception management that they are cognitively incapable of addressing reality as it actually is.

      4. One of the communist trolls used the phrase ‘relative poverty’ a few days ago. I have been thinking about the absurdity of that notion.

        Poverty is a relative concept.

        The poor in America today are materially better off that the aristocracy was throughout most of human history.

        The root of inequality is scarcity.

        Nope, the root of inequality is biology.

        1. Biology? On what grounds do you make the pronouncement?

          1. Natural variation.

            Equality of outcome implies (actually requires) sameness.

            1. Only if the processes are the same – a superior human being in a plane crash will not fare as well as a below-average one who wins the lottery.

              Though I suppose there’s a possibility of smoothing the processes out over a large sample.

              1. Only if the processes are the same – a superior human being in a plane crash will not fare as well as a below-average one who wins the lottery.

                Well sure, we finally achieve equality in death.

                But, it’s pretty well documented that losers that win the lottery fare less well over time than someone with a higher income that did not win the lottery. The sudden infusion of wealth is squandered and not built upon.

            2. You’re discounting environmental factors entirely? That runs counter to all science on the matter.

              1. You’re discounting environmental factors entirely?

                For example?

                1. Environmental factors are things like having shitty parents.

                  1. Environmental factors are things like having shitty parents.

                    I’d say that shitty parents are a biological factor.

                    1. I’d say that shitty parents are a biological factor.

                      Shitty neighborhood, poor schools, poverty…

                      So the reason that Africa is poor and the United States is rich is biological in nature?

                    2. Shitty parents aren’t necessarily biological. Parental quality can change from generation to generation- highly intelligent wealthy people can have kids who become spoiled white trash, who can have kids who realize how shitty their parents are and become successful regardless.

                    3. Shitty parents aren’t necessarily biological. Parental quality can change from generation to generation- highly intelligent wealthy people can have kids who become spoiled white trash, who can have kids who realize how shitty their parents are and become successful regardless.

                      That sound more like you think ‘shitty parents’ aren’t much of a factor in inequality.

                    4. I believe that awareness of one’s environment may either click or it won’t.

                    5. I believe that awareness of one’s environment may either click or it won’t.

                      Which is driven by that person’s underlying genetics.

                    6. It’s a combination of things IMO. A person raised in by shitty parents in a bad neighborhood, generally speaking, will be worse off than if they’d (for example) been adopted by loving parents. The culture of where and how you’re raised makes a difference, and even if we’re just talking genetics, that can be affected by the environment (epigenetics)

                    7. Shitty neighborhood, poor schools, poverty…

                      Yep, nobody in history has ever overcome the circumstances that they were born into.

                      So the reason that Africa is poor and the United States is rich is biological in nature?

                      So when we started talking about inequality, you meant continental inequality?

            3. Inequality is rooted in many things, such as scarcity, biology, and personal environment. Things that progressives can not alter.

              1. Actually, there is one environmental factor that contributes to inequality.

                Government intervention.

                That can prevent people from reaching their potential and also artificially increase the wealth of other people.

                1. I wasn’t clear earlier that environment influences a person’s development and can prevent them from reaching their potential.

                  1. Quothe the Groovy Iron Law:

                    “Nature v. Nurture?: Always Answered yet Continually Confounded”

                    1. If biology were all that mattered identical twins separated at birth would have identical lives. Many studies show that there are similarities, but also significant differences. Biology is a strong determinant – it provides a potential – but the environment allows an individual to fulfill that potential, or not.

        2. “Poverty is a relative concept.”

          Relative poverty, in the sense that they are using it, is absurd. In the strict sense that you ( I hope ) are using it it is relative. When you have only the barest of necessities to live, or not quite enough, you are in poverty. When you have an excess of those, you are not. What you have relative to what you need.

          If we use the term as they mean it, a measure of wealth relative to everyone else’s wealth, the word loses all meaning.

          1. If we use the term as they mean it, a measure of wealth relative to everyone else’s wealth, the word loses all meaning.

            Perhaps, but not necessarily.
            It might be more accurate to say that we shouldn’t worry about poverty, as a society, because everyone’s basic needs are taken care of.

            Using the word in an absolute sense leads to the conclusion that there is almost no poor people in the US today (homeless people would still qualify but that’s about it).

            1. “Using the word in an absolute sense leads to the conclusion that there is almost no poor people in the US today (homeless people would still qualify but that’s about it).”

              And this is exactly the case. Since there are really no poor people here to lift up, the left must appeal to the politics of envy, which unfortunately, is a successful strategy. Despicable.

              People. Suck.

            2. Using the word in an absolute sense leads to the conclusion that there is almost no poor people in the US today

              Ding, ding, ding. Give that man a seegar!

        3. “Nope, the root of inequality is biology.”

          In a sense, yes.

          If there were ample resources so that everyone had more than they required without expending any effort there would be no competition and likely little inequality in wealth.

          Scarcity creates competition for limited resources, and varying degrees of competency at winning( biology ) creates inequality. This is the nature of the universe and something no progressive government can ever change.

          1. Right.

            Consider equality or the lack thereof outside of wealth.

            Every person’s body is unique, obviously because of the underlying biology.

            Every person’s psyche ie, mental abilities, aptitude, sociability, level of ambition etc. is also unique and also due to biology.

            But people on the left, believe that these unique individuals should have identical experiences and outcomes through life. And if they don’t, well it’s just ‘unfair’ and government should take action to even the score.

            Ultimately, it’s really just envy dressed up in a pseudo religious belief, a perversion of the idea that men were created in god’s image and equal in his eyes.

            1. Every person’s psyche ie, mental abilities, aptitude, sociability, level of ambition etc. is also unique and also due to biology.

              Biology AND the environment in which someone is raised Mortimer. (Or was that, Randolph?) Nature and nurture.

              Regardless, agree with the rest of your statement.

              1. I’ll agree that environment plays some part, but not as much as we want to believe. Additionally, dumb random chance plays a part too.

                1. I’d bet as high as 50/50, based upon my psychology classes some 28 years ago.

                2. When it comes to how wealthy a person becomes, biology probably plays a small role compared to environment, which includes random external events of course. The idea that genetics determine your fate more than education and how you’re raised certainly appeals to racists, but doesn’t really hold up to scientific scrutiny.

                  1. I disagree.

                    I’ve known plenty of people from humble beginnings that have become very successful and also people with well to do parents that have failed miserably.

                    Beyond that, my original point that inequality is a natural result of biology was not, in any way, an attempt to claim that race determines an individual’s potential or absolute success. Nor was I asserting that any individual is inherently ‘better’ or ‘superior’ to any other individual.

                    I was asserting that individuals are, well, individual and that individuality will manifest in a number of ways, including differences in income and wealth accumulation.

          2. But what is a resource is changeable. For example,oil under desert sands was not considered a resource until fairly recently in human history.

      5. One of the earliest posts I remember by T o n y, back when he was Tony and he used an email address of Stephen Dedalus, and he had a Livejournal that is how we all found out he is gay…

        Some of his earliest posts were about how socialism is compatible with libertarianism and libertarians should embrace socialism. What a cunt.

    2. Not so much amusing as Expected

    3. just as Joseph responded I didn’t even know that someone can get paid $5415 in four weeks on the internet. have you read this web page… http://www.snag4.com

    4. like Alexander responded I am amazed that any body able to make $6798 in one month on the internet. have you read this web link… http://www.ace60.com

      1. Joseph and Alexander are bullshitting.

  2. Uh…I am trying to imagine what life would be like without monetary scarcity. The picture I am forming isnt pretty.

    1. Uh…I am trying to imagine what life would be like without monetary scarcity. The picture I am forming isnt pretty.

      It’s a retarded phrase.

      Do they think that Zimbabwe lacks monetary scarcity?

      1. You are right, it is a retarded phrase.

        What they are missing is that money has no value, but represents real value in the real world, something a printing press cannot create ( unless you are printing books ). Creating more or less money doesnt change the value of what we have created in the world around us.

  3. Money and immigration are the two areas where I think the standard libertarian position around here is crazy. (If goldbug is the standard position around here.) There’s a happy medium between full leftard inflation and burying bullion in the backyard.

    1. “….I think….”

      Try that again using different words.

    2. “(If goldbug is the standard position around here.)”

      If it is, I’m not “standard”.

      1. There are a few that reflexively spout GOLD!! stuff whenever the topic comes up, but I’m not convinced that’s the dominant belief amongst the commentariat. Maybe there are more quiet Scott Sumnerians than I think.

        1. I have been posting nearly daily on these threads for years and I can recall exactly one time when one of the commentariat spouted gold. OK, didnt spout but did mention it.

          Who are these few that you refer to? Enlighten me.

          1. Who are these few that you refer to? Enlighten me.

            I’ve only been reading semi-consistently for a few months. I get through most AM/PM links comments after they’re dead, and only a scattershot of the others.

            It’s possible it only happened once and I’ve inferred it to others, but my recollection is that goldbugism pops up in Ron Paul threads semi-often. I’ll grant that it’s not the big names who are posting 50 comments a day.

        2. Right, wanting a stable currency that can’t be effectively destroyed by political whims, as is currently happening with the dollar, is crazy.

          1. Gold, in other words.

            1. Or silver, or platinum, or diamonds, or oil, et al.

              1. You can pick whatever medium you like. The problem with paper money is that it CAN be manipulated in a more opaque way than commodity backed currencies and therefore those in power DO manipulate it to serve their own ends.

    3. The standard around here and I think libertarians in general is free competition in currency. This is even the position of renown goldbug Ron Paul. There just happen to be many that think things like gold would be successful in a free market of currencies.

      1. Barf. Inflation would have to get really bad to make it worse than the complexity this would impose on point of sale transactions.

        From the measure of value perspective of money having a single currency has the same merits as having a standardized system of measures and weights.

        1. Right, because that worked out so well with the Euro.

          1. The Euro’s problem is not so much that it’s standardized, which makes for a more efficient market anyway, but that it is fiat money and used as a plaything by the European Central Bank.

            1. I don’t understand what “standardized” even means. And I mean that on an intellectual sense. Is it that it cuts down on transaction costs when you do not have to convert from one to the other? Because that is a relatively small advantage compared to the big disadvantage of being at the mercy of the Federal Reserve, who can decide tomorrow that your bank balance is worth less than it was.

              1. Is it that it cuts down on transaction costs when you do not have to convert from one to the other?

                Yes, which, in turn, should equalize prices across the various markets that use the currency.

                1. Right, but given that fiat currency is dependent upon a central bank’s responsible actions in guarding against inflation, and in turn the central bank draws currency from the debt issued by the government, it seems to me that a one-world currency is just as fraught with the problems as one-world government.

                  The reason I like free market currencies is because the more responsible will be rewarded for their efforts to capture an individual’s desires (generally, a worthwhile store of value, ease of use, etc. etc.) and those who debase their currencies will lose customers.

                  Now, to a certain extent, we have this now: I can buy Euros or Pounds Sterling or any number of other currencies as a hedge against the United States, but the problem (as you know) is that people in my town in Ohio won’t take Pounds or Euros.

                  But, if we had free market currencies, the odds increase greatly that someone in my town will take an “alternative” currency. Additionally, technology makes the transaction costs of conversions almost nil. Credit cards regularly convert charges abroad for no fee.

                  1. I agree with everything you wrote, except toward the end. While the transaction cost might be almost nothing, money changers will still attempt to squeeze as much profit as they can from exchange fees.

                    1. money changers are charging fees for honest service. I prefer paying money changers a small fee to jump to a currency I find secure instead of (a) having to move out of the country or (b) convincing my coffee shop to take Euros.

                    2. Heroic Mulatto| 2.9.13 @ 3:48PM |#
                      …”money changers will still attempt to squeeze as much profit as they can from exchange fees.”

                      There are still now and have been many times when multiple currencies were in use in a particular area, and no money changers were involved.
                      Sorta like those areas where several languages are in use.

                  2. But, if we had free market currencies, the odds increase greatly that someone in my town will take an “alternative” currency.

                    Not necessarily

                    1. The odds don’t increase greatly? how so?

                    2. So, if there were 5,000 currencies circulating with any number of different monetary units (dollars, francs, benzies, hulus etc…..) that every person would accept every one of those currencies?

                    3. Besides, your idea is only valid if government action is what prevents people from accepting Euros now.

                    4. Government essentially is what prevents people from accepting Euros now. It crowds out alternative currencies.

                      that every person would accept every one of those currencies?

                      I said would accept “an” alternative currency, not all alternative currencies.

                    5. Do you accept payment in Euros or Pesos now?

                    6. Also, most financial transactions are made electronically (including via checks), not by using currency.

                    7. that every person would accept every one of those currencies?

                      They did when those currencies were minted coins of precious metals.

                    8. I think it was Rothbard that pointed out that gold and silver coins circulated with little regard to borders up until the 20th century.

        2. Idiot! Don’t you know that “free competition” (aka anarchy) is the solution to every problem?

          Got an issue with the military? Privatize it, and allow competing militaries! What could happen?

          Bad cops? Create your own vigilante force! They’d never get out of line!

            1. Mary or a soi-disant paleo-libertarian stumbling on here from someplace like Taki’s Blog, angry that we’re not concerning with the “real” issues concerning libertarianism, like “human biodiversity” or the Freemason-Zionist-Illuminati-Lizard People plot to sacrifice Taylor Swift for the birthday of Queen Elizabeth II.

              1. That was a weird wild trip to the realm of angry Asian men on your link. Thanks for that.

            2. I’m confused did someone crazy reply to me and get deleted? What did they say?

              1. Yes, Mary was here and so was a decent chap (or so it seemed) named Cheradenine Zakalwe. They are both gone now. Must have both been Mary, perhaps.

                1. I received an email reply from Charadenine that would suggest they aren’t Mary but who knows.

                  1. I’m scratching my head about that one as well. Cheradenine seemed fine, so Mike Alissi must know something we don’t(TOP MEN)

                    1. Randian| 2.9.13 @ 4:24PM |#
                      “I’m scratching my head about that one as well. Cheradenine seemed fine, so Mike Alissi must know something we don’t(TOP MEN”

                      Kinda leaves some replies just hanging there…

          1. Or should I say Zulu as Kono? Kizone Kaprow?

        3. Article One, Section Ten: No State shall make any Thing but gold and silver coin a tender in payment of debts.

          Walter Williams pointed out that in America’s first 100 years, wholesale prices declined 6%. In the next 100 years, wholesale prices rose 1,600%. That is why they put gold in the Constitution

  4. Anyone who recognizes that money is naturally a creature of commerce, not government, has to admire the way that the Berkshares project keeps some of the profit on currency from going to the Federal Reserve System and the U.S. Treasury.

    This is stupid. Berkshares aren’t a “currency,” they’re a discount program. There is no monetary impact from using them.

    1. “Berkshares aren’t a “currency,” they’re a discount program.”

      Sorry, there is a discount, but walks, quacks and is a currency.

      1. Ok, it’s a currency that exactly mirrors the US dollar, but it’s not an independent currency doing anything meaningful in terms of inflation/value management or policy. What’s the point?

        If they go ahead with the proposed scheme to set up a separate exchange rate based on a different CPI we’re getting somewhere, but right now it’s just duplicative wanking.

        1. Cheradenine Zakalwe| 2.9.13 @ 2:09PM |#
          “Ok, it’s a currency that exactly mirrors the US dollar, but it’s not an independent currency doing anything meaningful in terms of inflation/value management or policy. What’s the point?”

          It is a currency outside control of the government. It is currently linked to the USD at the 95% rate, but there’s nothing to say that in use, its value might well change.

          1. I concede the point. I accept that air miles for tickets are currency for purposes of the airline economy (subject to fiat devaluation at the whim of the airlines), so I suppose this is too.

  5. “This is stupid. Berkshares aren’t a “currency,””

    quoted from your link;

    “BerkShares are a local currency..”

    “..and creating a five percent discount incentive for those using the currency.”

    *scratches head*

    1. They’re not economically any different from using a credit card that paid in “Master Card points” that on the back end were converted to/from US dollars with your 1/2/3% discount from accruing points. You’re still at the mercy of the Federal Reserve’s dollar policy and inflation. I don’t see the point other than expressive BS.

  6. There is plenty to criticize in economics but it doesn’t seem like these authors have hit on anything. Also, after reading through the message boards for Bitcoin, I can safely say that many of its proponents have a poor understanding of our modern financial system. I may not have been posting comments but I have been reading them for as long as Reason has had them. My recollection is the same that many here aren’t gold bugs, but most here would be equally skeptical of Scott Summers proposals. A thread on the subject would be entertaining.

    1. after reading through the message boards for Bitcoin, I can safely say that many of its proponents have a poor understanding of our modern financial system

      That happened in a chatroom? Unpossible!

  7. Rethinking Money:

    The first part of the title of the book is already problematic, because it makes me question why would there be a need to “rethink” the concept of Money? Money is and always will be the most desirable commodity in a free market. If what they’re talking about is different money-like schemes, that’s different than the idea of rethinking the concept of money itself. I guess that being accurate in coming with a proper title – “Rethinking Fraudulent Money” – would mean having to publish the book by themselves.

    The book embraces community currency projects that charge a “demurrage fee” for holding a currency note too long, to penalize its use as a store of value and thereby to confine its use to that of a rapidly circulating medium of exchange.

    So there is really no difference between what they propose and the high-inflation monetary policy that exists right now, since both penalize savings, one on purpose and the other by default.

    1. So there is really no difference between what they propose and the high-inflation monetary policy that exists right now, since both penalize savings, one on purpose and the other by default.

      True savings (wealth) is in property, not paper. Demurrage works so well that the central banks in Austria and the US shut down demurrage currencies in their respective countries during the Depression.

      There’s actually nothing wrong with an inflationary money policy. The problem is that the power of the State always ends up being abused via inflationary policies by a minority for their own benefit while the rest of us are forced to use an increasingly debased currency.

      The cost of the currency being shared by everyone that uses it, including the issuer, with no one benefiting from “free early money” as the current crop of economic pirates does, strikes me as a slightly better system than that system defended by Krugman and Co.

      1. The cost of the currency being shared by everyone that uses it, including the issuer, with no one benefiting from “free early money” as the current crop of economic pirates does, strikes me as a slightly better system

        How exactly does this system create new money without anyone having primary access to it?

        1. Funny you should mention that:

          https://ripple.com

          1. Peer to peer reserve free lending?

            I’m skeptical, sound too much like counterfitting.

      2. Re: WarrenZevon,

        True savings (wealth) is in property, not paper.

        Warren, saving is delayed consumption, doesn’t matter if you delay your consumption by buying a less liquid asset you cannot eat or by stuffing your mattress with bank notes. Money is simply the most liquid of assets, so you’re not really saying anything by saying that wealth is assets – YES, it is, but that does not mean money is not part of wealth. Money is the result of previous exchanged production, thus a claim on future goods (to avoid bartering or direct exchange.)

        The problem with the “demurrage fee” is that it penalizes savings, the same way inflation and money debasing punishes savings. Both are really a form of theft, so in essence there is no real difference between these two systems of theft except in that the demurrage fee is more visible thievery than debasement.

        1. Re: WarrenZevon,

          There’s actually nothing wrong with an inflationary money policy.

          There is plenty wrong – inflation is theft. It’s reducing the size of buckets to always make it seem like you always have plenty of water.

          To your point that free market alternatives are better than the monopolized system we currently have, indeed this is the case as you allow choice in the market – which is what we want. The problem I have is with the question-begging procedure of charging a demurrage on your own money because you keep it uncirculated “too much.” That reeks too much of the Keynesian pseudo-economical concept of “idle asset.”

        2. An inflationary monetary policy in the hand of any State is deadly. My point is that inflation can be a tool as well as a weapon. Demurrage on a non-centralized currency is nowhere near as evil as inflation from the grimy claws of The Bernanq and serves the only purpose of paper money: a temporary means of exchange, not a store of value.

          Please understand I’m not necessarily defending demurrage but compared to what we have now, it would be an improvement.

        3. “Money is simply the most liquid of assets”

          OM,

          I think the problem is seeing paper as money. It’s not and never will be. It’s a currency that represents money, sure. Money, never.

          Paper as savings is a relatively new concept in American economic life. The idea will be dying a well-deserved death soon as people with paper will literally feel it become worth nothing in their hands.

          1. I think the problem is seeing paper as money. It’s not and never will be. It’s a currency that represents money, sure. Money, never.

            If it’s a standardized medium of exchange, it’s money. Whether gold coins, slips of paper, seashells or digits in a database.

          2. Re: WarrenZevon,

            I think the problem is seeing paper as money.

            As long as it is used for indirect exchange, then it is money. The problem is not paper money but making it the only form of legal tender by government fiat. That leaves the door open to debasement and manipulation.

  8. “. But they commit a non sequitur when they say that if all bank loans were repaid then “money would simply disappear.””

    Actually, yes it would.

    Along the same lines, Griffin quotes Robert Hemphill, Credit Manager of the Federal Reserve Bank in Atlanta, who wrote in 1936,

    If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible ? but there it is.[3]

    http://mises.org/daily/4631

    1. I don’t see what the problem is. Is there every a time in the foreseeable future (or, even better, is there even a good reason) that people will stop borrowing money?

      1. Sure, it happened in 2008 when the total volume of outstanding loans declined. Deflation was kind of sort of avoided by various rounds of QE.

        1. *some* people did, which I didn’t say.

    2. Mr Whipple| 2.9.13 @ 3:15PM |#

      “. But they commit a non sequitur when they say that if all bank loans were repaid then “money would simply disappear.””

      Actually, yes it would.

      Mostly, M0 would still exist, but you are essentially correct.

      Which is one of numerous distortions by the author of this article, which leads me to question whether he has a better understand of our monetary system than the authors of the book.

  9. Minskyites and Austrians have several common beliefs in causes. It is in solutions that they differ.

  10. Slightly O/T

    Now that price controls have essentially failed in Argentina, they take the next step: Ban advertising in private newspapers

    Why is Argentina resorting to this dictatorial measure? Simple – to stifle the independent press for one simple reason – “misreporting” inflation, or at least reporting inflation numbers which are orders of magnitude higher than the official government numbers.

    […]

    Keep an eye on just how far Kirchner will go to keep her place in power – that will be a useful indicator of what is coming to every banana republic next, and quite soon.

    1. Shame about Argentina…beautiful country.

    2. Don’t buy for me, Argentina.

      1. I see what you did there.

    3. An interesting take on life in Argentina:
      http://www.caseyresearch.com/cdd/lessons-argentine

      Doug gets asked about this (Cafayate properties) a lot too. Despite readily admitting that yes, the government is insane, from what I gather, the weak state, the local police who are not so fond of the government themselves, the above-ground underground economy, provides various opportunities.

  11. Libertarians for over 150 yrs. have been on both sides of this, and converged to favor free banking! Non-libertarians on the side of the book’s authors have promoted statist solutions–social credit, direct credits, bimetallism–populist money-quack nostrums–but libertarians on the same side have generally agreed with the later libertarians who were informed by Austrian and other economic thinking that competition in banking & currency issue is better.

    Maybe the book confused Pound with Proudhon.

    The idea that fiat currency bears interest comes from the impression that it’s issued at an implicit discount, or wouldn’t’ve been accepted. A T-form would show that if the only money is the currency by its name, and that currency consists of bearer demand notes (IOUs) issued by a bank of issue, then if the notes were paid back, that money would go out of existence. The conceit is that people are paid these notes by the issuer for…something that is not money–so if the issuer bought them back, money would go poof! The idea’s not crazy, because if for instance the Fed sells securities in return for its $, the amount of $ in existence does diminish. The fallacy’s that the only money is such currency; something’ll always serve. I think when the Fed buys securities, the sellers do discount the $ they’re getting; it’s just that since these $ circulate at par with all the other $, we’ve no way of measuring this discount.

    1. The discount is built into the sales price of the assets.

  12. And still, Bernard von Nothaus awaits sentencing for conviction on federal counterfeiting charges, while thousands of people who own metallic rounds under his Liberty Dollar system are denied their rightful property. As fascinated as I am by the topic, I have very little patience for rarefied discussions of alternative currencies, while the Liberty Dollar injustice continues. DO THE RIGHT THING, Uncle Sam! Or if he won’t, We the People ought to make sure it happens.

  13. I’m absolutely astonished that someone can claim to be an economist while talking about things like “ending scarcity”. Perhaps I shouldn’t be.

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  16. George Mason University Economics professor Lawrence H. White: But to think that “monetary scarcity can be a thing of the past” is to engage in wishful thinking.
    Jct: “if left to low-tech incompetents to figure out.” Casinos don’t exhibit “monetary scarcity?” When was the last time his game ran out of chips?
    LHW: Lietaer and Dunn’s book’s greatest conceptual problem is its confused thinking about interest rates. It gives only passing lip service to the key non-monetary reasons that interest rates are positive apart from risk.
    Jct: He’s talking about the creditor’s risk of getting paid back, not the borrower’s risk of surviving the mort-gage death-gamble.
    LHW: they offer a parable suggesting that interest is due to the scarcity of money,
    Jct: Of course, banker Bernard Lietaer would get that backward.

    LHW: and that the scarcity of money is an artificial contrivance, even a conspiracy, to force people to pay interest.
    Jct: Interest causes the scarcity of money so saying the scarcity of money causes pay interest is like saying wet streets cause rain.

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