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Community Currencies--A General View
Transcript of Community Currencies--A General View
“If we were to construct history along hypothetical, logical lines, we should naturally follow the age of barter by the age of commodity money. Historically, a great variety of commodities has served at one time or another as a medium of exchange: tobacco, leather and hides, furs, olive oil, beer or spirits, slaves or wives, huge rocks and landmarks and cigarette butts. The age of commodity money gives way to the age of paper money. Finally, with the age of paper money, there is the age of bank money, or bank checking deposits [credit].”
Paul Samuelson, Nobel Prize Winner in Economics 1. Historically inaccurate, according to modern Numismatists
Credit predates physical money by hundreds, if not thousands of years (Innes 1913, Hudson 2004, Gardiner 2004)
Most early coins were of values far too large to be useful for trade in local markets (Cook 1958, Kraay 1964, Hudson 2004). Too many types/issuers, too (McDonald 1916). 2. Role of Government
Purpose of early coins argued to be “payment of mercenaries” by government and to provide state finance rather than as medium of exchange (Cook 1958, Crawford 1970, Kurke 2001)
“The imposition of taxes payable only in money (and not in goods or in kind) has been used on numerous occasions in colonial history for the primary purpose of forcing taxpayers out of a (non-monetary) subsistence.” (Goodhart 1998, Forstater 2003) 3. Confusing media of exchange in a “primitive” society with those in an exchange economy
“Primitive” societies allocate through redistribution and reciprocity
Exchange economies allocate through markets
Money and credit in exchange economies are monetary debt relations that rest upon differing classes in society (propertied and non-propertied)
Because government was at the top of the propertied class, government naturally played a role in money The Government’s acceptation is sufficient (not necessary) to determine what will serve as money. Since the private sector then needs the government’s money, this results in the declared money circulating. This view is called “Chartalism.”
“Money’ [is] anything which the State undertakes to accept at its pay-offices, whether or not it is declared legal-tender ....”
Adam Smith (father of laissez-faire) 1776:
“A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money”
“The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contracts.
But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time—when, that is to say, it claims the right to re-edit the dictionary.
This right is claimed by all modern states and has been so claimed for at least some four thousand years” First Principles The 'Vertical' or 'Acceptation/Obligation' Approach The 'Horizontal' or 'Cooperation' Approach Wray (2004) in "Credit and State Theories of Money""
The credit approach emphasizes that credit normally expands to allow economic activity to grow.
Like Schumpeter, Innes focused on credit and the clearing system. Innes mocked the view that “in modern days a money-saving device has been introduced called credit and that, before this device was known all purchases were paid for in cash, in other words in coins.” (1913, 389) Instead, he argued “careful investigation shows that the precise reverse is true”. (1913, 389) Rather than selling in exchange for “some intermediate commodity called the ‘medium of exchange’”, a sale is really “the exchange of a commodity for a credit”.
Innes called this the “primitive law of commerce”: “The constant creation of credits and debts, and their extinction by being cancelled against one another, forms the whole mechanism of commerce…” (1913, 393) The following passage is critical.
By buying we become debtors and by selling we become creditors, and being all both buyers and sellers we are all debtors and creditors. As debtor we can compel our creditor to cancel our obligation to him by handing to him his own acknowlegment [sic] of a debt to an equivalent amount which he, in his turn, has incurred. (1913, 393)
The market, then, is not viewed as the place where goods are exchanged, but rather as a clearing house for debts and credits.
Indeed, Innes rejected the typical analysis of the village fairs, arguing that these were first developed to settle debts, with retail trade later developing as a sideline to the clearing house trade. On this view, debts and credits and clearing are the general phenomena; trade in goods and services is subsidiary—one of the ways in which one becomes a debtor or creditor (or clears debts).
Finally, banks emerge to specialize in clearing: Local Government
For-Profit and Non-Profit Businesses Businesses
Households Households Obligation/Acceptation Obligation/Acceptation Obligation/Acceptation and/or Cooperation Cooperation Cooperation It is clear from these examples that what a great nation can "afford"
in periods of crisis depends not on its money but on its man power and
its goods. Russia, Italy, Germany, Japan, the United States, all used
money in the situations mentioned, but money was obviously not the
dominant factor. Man power and materials were the dominant factor.
Yet at other times, when crisis was not so acute, the money for
necessary tasks could not be found. Unemployment, insecurity, want,
dragged on. This is a puzzling paradox. At certain times a nation can
afford what at other times, with no less money, it cannot afford. At
certain times we are afraid of national bankruptcy, and at other times
we give it hardly a thought. [Stuart Chase 1943] Key points:
Hierarchy = "Vertical"
Obligation or acceptation drives acceptance Key Points
No obligation/hierarchy = "Horizontal"
Expansion/contraction via more/less cooperation
No scarcity Government/Central Bank Banks Non-Bank Private Sector Reserve
Balances Currency Deposits Government/Central Bank Banks Non-Bank Private Sector Reserve
Balances Currency Deposits Loans . . . Repayment