Monday 6 July 2015

Time for emergency currencies for Greece

“The purpose of Free-Money is to break the unfair privilege enjoyed by money. This unfair privilege is solely due to the fact that the traditional form of money has one immense advantage over all other goods, namely that it is indestructible.” So said Silvio Gesell, the Argentinian trader who came up with the idea of rusting money.

It is always going to be easier to make money out of money, rather than using it to do something productive, wrote Gesell in 1913. Because money grows if you invest it – but real commodities tend to rust or go mouldy.

The answer, he said, is to have money that rusts too. The idea was taken up enthusiastically during the Great Depression, most dramatically in the Austrian ski-ing town of Wörgl. And by catching the eye of the great American economist Irving Fisher, rusting money was adopted all over the world before it was declared illegal by the world’s central banks, fearful of a threat to their own authority.

Wörgl was in a terrible state in the Great Depression when the burgomaster Michael Unterguggenberger persuaded the town to issue its own currency, to the value of 30,000 Austrian schillings, known as ‘tickets for services rendered’. But unlike ordinary money, these notes lost value by one per cent a month, and to keep value – if you hadn’t spent them – you had to buy their stamps once a month and stick them on the back. The proceeds of the stamps went on poor relief.

The notes circulated incredibly fast. Within 24 hours of being issued, most of them had not only come back, via shops and businesses, to the municipality in the form of tax payments – sometimes months in advance – but had already been passed on their way again.

During the first month, the money made the complete circle no fewer than 20 times. After four months, the town had built public works of 100,000 schillings, employing people who were jobless; most of the town’s tax arrears had been paid off too.

Fisher was inspired by what he found in Austria and rushed out his own instruction manuals, called ‘Stamp Scrip’, for the struggling American towns. Within months, about 300 US communities were printing their own negative-interest money. Senator Bankhead introduced a new law to congress that would have created a billion dollars of stamp scrip.

Then, on 4 March 1933, it was all over. President Roosevelt, advised that the monetary system was in danger, banned scrip systems and gave the existing ones a short time to wind themselves up. As he did so, he also created the conditions for a final flurry of activity. 

Fearing a complete collapse of the American banking system, he closed all the banks – and all over the country, communities and companies had to provide some kind of alternative to money. “I care not what kind – silver, copper, brass, gold or paper,” said one senator from Oklahoma. One community in Tenino in Washington state even produced its own wooden money.

Stamp scrip was like blood. As the stamp scrips were shut down on one side of the Atlantic, the Austrian National Bank was taking action to suppress the Worgl experiment too. Four years later, Austria was annexed by Nazi Germany.

These days, the fiddly business of sticking on stamps is unnecessary, because computers can do those calculations. Stamp scrip might not provide the stability people need for real money – money they can use for savings – but it might as well serve for exchange money. We can still learn something from Gesell, Fisher and Unterguggenberger.

I was thinking about this when I heard that the Greek's had rejected the bail-out terms, and you can see why. It looked just a little like slavery for comfort.

The Greeks have been led into debt partly by the failures of successive Greek governments, and partly because the euro is a machine for recycling money from poor cities and countries to rich cities and countries. Neither makes me feel any more comfortable about the fate of the Greek people.

One of the great problems with the euro, as presently constituted, is that it prevents governments creating money if they need to.  The Greeks are doubly hamstrung because their own mints are only allowed to print low denomination euro notes. The rest have to be trucked in.

The re-establishment of the drachma, at least with coins, will take a long period. I remember that it took the Belgian government three months and 80 lorries a day to dispose of their old Belgian franc coins when they joined the euro. Presumably it would take a similar effort to bring them all back again.

But this is now an unprecedented period of economic crisis for a corner of Europe and I have no idea what contingency plans the Greek government has made, and worry that maybe they haven't.

The key in an emergency, it seems to me, is not to fall into the trap of thinking that all money needs to be denominated by a central bank.  Or that it needs to mix the functions of money - store of value, medium of exchange and so on - in exactly the same way as conventional money. It can be different - maybe even should be to suit a variety of new situations.

The medium of exchange function needs to be foremost in situations like this.

What Greece needs now is a major set of experiments with new kinds of money, and it seems to me that there are a number of institutions inside and outside Greece that might be able to help:

1. Greek cities. They must take the lead in creating 'self-liquidating' currencies to provide a means of exchange, along the lines of Worgl in 1934.

2. Silicon Valley. There hardly seems to be a Silicon Valley entrepreneur who doesn't have ambitions to create a new payment system or currency innovation. Facebook and Google have both been experimenting with them. Well, now is the time to test it out: provide a means of exchange - preferably using mutual credit systems - that can keep the Greeks alive while their leaders sort out some kind of long-term solution.

3. Bartercard. The leading Australian barter company could lend its online system to a couple of Greek cities, and waive their usual rake-off.  This is about life and death, after all.

4. STRO and other currency entrepreneurs. There are so many online systems of virtual exchange now available, from Cyclos to HourWorld, CES in South Africa, Zumbara in Turkey. It is time to partner with a Greek city and be a bit useful.  Start perhaps with Community Currencies in Action.

5. Brazil. Their highly successful community banking network, co-ordinated by Banco Las Palmas, has developed a use for a parallel currency designed to support women entrepreneurs. Greece needs it, and now that it is backed by the Brazilian central bank, I suggest a link up.

6. The big banks. If they lend their considerable IT knowhow to the Greeks to provide credit systems, then the credits will at least carry the kudos from them.

I may be surprised.  Perhaps Greece's government has some idea what it is doing. Perhaps the European Central Bank may draw back at the brink from allowing the destruction to go ahead. But if they don't, it seems to me it is at least an opportunity for the new money world to step forward and offer their services.

Let's forget the debt for a moment.  Because without some kind of means of exchange, the Greeks face what Keynes used to call "a perigrination in the catacombs - with a guttering candle".  

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