Monday, December 08, 2008

Need money? Draw your own !

Last Friday, I gave a talk at a CLE seminar to the St. Thomas More Lawyers Society. In introducing the program's speakers, Dean Joe Kearney of the Marquette University Law School explained why each was qualified to speak on the particular topic to be addressed. With respect to me, he said that, as legal academic, I was (or, perhaps more accurately thought I was) qualified to speak on the law, the weather, the Brewers schedule or absolutely anything else. Substitute "blogger" for "legal academic" and the proposition still works.

Although I have a fair amount of course work in the subject, I am not an economist so I am ready to be corrected on this. But the notion that the East Side and Riverwest neighborhoods in Milwaukee ought to print their own money strikes me as completely pedestrian.

Imagine that the east side currency - let's call them "Bolshevik Bucks" - are purchased with US currency for redemption at participating east side businesses. For $40 US paid to a joint venture of those businesses, you get $ 50 in Bolshies. When you use them, the merchant receives eighty cents on the dollar from the joint venture. This makes it nothing more than a joint discount program akin to Disney Dollars with the marketing hook being neighborhood affinity. This appears to be the way that the Berkshares program works in Massachusetts.

There is nothing remarkable about that. It's called a "sale" and my wife tells me that they are happening all over the place about now. The only difference is that there is a patina of self righteousness that comes with promoting "sustainability."

The article suggests that this might be what's going on, but it's not clear. Another model seems to represented by the Ithaca Hours program in which businesses and employees agree to accept - to some limited extent - a local currency that is not redeemable in or pegged to US currency. In this iteration, the idea seems to be to create a mechanism for businesses and consumers to try to erect what the E. F. Schumacher Society calls a "protective membrane" but what is more commonly called a trade barrier.

As you might imagine, there is a limited demand for that type of currency because it is premised on the idea that economies of scale and comparative advantage are less significant sources of value than they are. The premise is that we ought to buy and produce locally and on smaller scales, presumably resulting in a kinder and gentler, if less wealthy, society.

Although some claim that these local currencies have a higher velocity (i.e., they circulate faster), there are apparently only $ 100,000 in Ithaca Hours (which are supposedly worth ten dollars per Hour) in circulation after 17 years. That doesn't seem very significant.

Apparently, the Camelot of the local currency movement is the Wörgl experiment. During the Great Depression, a town in Austria issued its own Arbeitsbescheinigungen. or labor certificates, that bore a negative interest rate, i.e., you could exchange them for Austrian schillings but at a depreciating rate, creating an incentive to use them or lose them. This supposedly resulted in a financial miracle in which depressed little Wörgl turned into the Lake Woebegone of the Tyrol. The idea is that, when people are overly liquid because they fear losing money, a depreciating currency (and inflation) are our friends. Maybe there is a circumstance in which this is true, but, if that's where we are now, I doubt that Linneman's, Outpost Natural Foods and Beans & Barley are going to lead us out. In any event proponents of local currency do not seem to propose it as a matter of economic management but as a way of life.

Are there legal problems? I don't think so - at least not in the examples that I imagine - but I'll leave that to others for now. That's too close to things that I am supposed to know about.

Cross posted at the Marquette University Law School Faculty Blog.


Anonymous said...

Of course, the US Government does not look kindly on people who try to elbow in on it's monopoly. Look at what happened with the Liberty Dollar. They got raided, and their only crime was creating a currency which was actually backed by gold and silver... something we used to believe in.

Of course, private companies have done this in other countries, with some success. The most notable I can think of is "Canadian Tire money", which not only can be used at those stores, but now other stores accept it as currency and it can be exchanged for Canadian dollars as well.

Anonymous said...

Here's one of the very few times I agree with the Shark.

Anonymous said...

Maybe one of my favorite posts on this blog.

I don't think there would be a "sale" in your theoretical examples of Boshevik Bucks. I think most businesses would simply change their prices to reflect the exchange rate. So, a 4 USD sandwich becomes a 5 Bolshie sandwich.

I can't imagine that, if there were not a 1 for 1 exchange between a USD and a Bolshie, that a company would simply offer that 20% discount by offering a 4 USD sandwich at 4 Bolshies.

The price mechanism will fluctuate to reflect the value of the product, no matter the currency

3rd Way said...

Clearly the intent of local currency is to bolster locally owned businesses. It might be a futile effort, but the goal is commendable.

If employees agree to be paid in local currency it seems like there would be positive effects for the local economy.

Whatever the cause or effect condescendingly attaching a communist label to the currency is lame. Neighbors banding together to creatively use capitalistic systems in an attempt to soften the devastating economic blow many of us are feeling is something to be commended, not derided.

Display Name said...

Draw your own? Yes, some artists do that. Here and here and here.

krshorewood said...

This might not be the first time in Brew City.

If I recall my history correctly, the Hoan administration during the Depression in Milwaukee either toyed with idea or actually issued script to pay city of Milwaukee employees.

Rick Esenberg said...


Lighten up. Poking fun at the east side and Madison is a time honored Wisconsin tradition that even its most liberal residents indulge. I picked Bolshevik because 1) the term was abandoned shortly after the Russian Revolution and so today it has ideological connotations but is not associated with Communism's totalitarianism (Stalinist Samoleans would have been unfair) and 2) it is aliterative with bucks. Sometimes a joke, even a bad one, is just that.

As far as people being supported for their good intentions, that is one of the things that defines our political differences. The road to perdition and all that. Some believe it. Some don't.

My guess is that Keith is right. In fact, I saw some reference to Milwaukee Hours although I could find no evidence of an active program.

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