Tuesday, January 20, 2009

Alternative Currencies Deserve a Fair Hearing

George Monbiot has earned Derek Draper's zero of the day over on Labourlist and I have to say that what he is proposing really doesn't deserve to be rubbished in the way it has. George's ideas relate to alternative currencies, in particular local scrips with demurrage (negative interest).

Alternative currencies are not uncommon things and pop up in the strangest of places, often they will even develop a real world value. Consider for example World of Warcraft gold which has ended up with it's own mini black market.

Demurrage is not such a crazy idea either, it's simply the application of a conditional effect to a currency in order to elicit a particular behavoir. THe effect it has in this case is similar to inflation, encouraging spending and investment over saving. While economists will agree that hyperinflation is undesirable studies of inflation in various countries have shown that moderate levels of inflation (up to around 40%) have had little adverse effect on economic growth. Korea, for example experienced some of it's highest growth in the same years it had high inflation.

To sum up, there is nothing especially mad or crazy about George's idea, the problem with alternative currencies though is that most people read aboout the Worgl experiment and expect that they can apply a similar model. This ignores a lot of thought on the shape of the modern economy. It is I think safe to assume that Worgl at the time of the experiment was was a fairly isolated town in the Alps, so much of it's economy was likely to based around activity in the local area. This meant that persuading producers and consumers to accept the scrip was relatively easy since the vast majority of goods were produced locally by other people who had been persuaded to accept the scrip.

In the modern economy far less of what we consume is produced locally, this makes the task of persuading businesses in a particular area to adopt an alternative currency incredibly difficult, in a lot of cases the only real local component of the price is the local labour at the retailer. This means that in a lot of cases getting such a scheme to work would be incredibly difficult.

It should though, not be ruled out altogether, there is still potential for the application of alternative currencies at the national level. An alternative currency scheme could be applied in a complementary way in an area with a good level of interdependence between local businesses.

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