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Scrip Currency is a Recipe for Disaster

July 9th, 2008

John Robb of Global Guerrillas wants to see more people and communities using scrip.

Although I’m generally supportive of people who don’t want to use FRNs for the bulk of their transactions, I’m sincerely skeptical about the viability of local scrip currencies. Some of the finder details, according to Robb, are as follows:

1. Allow community members to use it to pay all or part of their tax liabilities to local governments. This instantly establishes a market for the currency. Also, pay local government employees a portion of their wages in scrip.
2. Deflate the value of the scrip (optimally, one percent per month) to promote immediate use rather than hoarding.
3. To the extent possible, connect scrip to local production rather than retail. Locally produced food (farmer’s markets), energy (via local microgrids), products (personal fabs), and labor/services. Further, work with local banks to establish checking accounts for scrip and to enable conversions hard currencies (at a slight discount).

Presumably, the municipality would have to spend scrip locally, and I’m sure there would be a provision that would force merchants to accept it at some rate other than that which they would freely accept. The second point is an unabashed attack on people’s ability to save for the future. Finally, we are supposed to regulate whereand how transactions thus denominated can be facilitated.

Let’s rephrase the building blocks of scrip:

1. Force people to use scrip.
2. Destroy people’s ability to save for the future.
3. Tell businesses (banks, retailers, producers) how the scrip is to be used.

Sounds like a fine recipe for economic disaster, if you ask me. Robb suggests that local scrip should depreciate people’s savings on the order of 12% annually. This is about on par with what the Federal Reserve is doing to the Greenback; excuse me for not understanding how depreciating scrip is a step in the right direction.

Now, Silvio Gesell came to mind immediately, so I’m not at all surprised to see that Robb references our pal Mr. Gesell here, and here.Gesell argues that:

Money, which is to replace barter, should secure, accelerate and cheapen the exchange of goods.

If security, acceleration and cheapening of the exchange of goods can be achieved by means of a form of money which cannot be harmed by moth and rust and which besides, can be conveniently hoarded, then let us, by all means, have such money. But if this form of money diminishes the security, rapidity and cheapness of the exchange of goods, we say: Away with it!.

I’ll add Gesell, whose ideas I’m familiar with (although I haven’t read his works) to my ever-growing list of things to read, although at the onset I should qualify that I’m not particularly optimistic about what I might find. Mises’ regression theorem tells us in a nutshell that money originates from free exchange and is settled upon voluntarily among the market participants. A scheme like Gesell’s can only be implemented by violent suppression of free exchange.

Now, Gesell probably wasn’t a metallurgist, but he should’ve known that gold doesn’t corrode, and can’t be eaten by moths. Especially in a modern context, the cost of storage and security is low, and transfers can be made securely, instantly, and electronically. Furthermore, throughout the ages, in addition to merely accelerating and cheapening the exchange of goods (i.e., eliminating the double-coincidence of wants), one of the prime functions of money has been to store value. Gesell, and our friend here seek to eliminate money’s value-storing capabilities by foisting upon us some sort of quasi-money that for a number of reasons, few people would voluntarily accept.

Now, it seems that Robb wants to foster community, and believe me, I’m all in favor of fostering community, neighborliness, mutual aid, etc. I just don’t think that you can effectively accomplish “community” by forcing people to be dependent upon the collective and removing their individual ability to sustain themselves, their friends, and their families. If you can’t save for the future, you are forced by nature to depend on others—this isn’t community, its socialism. There is a difference.

Community is always voluntary.Inherent in Gesell’s plan (and Robb’s depreciating scrip) is the notion that consumption now is somehow superior to consumption at any subsequent point in time. Savings, sometimes referred to in the pejorative as “hoarding” (e.g., by Keynesians especially) is always directed towards anticipated future consumption, is to be admonished, while immediate consumption is to be lauded.  How anyone can reach the conclusion that a certain and precise ratio of savings to consumption is optimal at all times, and in all places, and for all individuals, is beyond me.

Any effort to regulate the natural rate of time preference is bound to fail; and any measure which relies on forcing people to do something they wouldn’t otherwise do, is patently immoral.




no third solution

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