Alternative Money
RadicalXChange (RxC), a movement espousing some radical ideas for changing society, recently published a piece by Matt Prewitt offering a vision for a new kind of currency, called “plural money”. Like most ideas coming out of RxC, it’s a bold, thought-provoking proposal that challenges mainstream concepts of money.
In this post, I want to summarize Matt’s idea, offer a critique, and look at history for past experiments in money, in the hopes of drawing general lessons for the design of alternative currencies.
Matt’s post fits into a larger rebranding of the RxC movement that emphasizes pluralism, “a social philosophy that recognizes and fosters the flourishing of and cooperation between a diversity of sociocultural groups”. The gist of the idea behind pluralism is that having a diverse ecology of communities is good, and homogenizing forces should be resisted to some extent. A central concern of pluralism, therefore, is the vibrancy of civil society and diversity of communities, both of which can be affected by our choices of institutional infrastructure. Money being itself a kind of institution, the idea behind plural money is to design the institution of money in such a way as to foster community-building.
Plural v universal money
Matt’s piece starts off by contrasting plural money with universal money. By universal money, he doesn’t mean a hypothetical money that would be common to the entire planet, but a money that is common across a large number of communities. As such, any modern national currency fits that definition.
At the core of his argument is the idea that universal money comes with an implicit value system that is at odds with the reality of how wealth is generated. As a universal unit of account, universal money serves to compare everything to anything anywhere. To achieve such universal scope, you want to minimize the amount of information or shared social capital required for an exchange, cutting through the complexity of social relationships in different communities and settling on the most basic common interface: bargaining power.
Matt argues that what determines the value of a good or service should be more complex than the bargaining power between the parties to a transaction. In particular, it should take into account things like “justice, accountability, and legitimacy”, which underpin most communities. But those good things require some amount of social integration between the exchanging parties, some amount of norm-building, mutual knowledge, and social capital. By setting that aside to be able to trade far and wide, we accept an impoverished concept of money, which in turn can disincentivize building social capital and, as such, can become a source of community-destroying entropy, a great leveler “bulldozing plurality for centuries”. This, he argues, is cause for concern: by eating away at community, we lose the good things that come with it, and what those good things enable, like mutual aid.
The implicit value system of universal money is anti-community and pro-individual. This can be seen in either a good or a bad light. For instance, Simmel (1908) argued that money can free us from alienating social restrictions. It makes obligations clear and therefore allows us to settle them once and for all, instead of remaining stuck in ambiguous networks of exchange relationships, where indeterminacy can be taken advantage of. Where Matt sees desirable dimensions to exchange (norms, traditions, justice, affection, etc.), Simmel sees irrelevant clutter, arbitrary social distinctions, washed away by universal money. Rather than emphasizing its role in the erosion of community, Simmel emphasizes the role of universal money in boosting rationality, by making the incommensurable commensurable, enhancing our ability to perceive tradeoffs and guide economic action.
I’m sure Matt would recognize those benefits, and just argue that the pendulum went too far in the direction of individualism, leading to anomie.
The right balance between individual freedom and community strength might actually be a function of the structure of the economy, which may be different at different times. In fact, in a separate piece, Matt argues that, over time, the phenomenon of increasing returns to scale has proliferated in the economy. In a nutshell, increasing returns means that much of our wealth is actually co-created, which is at odds with traditional notions of private property, according to which the value of an asset accrues to its owner exclusively. A clear example of this tension is the value of land, which obviously benefits from spillovers from surrounding activity. Matt correctly points out that “ownership and wealth is always co-created and underwritten by a community”. And this gets to his central argument: for him, the source of the problem is what he calls “capital exit”, or the ability to “uproot power accrued in one community, and transplant it to another”. If value is always co-created but our monetary system enables the fiction of individualized ownership, then capital exit essentially becomes capital theft. A well-designed monetary system would reset the priorities.
The design
The basic design of plural money assumes a set of communities, each operating an internal currency. People can belong to multiple communities. All assets within a community are in so-called partial common ownership: the assets are owned by the community and possessed by holders of “Harberger licenses”, which entitle you for some time to use and improve an asset, but not to alienate it. The license is allocated via an auction and the winner has to pay a fee to the community treasury as a percentage of their bid. When the license expires, a new auction takes place, and the new holder pays the previous holder in community currency. Buying an asset from another community or selling an asset to another community both require collective decision-making.
The idea behind partial common ownership is that, since wealth is co-created, it should be owned in common. Similarly, the enjoyment of an asset should also be shared with the community via the license fee.
Individuals can exchange goods and services with each other for community currency, and those transactions are taxed (unlike the purchase of Harberger licenses, which is tax-exempt). Although he’s not clear on this, I suppose Matt distinguishes between “goods” and “assets”, and only subjects the latter to partial common ownership and Harberger licenses.
A transaction involving the exchange of goods or services for community currency will be taxed more the greater the difference in the community membership profiles of the transacting parties, according to a complicated formula that uses a quadratic schedule, takes into account the individuals’ governance power in each of the communities they belong to, and is based not on the amount transferred but on the wealth of the transferor.
Those rules are meant to favor a circular economy within the community. The goal is to limit capital exit via the purchase or sale of assets by subjecting it to collective decision-making. Capital exit via the purchase of external goods (as opposed to assets) is disincentivized via a tax that is sensitive to the membership profiles of the transacting parties. Personal services, being fundamentally more “circular”, are exempt from those tax obligations. What counts as “personal” service is fuzzy though, and Matt kicks the can down the road, leaving jurisprudence to figure that one out.
The critique
My critique first looks closely at the proposal and then expands its scope to broader considerations. My narrow critique follows five main strands, which I present now.
Panopticon. The way taxation is conceived in this scheme assumes a high degree of surveillance from “the center”. It might sound like the tax involved is similar to a value-added tax (VAT), but it actually is much more intrusive. A VAT is simply a tax on consumption: each merchant in the value chain has to pay it on their inputs (and can deduct them from their sales). The administration of a VAT is decentralized in the sense that the center delegates each merchant to collect the tax from their customers. The tax is simply a top-up on the value of the transaction. In the plural money scheme, the tax is a much more complicated function since it depends on information about the parties. In other words, while a VAT is a stateless process, the plural taxation scheme is stateful. As such, it requires knowing about the wealth of the parties and their membership profile. This in turn makes it difficult to decentralize the administration of the tax, instead requiring an all-seeing eye for all transactions.
Metagovernance. The plural scheme depends on information about the membership profiles of any pair of transacting parties. This therefore assumes that all communities cooperate with each other, thereby implying the existence of some kind of metagovernance framework that cuts across communities. Although Matt hints at that, mentioning blockchain as a common substrate for all communities, I believe this metagovernance would be much more encompassing than a common substrate. The development of such a framework could in turn undermine the diversity of the communities.
Distortion. The scheme introduces various possible sources of behavior distortion. While distorting behavior is, in some way, an explicit goal of the scheme (creating a pro-community bias), it may end up creating undesirable distortions. First, services are considered less “personal” the more they resemble a “rent on capital”, and Matt gives the example of high-priced investment advice. And as you recall, only personal services are tax-exempt. This clearly risks disincentivizing human capital investment and also smacks a bit of the labor theory of value–a major faux pas amongst economists. The second undesirable distortion is that material wealth is disincentivized because exchanges of goods are taxed, whereas at least some services are exempt. While that may be on purpose, I think it says more about material wealth being taken for granted than anything else. At the end of the day, material wealth is the bedrock of prosperity.
Specialization. The plural scheme artificially shrinks the size of the economy by raising barriers to exchange with other communities. While this may be deliberate, I’m not convinced the ramifications have been properly thought through. One of Adam Smith’s most famous insights in his magnum opus is that the extent of specialization in an economy is a direct function of its size. By shrinking the economy, you are preventing specialization, itself reducing prosperity. Adam Smith says it best: “As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.”
Foreign investment. If you deliberately make it difficult for capital to exit a community, you introduce a second-order effect: you won’t attract capital in the first place. This is the essential dilemma facing small economies, and free flow of capital has been the historically successful solution. For instance, when, in 1965, members of Hong Kong’s Legislative Council expressed concerns that the high levels of overseas capital held in Hong Kong may be repatriated at a moment’s notice, and that maybe something should be done to limit the free flow of capital, financial secretary John Cowperthwaite countered: “Simply put, money comes here and stays here because it can go if it wants to go. Try to hedge it around with prohibitions, and it would go and we could not stop it; and no more would come” (Monnery, 2017).
As part of a broader critique, I would like to push back on the philosophical underpinnings of plural money: namely the way Matt seems to tie universal money with dearth of community. I also think it’s worth exploring the successes and failures of past attempts at creating alternative money to illuminate what makes or doesn’t make sense.
Money and community
Matt’s critique of universal money is the latest in a long line of similar critiques leveled at money and capitalism in general.
Commodity fetishism
Among the most illustrious such critics is Marx. While Marx’s theories mostly ignore the monetary system as an irrelevant “veil” above the real economy, his notion of “commodity fetishism” resonated with later critics of community-eroding money. When everything is commensurable and there’s a price for everything, life itself risks getting commodified, Marxist commentators argue. The capitalist ideal of perfect competition is the ideal of turning every good into a commodity. In such a system, humans become valued based on their capacity to produce these commodities. In turn, the value of those commodities is seen by some, not as an “objective” value, but as a function of class relations, themselves mediated by various fields of power.
Viviana Zelizer (1997), however, pushes back on the idea that universal money leads to the commodification of life. Contrary to what Roman Emperor Vespasian argued, money still very much has a “smell”. Money may be universal, but that doesn’t mean it can’t also be subjective and heterogeneous. Zelizer points to the common practice of earmarking money, the fact that many transactions remain repugnant (selling organs, paying for sex, etc.), the idea that some gains, while legal, are considered “ill-gotten”. For her, universal money neither guarantees rationality nor condemns us to the erosion of community.
Incidentally, Matt makes Zelizer’s case when he remarks that “you don’t pay your children for their love”. Indeed, we don’t. This fact actually shows there is a limit to the supposedly corrupting power of universal money and therefore somewhat undermines his own argument. We still have a noncapitalist “economy” within a household, or within a group of friends. Gifts are still a thing. People spend lots on love tokens. Generosity still gets you status. Not all “good things” have been corroded. There are spaces where money “functions” differently and exchanges espouse multiple criteria.
Community despite universal money
The erosion of community that Matt laments therefore may have little to do with the type of money we use. In fact, 19th century America is famous for the vibrancy of its civil society, which Tocqueville marveled at on his travels across the country. And this was at a time where money was more universal than ever, in the form of the Gold Standard. And yet this period showcases countless examples of mutual aid at work.
Communities in the 19th century would routinely overcome free-riding problems, for example to raise money to fund turnpikes at a loss in order to open up commercial access to their town (Beito et al, 2001). People routinely got together in self-help associations known as “fraternal orders” to provide sickness and burial insurance to their members. By 1877, those mutual aid societies accounted for 456k members, forming extensive national networks. In the period from 1830 leading up to 1877, these associations are estimated to have disbursed more than a billion dollars to their members (2001 dollars) (Beito et al, 2001). Finally, before the advent of public schooling around 1850, private schooling in America was more thriving than we are led to believe. Basic education was in fact well within the means of all, including the working classes, as evinced by the 1850 census, which shows that only 10% of the population identified as illiterate, at a time where public schooling was largely absent (Beito et al, 2001).
I deliberately chose those examples from the Gold Standard era because it coincides with the most universal money. They are all examples of bottom-up voluntary and impactful associations at scale and sustained over time with essentially no involvement of the state. That said, these examples are meant to be more suggestive than conclusive. But I think they at least cast some doubt on the notion that universal money necessarily erodes community.
Alternative money in history
In his piece, Matt hints at the fact that alternative currencies have been tried time and again in the past, although he doesn’t dwell on it, which I think is a missed opportunity. Taking a look at past experiments in alternative money, their successes and failures, can be quite illuminating to the would-be designer.
For this section, I draw mainly from North (2007) and Selgin (2008).
Generally speaking, I see two main sources for alternative money movements throughout history: social justice or self-help. And, generally speaking, the former have tended to fare poorly, while the latter have encountered some success.
Social justice
A common characteristic of the social justice movements to change the monetary system is that they typically go hand in hand with an emphasis on community-building. Eighteenth century French utopian socialist Charles Fourier proposed the concept of the phalanstery, a form of regimented communal living and working, where workers are compensated both in shares of the property of the phalanstery and in wages based on their contribution in capital, work, and talent. While Fourier’s vision was less focused on the monetary system, his concept of the self-sufficient phalanstery would influence many after him. Louis Blanc, for instance, argued for state-funded “social workshops”, where profit, rather than being distributed based on the bargaining power of the different stakeholders, would be split equally between (1) the old and sick, (2) capital investment, (3) the workers.
Richard Owen, a Welsh businessman inspired by the French utopian socialists, goes a step up in idealism. In the 1820s, he founded several “intentional communities” throughout both Great Britain and the US. Soon those societies connected with each other and established centralized “exchanges”, which opted for a radically new way of valuing goods and services: time. The exchanges issued “labor notes” denominated in units of time. Prices were calculated using a formula including a daily rate for labor alongside cost of goods. However, by the mid 1830s, business had already dwindled down and exchanges were soon unwound. The main reasons for the failure were: (1) not enough diversity, (2) not enough competition, and (3) a peculiar price system that led to shortages and surpluses, some items being undervalued and other items overvalued in terms of their “real market price”. This indicates that, while you may dictate that things be valued a certain way, people will stubbornly refuse to do so. Artisans essentially found it too weird to price things in terms of time and couldn’t really wrap their heads around it.
With Proudhon, another 19th century French socialist, we see a clear articulation of the critique of metal-backed money. He argued that money whose issuance is not in the control of the people inevitably leads to injustice. It gets accumulated over time by the elite, resulting in an ever more unequal distribution of stored value. By giving money-issuing power to the “laboring classes”, you ensure that money does not become a tool for capital accumulation and remains just a tool to facilitate exchange (the only legitimate use of money according to Proudhon). He therefore proposed the establishment of a “Bank of the People”, that would democratically issue credit without speculation or interest. While the other proposals that I’ve presented thus far tended to be fairly localist and grassroots, with Proudhon, we start seeing a push for greater centralization and involvement of the state.
This trend toward state sponsoring of alternative money was also strong in America, where there was a similar push for democratic fiat money following the Civil War. The North had issued $450M in “greenbacks”, a paper currency delinked from gold, in order to finance the war. While many in the elite favored a return to the Gold Standard after the war’s ending, a contingent of people, known as the “Greenbackists”, argued for the continuation of the unbacked paper currency. Like Proudhon, they contended this was the only way to break the domination of the financial class. For them, a gold standard meant the triumph of special interests that happen to have control over large amounts of gold. In their eyes, control of the money should be within the purview of the state.
As we know, in a way the 20th century ended up vindicating greenbackism and other similar chartalist movements with the triumph of fiat currencies.
We have to wait until the 1990s to see meaningful new idealism-based alternative money movements.
The last one I’ll mention is the phenomenon of local exchange trading schemes (LETS). First conceived by Michael Linton in Canada in the early 1990s, the scheme consists of organizing a trading community around a computerized ledger that allows anyone to issue credit at zero interest in order to pay a counterparty. The credit is backed by a commitment to earn it back at a later date. In the meantime, the counterparty can use that credit as currency. The key innovation here is that money creation is not only by fiat but also fully decentralized: in essence, everyone holds a printing press.
The LETS scheme attracted a varied coalition of people, from ecologists, to anarchists, quakers, and mutual aid societies. Several of these communities popped up during the 1990s, especially in the UK and in New Zealand, often in reaction to a political class that had decided to implement a neoliberalizing agenda from the 1970s on.
LETS proponents argued that the scheme incentivizes “pay[ing] attention to the quality of their relationships with those with whom they trade, ensuring that they treat their fellows in a convivial, supportive, and nonexploitative fashion, for they have no other way of enforcing participation or the provision of a quality service” (North, 2007). That makes sense: when you pay for things with personal credit, that only works if you know each other well. Peter North calls it “relationship trading” that “works best when the social and the economic are mixed to provide an enjoyable trading experience for both giver and receiver”. As such, it takes on noncapitalist vibes, a system “in which emotion, affection, community, and humanity can be used as ways to regulate, and humanize, economic transactions.” This feels similar to the goals of plural money. Here’s how a member of a New Zealand exchange puts it: “If I’m in credit, I think that’s fine. If I’m hugely in credit, I think, ‘Hey, I’ve got to disperse this back amongst the people. What can I do to help them?’ So it’s a social obligation as well as a semifinancial obligation” (North, 2007). And this legitimately worked for some, with many members reporting an enhanced sense of belongingness and fellow-feeling from their participation in the scheme.
Despite the idealism, the British LETS typically didn’t last very long. Most faded away within 5-10 years of inception. While their counterparts in New Zealand tended to last longer (some still operating to this day), they never got really big. The phenomenon peaked in 1995 with 5.9k members spread across 57 exchanges.
In what follows I review the main reasons for this lack of success.
Failure to appeal to the mainstream. Many LETS exchanges failed to retain members beyond the idealist contingent. There was a general lack of familiarity with the concept of “relationship trading”, not unlike how Owen’s artisans were puzzled by the concept of a time-based currency. As one participant puts it, people struggled to “decolonize their mind” from mainstream concepts of debt and currency. People felt uneasy carrying debt. Local currency was still used in the same way as mainstream currency, as LETS communities did not enforce a certain way to price goods and services, unlike in Owen’s scheme. While there were some anecdotal successes in reevaluating work (some occupations were more viable within LETS than within the wider economy), they were fairly limited, and perhaps more due to the idiosyncrasies of the community than to the system itself.
Too little trade. Just like in Owen’s intentional communities, the number and volume of trades were too few for members with more mainstream political views. Fundamentally, the requirement that economic transactions be personalistic condemns the community to a Dunbar limit, so that word can get around about who can and can’t be trusted. As a result, economic activity remained marginal. Turnover for the average member of a New Zealand LETS did not even compensate for the cuts in welfare happening in the mainstream economy.
Underinvestment in public goods. Communities struggled to fund the public good of running the system–in particular the computing infrastructure. For example, the computer systems of some exchanges in New Zealand couldn’t keep up with the load at their peak of popularity.
Adverse selection. A common failure mode consisted in people with debits leaving the community while people with credits tended to stay. The administrators would then wipe out those debits, leaving an unbalanced system. Consequently, the people with all the credit were unable to spend it, and the system jammed up. Alternatively, they would spend their credit indiscriminately on too few goods, leading to inflation.
Self-help
Self-help is the second main source of alternative money movements in history. In contrast to movements based on social justice, which often coalesced around a leading figure and a utopian vision of society, self-help movements have tended to arise spontaneously, typically in reaction to some kind of mismanagement of mainstream money.
Commercial money
A classic form of mismanagement was undersupply of currency. George Selgin (2008) gives a fascinating account of chronic currency shortages in late 18th, early 19th century England. At the time, money mostly consisted of metal coins made of copper, silver, or gold. Only the Bank of England (BoE) paper substitutes enjoyed widespread acceptance. A chronic problem faced by many was that silver and gold coins were too valuable, and BoE notes denominations too high, for use by the working classes. Essentially the Royal Mint wasn’t minting enough copper coins, and the BoE wasn’t printing enough small-denomination notes, to meet demand for low-value currency. There are a variety of reasons for this lack of responsiveness from the money issuers, likely not unrelated to their monopolistic nature. Another reason was the poor quality of regal copper coins, making them easy to counterfeit, and reducing their appeal. Four years after the first batch of copper coin minting by the Royal Mint (1672), almost half of all copper coins in circulation were already fake (Selgin, 2008).
These shortages forced businesses to take some desperate measures. Some had to resort to giving a group of workers a single banknote or a single coin for them to somehow share (“group pay”). Others opted to delay payment into less frequent but larger installments (“long pay”). Some businesses went on to pay some workers in the morning, wait till they spent their pay, collect the coins from local merchants, and then pay the rest of the workers in the evening (“staggered pay”). Finally, some businesses went as far as underwriting workers’ collective tabs at the pub as a form of compensation. But perhaps the most interesting device devised by those private businesses was to set up company stores, known as “Tommy shops”, and pay their workers in company-issued “Tommy notes” that, at first, could only be spent at the Tommy shops. This is like if Amazon paid its workers in Amazon gift cards. Soon, though, local merchants started accepting those notes, making them substitutes for legal tender (also known as “scrip”).
But the shortage was so stark that these mitigations remained insufficient. This prompted entrepreneurs to get into the business of minting coins–specifically copper coins. Unlike silver coins, copper coins enjoyed some precedents of private minting (gold coins, in contrast, were clearly a monopoly of the Royal Mint). By the end of the 18th century, “private-sector coiners had solved Britain’s big small-change problem” (Selgin, 2008). Private coins circulated all over the realm, and even across the Atlantic. They had become “Great Britain’s principal change”. In a reversal of Gresham’s law, regal copper coins were driven out by commercial coins, preferred for their quality. In total, by the end of the 18th century, more than 100k guineas worth of private-sector copper coins had entered the economy, from more than 200 issuers. This was more than the amount of regal copper coins minted by the Royal Mint since 1750 (Selgin, 2008). Unlike their regal equivalents, private copper coins were of such high quality that counterfeiting was never really a problem. In addition, the sheer diversity of private tokens reduced each individual token’s market for counterfeiting. Issuances were localized and consisted of small batches that circulated mostly locally before being redeemed and reissued again. The small batches allowed for more sophisticated methods of production than mass production would have allowed. Fakes, as a result, were quickly spotted.
In short, commercial coinage in the late 18th, early 19th century Great Britain is a clear example of alternative money emerging spontaneously in reaction to monetary mismanagement by the authorities. It was so successful that Selgin even hints that it may have kept the budding Great Britain-led Industrial Revolution from petering out for lack of monetary lubricant.
Stamp scrip
Another fascinating self-help alternative money movement emerged during the Great Depression. Without going into the endless debates about the causes that precipitated the Great Depression, it’s safe to say that the main issue that kept it going was a lack of money circulating in the economy. At the risk of oversimplifying a bit, while Great Britain during the early Industrial Revolution may have suffered from insufficient money supply, the 1930s suffered instead from insufficient money velocity: people were holding on to their money, refusing to spend it. In the US, this was evidenced by excess reserves in banks without commensurate retail money creation. From 1929 to 1933, the total money supply shrunk by a third, even though the monetary base (the liabilities issued by the Federal Reserve) rose. “In spite of the theoretical circulation of as much as or more money outstanding from the Treasury than in 1929, contracted bank credit in the millions and hoarding of ‘nearly $2 billion’ [claim by Senator Bankhead], had resulted in insufficient circulation of medium of exchange” (Cooper, 2014).
In the late 1920s, in the midst of financial collapse and in the wake of hyperinflation, some German towns out of desperation started issuing their own currency notes. Well aware of the problem of money hoarding, they designed a self-liquidating scrip specifically to avoid that trap, taking inspiration from ideas put forth by Silvio Gesell. This special kind of scrip was called “stamp scrip” and consisted of notes redeemable for cash at a specific time in the future. For the note to be redeemable, however, its holder needed to purchase a stamp each week and apply it on the note. Missing a stamp would render the note worthless. This essentially functioned as a tax on hoarding. A stamp scrip note could be either spent or banked, but if banked, it would lose its value, thereby incentivizing spending and speeding up the circulation of money in the economy. Another way of looking at it is that this was a currency with a built-in negative interest rate. As far as I’m aware, this was the first “programmable money” ever created.
Stamp scrips became popular amongst local authorities and business associations in early 1930s Germany. During 1930-1931, about 20k such notes were issued and 2M people used them. These experiments quickly spilled over into Austria. In 1932, the town of Wörgl, Austria, adopted a stamp scrip and started using it to pay local state employees half their salary. In light of these successes, scrip also became popular with many American towns and businesses, and arguably even more widely implemented, although not with the same self-liquidating features as seen in the German experiments. Time-based stamp scrip experiments in America remained limited and mostly short-lived, despite famous economist Irving Fisher taunting them as a major part of the solution to the Great Depression, going as far as lobbying the government for a national stamp scrip plan.
Unfortunately, despite these successes, or perhaps because of these successes, “government authorities eventually shut down experiments in both Germany and Austria, declaring state monopoly over currency issue in 1931” (Cooper, 2014). The scrip movement was perceived by governments as either a threat to the state-issued currency (main sentiment in Germany) or to the gold standard in general (main sentiment in the US).
Argentina
My last case of alternative money driven by self-help is post-2001 crisis Argentina. The early 2000s were financial chaos in Argentina, with GDP sinking by 16.3% in the first 3 months of 2002, manufacturing output going down 20% in the same breath, the peso trading at a quarter of its former value in USD, and bank accounts getting frozen (North, 2007).
In the midst of this uncertain environment, barter networks spontaneously emerged that issued their own currency. Although short-lived, those barter networks achieved considerable scale in a short amount of time, with North (2007) indicating that “at the height of the crisis the barter economy significantly accessed the realm of production for the first time in the history of alternative currencies.” The networks offered a sustainable livelihood strategy for millions and showed what’s possible when the mainstream currency fails in a relatively advanced economy.
We’ve seen how a major impediment to the success of Owen’s intentional communities or modern local exchange trading schemes was the limited scale of the economy and opportunities for trade. In Argentina, because the financial collapse was so generalized, and the mainstream economy in such disarray, significant swathes of the formal economy took refuge in these barter networks, overcoming the bootstrapping problem plaguing similar past experiments.
In the end, those barter networks proved short-lived for several reasons, ranging from currency mismanagement (ironically), insufficient capacity (there was so much demand that people were literally fighting to get in), undersupply of public goods (cleanliness and orderliness), corruption (inevitable when capacity was so far behind demand), and ultimately government crackdown. The Argentinian experiment in alternative money was overall closer to a failure than a success, but this had a lot to do with the suddenness and scale of the events, and in many ways the failure of those barter networks were a consequence of their initial success.
Takeaways
A general insight from this quick tour d’horizon of alternative currency movements in history is that self-help is usually a better design guide than social justice. In other words, it is hard to improve upon the status quo, unless the status quo is failing in some major way, as in situations of money undersupply (late 18th century England), oversupply (early 2000s Argentina), or slowness (Great Depression). In contrast, grassroots utopian schemes invariably failed to go mainstream because they were often trying to impose something that just went deeply against the grain. In Richard Owen’s case, it was a pricing scheme first and foremost based on time, inspired by the fanciful labor theory of value. In Proudhon, the disregard of interest. In Linton’s scheme, the ease with which people could escape their debt. Similarly, plural money’s different treatment of goods v services, and of personal v non-personal services, strikes me as one of those things that people just won’t be able to wrap their heads around, much like Owen’s artisans couldn’t wrap their heads around the concept of time-based money.
With the story of the Greenbackists, we’ve seen how the movement for fiat currency had some ties to the utopian movement. In that narrow sense, one could argue that the 20th century was indeed a triumph of social justice money, although it is a victory that shows how utopian schemes necessarily require top-down implementation, rather than a bottom-up winning of the hearts and minds. Similarly, some properties of plural money strike me as unlikely to win the hearts and minds, namely the need for an all-seeing center with heavy information processing requirements, and the need for the global cooperation of all communities (to determine the tax burden), a level of complexity that leads me to believe that, ultimately, it would require some kind of top-down implementation.
Complex institutions such as money evolve their properties over millennia to achieve subtle tradeoffs along many dimensions. One should think really hard before modifying those properties. In particular, the properties of money that enable growth in the size of markets seem to be deeply important. In all the cases of grassroots social justice money we’ve reviewed, a major impediment was the built-in inability to scale, because of a dependency on personalistic relationships. To the extent that it may affect a sense of community –and we’ve seen that there is no clear evidence of that–, it seems like greater market reach is a tradeoff that most people are willing to make. This is another reason I tend to be bearish on RxC’s plural money proposal, with its various market-shrinking properties such as the deliberate capital controls. While it may sound nice if you focus on first-order effects, it seems like the second-order effects of dissuading foreign investment in the first place may have been overlooked. Finally, complex tax schedules are also generally linked to undesirable distortionary behavior.
It’s no surprise that civilizations throughout history have tended to settle on the most marketable good as their money of choice. It’s what best solves the coordination problem of the double coincidence of wants. It’s what best stores “energy”. People want to maximize the number of their potential counterparties. Universal money frees the mind, enables you to specialize ever more, as it expands the markets. Elasticity of supply is also valued, as evinced by the success of commercial copper coins in 18th century England, and paper currency-issuing Scottish banks in the same time period, but almost always with some kind of metallic backdrop and anchor, to prevent inflation (a failure mode in both some local exchange trading schemes and in Argentina’s barter networks). And if the best money is commodity money, it does not follow that life inevitably gets commodified as a result. Whatever tradeoffs commodity money comes with, time and again, left to their own devices, people have chosen it over alternatives. Don’t blame universal money for people bowling alone.
References
Beito, David T., et al., The Voluntary City: Choice, Community, and Civil Society, The Independent Institute, 2001.
Cooper, Elizabeth, Curing the US Great Depression (1929–1934): A Plan for a National “Stamp Scrip” Currency, London School of Economics, 2014.
Monnery, Neil, Architect of Prosperity: Sir John Cowperthwaite and the Making of Hong Kong, London Publishing Partnership, 2017.
North, Peter, Money and Liberation: the Micropolitics of Alternative Currency Movements, University of Minnesota Press, 2007.
Selgin, George, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775–1821, The Independent Institute, 2008.
Simmel, Georg, The Philosophy of Money, 1908.
Zelizer, Viviana, The Social Meaning of Money, Princeton University Press, 1997.
