Booster Currency

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= money as a medium of exchange should be considered a public service good (just as public transportation, for instance) and, therefore, that a small user fee should be levied on it. Instead of receiving interest for retaining such a currency, the bearer in fact pays interest.


Discussion

Bernard Lietaer on The Validity of "Booster" Currency

From http://www.ratical.org/many_worlds/cc/CC.html:

"The idea of a "booster" currency is just a variation of what has been variously described in the Anglo-Saxon literature as "stamp scrip" or "stamp currency" and in the German literature by "Wara" (merchandise currency) or "Frei Geld" (free money). Its theoretical concept was originally developed by Silvio Gesell about a century ago. Gesell was an Argentine businessman and economist who has been neglected by many theoretical economists because of the -- at first sight -- unconventional nature of his "charge" or "demurrage" concept.

Gesell's initial premise was that money as a medium of exchange should be considered a public service good (just as public transportation, for instance) and, therefore, that a small user fee should be levied on it. Instead of receiving interest for retaining such a currency, the bearer in fact pays interest. In Gesell's time, stamps were the normal way to levy such a charge. Now, the generalized use of computers in payment and accounting systems, as well as the availability of electronic debit cards, would make this procedure much easier and convenient to implement.

Is such an unconventional concept as "charge money" a theoretically sound one? The answer is a resounding yes, and is supported by economists of no lesser stature than John Maynard Keynes. Chapter 17 of Keynes' General Theory of Employment, Interest and Money analyzes the implications of such money, and provides a solid theoretical backing to the claims made by Gesell. Keynes specifically states: "Those reformers, who look for a remedy by creating an artificial carrying cost for money through the device of requiring legal-tender currency to be periodically stamped at a prescribed cost in order to retain its quality as money, have been on the right track, and the practical value of their proposal deserves consideration. He concludes with the prescient statement that "the future would learn more from Gesell than from Marx." The second part of his statement is now accepted fact. Might he also be correct on the first part?" (http://www.ratical.org/many_worlds/cc/CC.html)

History

A Review of Historical Precedents, by Bernard Lietaer [1]

"The vast majority of the books on economic and monetary theory or history never mention the possibility of such "charge" or "Demurrage money." Even the monumental History of Interest Rates, which covers interest from Sumer to today, does not mention it once. Is this concept then just a theoretical idea, or is it a practical possibility? In fact, history records the remarkable ability of this concept to adapt to different cultures and circumstances -- and to generate spontaneously the behaviors we are trying to promote.

Egypt

Recall the biblical Joseph, who interpreted the Pharaoh's dream and saved Egypt from "seven lean years" by stockpiling food. Why would the Egyptians have kept Joseph in such high regard for inventing stockpiling? Its use had been widespread since the beginning of the agrarian revolution several thousands of years earlier. Might there have been more to it than the Bible mentions?

These stockpiles were also the basis of the Egyptian monetary system. Each farmer who contributed to the stockpile would receive a piece of pottery having an inscription of the quantity and date of delivery of his contribution, which he could then use to purchase something else. These receipts, or ostraca, have been found by the thousands and were in fact used as currency. However, what the Bible missed is the key to the system: there was a time charge on these receipts. For instance, if someone wanted to redeem an ostraca of ten bags of wheat after six months, he would only receive nine bags. This demurrage charge reflected the costs of guarding the depot and quantities lost to rodents.

So we can understand that Egyptian farmers would never hoard this currency but invest in what was most handily available to them: improvements on their land and irrigation systems.

This currency was used in Egypt for more than a thousand years, until the Romans forcibly replaced it with their own banking and currency system, more "modern" and having positive interest rates. Note the apparent consequences of this change: As long as negative interest currency was used, the Egyptians built monuments that would last forever and maintained their agricultural system in remarkable condition, making it the breadbasket of the Ancient World. All this quickly disappeared when the Roman currency was generalized. Since then, Egypt has remained for two thousand years a "developing" country.

The Middle Ages

What triggered the exceptional economic and spiritual prosperity in Europe, particularly from 1150 to about 1300, when the extraordinary blossoming of all the cathedrals took place? Few people are aware that this period coincides with the existence of the brakteaten monetary system, under which local lords issued silver plaques that were called back on the average every six to eight months and reissued a bit thinner, amounting to a demurrage rate of about 2-3 percent per month over this entire period. People would therefore automatically invest in anything that would last almost forever: improved land, tapestries, paintings, or cathedrals.

From an economic perspective, cathedrals made sense as an investment in the future. There was fierce competition among cities to attract pilgrims from all over the Christian world, and cities competed for cathedrals, just as today they compete for Walt Disney Co. investments. The main difference, of course, is that cathedrals were also symbols of faith, masterpieces for thousands of craftsmen who chose to remain anonymous, and designed as lasting beauty. Is it a coincidence that cathedrals flourished as the most grandiose symbols of community solidarity in Western history, yet declined as soon as the brakteaten system was replaced with the king's monopoly on the creation of currency?

While the previous examples might be discounted because they seem to apply only to pre-capitalistic economies, the following examples bring us to modern times.

The 1930s in Germany

In 1930, Herr Hebecker, owner of a small bankrupt coal mine in Schwanenkirchen, Bavaria, decided in a desperate effort to pay his workers in coal instead of Reichsmark. He issued a local scrip -- which he called "Wara" -- redeemable in coal. On the back were small squares where stamps could be applied. A bill would remain valid only if the stamp for the current month had been applied. This negative interest charge was justified as a "storage cost." The workers paid for their food and local services with these Wara. For example, the baker had no real choice but to accept them, and convinced his wheat suppliers to accept them in turn. The process was so successful that by 1931 this Freiwirtschaff (free economy) movement had spread through all of Germany, involving more than 2,000 corporations and a variety of commodities as backing for the Wara. But in November 1931, the German Central Bank, on the basis of its monopoly on currency creation, prohibited the entire experiment.

The 1930s in Austria

In 1932, Herr Unterguggenberger, mayor of the Austrian town of Worgl, decided to do something about the 35 percent unemployment of his constituency (typicalfor most of Europe at the time). He convinced the town hall to issue 14,000 Austrian shillings' worth of "stamp scrip," which were covered by exactly the same amount of ordinary shillings deposited in a local bank.

After two years, Worgl became the first Austrian city to achieve full employment. Water distribution was generalized throughout, all of the town was repaved, most houses were repaired and repainted, taxes were being paid early, and forests around the city were replanted.

It is important to recognize that the major impact of this approach did not derive from the initial project launched by the city, but instead had its origin in the numerous individual initiatives taken in the process of recirculating the local currency instead of hoarding it. On the average, the velocity of circulation of the Worgl money was about fourteen times higher than the normal Austrian shillings. In other words, on the average, the same amount of money created fourteen times more jobs.

More than 200 other Austrian communities decided to copy this example, but here again the Central Bank blocked the process. A legal appeal was made all the way to the Supreme Court, where it was lost.

Stamp Scrip in North America

Emergency currencies have a longer history in America than most people realize. They seem to appear with a curious regularity -- the 1830s, 1890s, and 1930s -- coinciding roughly with the bottom of the long-term economic cycle called the Kondratieff wave. I will concentrate on the last period because it is the best-documented example.

The theoretician behind the movement in the United States in the 1930s dwas Irving Fisher of Yale University. He had analyzed the Worgl case in Austria and published various articles about its success. Subsequently, more than 400 cities, and thou-sands of communities or organizations all over the country, is- sued one form or other of emergency currency. Many were stamp scrip, involving the application of a stamp at prescribed intervals (monthly, for example). There was also a movement to issue this stamp script officially nationwide: Senator Bankhead of Alabama presented a bill to the Senate February 18, 1933, and Representative Petenhill of Indiana presented a bill to the House of Representatives on February 22, 1933.

During this time Irving Fisher approached Dean Acheson, then Undersecretary of the Treasury, to obtain support from the Executive branch for the same idea. Acheson asked the opinion of one of his Harvard professors, who advised him that the system would work but that it would imply strongly decentralized decision making, which he should check out with the President. Soon thereafter, President Roosevelt prohibited any use of "emergency currency" and announced the New Deal centered around a grandiose centralized plan of large construction projects.

These examples all show that the concept worked in the modern world whenever it was allowed and correctly implemented." (http://www.ratical.org/many_worlds/cc/CC.html)