Why Community Currency?

WHY COMMUNITY CURRENCY?
by Lawrence Wilson, MD

A VERY BRIEF HISTORY OF MONEY

Barter. As society has evolved, so has money. Trade began with whole barter - trading one item for another. This still goes on, but is cumbersome. It requires two people who each want what the other has. If one party wants something else, whole barter breaks down.

So early on, some medium of exchange or currency was invented. Beads, sea shells, salt, precious metals, gems, tobacco leaves, and many other items have been used as money. One person accepts money for the transaction, and then spends it with someone else. This is called split barter.

Paper Money. As division of labor grew, more and more medium of exchange was needed. Gold and silver coins were popular, but hard to carry around. Banks were started to safely store gold. The banks issued paper receipts for the gold.

Soon people began trading the paper receipts instead of bothering to trade gold. This was the beginning of paper money, which soon became the dominant trading medium. It was often issued by the king or local ruler. Rulers often inflated the paper money by printing too much of it.

Banking in America. The founders of America knew well the tendency of governments to inflate their paper money, and thus steal the people's wealth. They decided the American government would not issue paper money. Gold and silver would be the only "legal tender".

Congress was given the power "to coin the money and fix the value thereof". That meant one could bring one's gold to the government mint and have it minted into standard coins. For her first 125 years, America had many local, privately-issued paper currencies that competed to serve the people. Many were issued by community banks. This was called "free banking". Especially until the Civil War, local currencies were the rule in America.

The Federal Reserve System. In 1913, complete control of American money and banking was handed over to a private European banking cartel. The American branch was called the Federal Reserve. The name is a complete deception, as it is neither federal nor is there any reserve. Local bank currencies were outlawed, and Federal Reserve Notes were forced on the people. A key idea was that the new money was issued as a debt with interest.

The U.S. Congress was told that having a central bank would prevent recessions. Sixteen years later the great depression occurred. Soon after, Franklin Roosevelt confiscated the peoples's gold, and in 1932 the United States declared bankruptcy.

Today, the nation is in debt to the FED for trillions of dollars. Also, there has been massive inflation of the dollar, with a loss of about 95% of its value since 1910. This is known history that is described in The Creature From Jekyll Island by G. Edward Griffin, American Media, Westlake, CA, 1994.

THE PROBLEMS WITH FEDERAL RESERVE NOTES

1) Inflation. All currency is subject to inflation. That is, it can be watered down by too much coming into circulation. This destroys its value and robs the people of purchasing power.

Today, an American dollar buys about 4 cents worth of what a 1900 dollar would buy. Inflation has forced two parents to work to support a family, caused great social hardship, and transferred huge amounts of wealth from the people to the government and bankers who issue the inflated currency.

Governments everywhere cannot seem to resist the temptation to inflate their currency. It seems like 'free money' to the government. But spending too much into circulation waters down the supply, making the money worth less. It is really a hidden tax that doesn't have to be approved by the voters. Most people don't understand this, so they don't object.

Inflation has slowed a little, recently, but not because the government has stopped overspending. The reasons are 1) global competition has kept prices down, 2) increased efficiency lowers prices, and 3) a huge increase in goods and services helps balance the amount of currency in circulation.

Safeguards against inflation include making paper currency redeemable in a precious metal or other commodity, and giving people a choice of currencies. America had both safeguards, until they were removed early in the twentieth century.

2) Currency is issued as a debt with interest. Federal Reserve Notes are printed by the US Treasury, and then sold to the FED for the cost of printing. Our government then borrows them back from the FED at full face value - with interest, to place the currency into circulation. Several things happen as a result.

First, more currency must be paid back than was borrowed - the original money plus the interest. Thus, not everyone can pay back their loans. There isn't enough money to do so. It doesn't matter how hard someone works. Failure and bankruptcy are built in to the system.

As a result of compound interest and bankruptcies, more and more money is transferred from the people - who produce most wealth - to the bankers and creditors, who produce little. The rich get richer and the poor get poorer. Groups blame each other for poverty, when a great part of the cause is built into the currency system!

Also, there is a mad rush to produce and sell things, many of them useless, to generate cash. This contributes to environmental destruction and rampant consumerism.

Finally, interest makes money a valuable commodity in itself, and keeps it scarce. People hoard it, and "work for money" instead of doing what they love to do, or what will serve the community. Communities feel this as a shortage of vital cash for trade and business.

3) Federal Reserve Notes are forced on the people. This is another primary problem. If people have choices about their money, they can force bad money out of circulation, like any other inferior product. We can convert our money into British Pounds or Swiss Franks. This is exactly what people do in nations with very inflated currencies like Russia. However, the fees and other hassles involved make this choice impractical for most purposes.

With few choices, there is no incentive for the government or the FED to be trustworthy with our money. As a result, the system continues unabated. The result of abuses of money by governments has been the destruction of many currencies, and indeed of many nations.

Perhaps the most famous in recent history was the inflation of the German currency after World War I. The German people reacted in panic and horror at the destruction of their currency. This no doubt helped Adolf Hitler rise to power, promising to restore the German nation.

THE RETURN OF LOCAL CURRENCIES

Local currencies are an effort to restore the integrity of our money and to teach people a little about real money. They are not a new idea.

However, community currencies are subject to the same problems as government currencies. The check or control is that they are not forced on the citizens. This works as follows:

If those administering the local currency are inflating it or otherwise abusing it, people can refuse to accept it, or may accept it only at a discount. This will usually stop the abuse.

Also, a new group of people can start a competing currency with more integrity. This is a natural, self-regulating system. It is like a free market in other products such as clothing or computers. If one feels the product is inferior, one can buy a different product.

The Interest Question. Although one can charge interest if one lends local currency to another, local currency is issued without interest. There may be a small fee to cover the cost of printing the currency, but that is tiny compared to interest payments.

Because no interest is owed to the issuers of the currency, more of it need not be repaid than was borrowed. Therefore, business failure is not built into the system. Also, currency is not continually transferred from the users to the issuers (bankers). Also, without interest, there is less tendency to hoard local currency, so it circulates more rapidly, fulfilling its function as an exchange medium.

In summary, community currencies help restore the American tradition of monetary integrity through voluntary, locally-issued money. They provide a supplementary medium of exchange to enhance community trade, stability and prosperity.

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