JCT:
http://globalguerrillas.typepad.com/globalguerrillas/2009/03/rc-journal-schwundg\
eld.html?cid=6a00d83451576d69e2011168fdd011970c
is a discussion at Global Guerrillas by John Robb for Networked
tribes, systems disruption, and the emerging bazaar of violence.
Resilient Communities, decentralized platforms, and self-organizing
futures.

Tuesday, 17 March 2009
RC JOURNAL: Schwundgeld

JR: NOTE: Here's some fun thinking about local currencies (a topic
that may become increasingly relevant in the coming years). Hope you
find it of use.

Regional or local currencies, or scrip, are designed to catalyze and
grow local economies. Typically, they gain steam when a regional/
local
economic depression is exacerbated by national/global deflation
(asset
collapse and monetary hoarding) -- as we are experiencing today.
These currencies take a variety of forms, from "hour of work"
equivalents, food/energy stockpile backed currencies, to depreciating
currencies (called Schwundgeld in Germany, arguably the most
popular).

Schwundgeld is a form of currency that actively discourages
hoarding/savings through aggressive rates of depreciation -- as in,
notes issued at the start of January depreciate by 2% per month,
meaning it is worth 98% of face value in February and 96% in March.

JCT: I think changing the value of your chips every month to get 2%
is
stupid when you could just rake-off the 2%.

JR: This rate of depreciation incentivizes immediate use, or demand,
in depressed economies.

JCT: Believe me, the demand is already there in depressed economies.
You don't need any greater incentive to trade.

JR: It also minimizes societal stratification due to financial
accumulation, discourages hoarding, and minimizes non-productive
behavior. The arguments against Schwundgeld and regional currencies
in general, as outlined in "Regional currencies in Germany - local
competition for the Euro" by Gerhard Rosl and commissioned by the
German Bundesbank, fall into the following categories:
It depresses trade with global system, reducing total potential
wealth
generation.
Users of the system are not indifferent to immediate vs. delayed
demand. While this does stimulate demand in the short term, it limits
growth of the currency and its ultimate stimulative effect.
Profits from the system are misused.

In short, according to this analysis, depreciating currencies don't
work as well as the theoretical models of national fiat currencies in
stimulating economic growth.

JCT: Any opinions on non-depreciating time-based community
currencies?

JR: Of course, the theoretical models in question don't reflect our
current experience, since we are now in depression/deflationary
economic environment with accelerating hoarding/income
stratification.
In light of this development, the response to the critique is that
potentially sub-optimal solutions are often better than no solution
at
all (as in Churchill's famous dictum: "democracy is the worst form of
government, except for all those other forms that have been tried
from
time to time"). Specific responses:
Local currencies ensure that minimal local needs can be met in the
absence of a functioning or available global system.

JCT: It's useful having a lifeboat for when the ship of state sinks.

JR: In this respect, it minimizes or hedges against catastrophic
downside risk and reduces uncertainty.

JCT: Having time-truequing lifeboats saved Argentina's people during
the 2001 bank closure as 7,000,000 people switched to barter notes.

JR: This is an aspect that the national system fails to address.
National systems are indifferent to local malfunction.

JCT: But could if they were modeled on LETS local currency software.

JR: While depreciating currencies don't enable rapid monetary growth
and accelerating stimulation, they are very effective at dampening
excesses (everything from stratification, hoarding, and non-
productive
behavior). Currencies of this type aren't designed as a store of
value over the long term.

JCT: Sure they can. An IOU for a neighbor's time is good as long as
he
or his children or grandchildren are around to want dad's IOU back.

RB: Alternatives exist for that, and savings are accomplished either
through conversion to national currencies, assets, or fungible
commodities.

JCT: Don't have to use national money if your local currency does not
have a demurrage charge. You can then save in local currency without
losing. Why leave any opportunity for the banks?

RB: The system does what it is designed to do. Cui bono? The most
telling critique is the issue of, "how is the excesses generated by
administering the system spent?" This can be addressed by limiting
administration costs to a fixed percentage of the system and
allocating the remainder to public platforms -- everything from
maintaining an electrical microgrid (in order to eliminate/lower
transaction costs) to baseline production of food/energy/etc.
How does this apply to warfare?
If you are working on COIN or stability operations and you aren't
thinking about the potential uses of local currencies/scrip, you
aren't even in the game. Connecting devastated local economies to a
chaotic and hyper competitive global economy does not auto-magically
occur,

JCT: It can if they all adopt the time standard of intertrading.

RB: it needs to be built/grown organically and insulated against
rapid
reversals. Local currencies could play a significant or central role
in mitigating and restarting economic activity following:
Disconnection of local economies due to COIN operations (ink spots)
post instability.
Economic development in areas where national corruption/mismanagement
make services highly uncertain.
Recovery from rapid economic collapse (when formerly developed areas,
heavily dependent on the global economy, are economically
devastated).

JCT: In response to his article hailing community currencies, I
had written:

Posted by: KingofthePaupers | Tuesday, 17 March 2009 at 01:12 PM

Jct: But the small time-based LETS currency lifeboats will one day
unite into a world-wide timebank.
When I visited Europe in 1999, I paid for 39/40 nights of
accommodations with an IOU for a night back in Canada worth 5 Hours.
It's only a matter of time until all systems based on the Time
Standard of Money will use the internet to intertrade globally. I
did.
We need the United Nations Millennium Declaration UNILETS Resolution
C6 to governments for a time-based currency to restructure the global
financial architecture. Barter Timebanks are economic lifeboats.
See my banking systems engineering analysis at
http://youtube.com/kingofthepaupers with an index of articles at
http://johnturmel.com/kotp.htm
--

JCT: James Bowery wrote on Tuesday, 17 March 2009:

JB: Just paying it out in a citizens dividend is superior and it
creates the same incentive stockholders have to minimize operational
expenses of the corporations they own.

JCT: Just like Ithaca Hours, everyone could start with a certain
amount of new currency to jump-start the economy and it could be paid
out as a dividend. The famous Social Credit dividend.
--

JCT: Jay wrote Tuesday, 17 March 2009:

J: Frei Geld or "free-money" was proposed in 1906 by Silvio Gesell in
The Natural Economic Order. Gesell's free-money bears a form of
negative interest called demurrage. Periodically, a stamp costing a
tiny fraction of the currency's denomination must be affixed to it,
in
effect a "user fee" or a "maintenance cost"; another way to look at
it
is that the currency "goes bad" - depreciates in value - as it ages.
(Of course, today this would be done electronically.)

JCT: Making your currency depreciate without adding a demurrage stamp
is stupid. Changing the value of your chips for any reason and having
to compensate is unnecessary and stupid.
--

JCT: Fred wrote on Tuesday, 17 March 2009:

F: they were paid the difference in script, if they were "lucky." So
in your vision for the possible use of script in the future, how is a
similar scenario prevented?

JCT: Then they were paid little scrip because the company had to pay
the interest on its debt first. Now, because the company doesn't have
to pay the interest on its debt, there is more to pay the workers.
--

JCT: The World Dictator's IRON FIST wrote on Tuesday, 17 March 2009:

WD: one of the things that has apparently escaped all the geniuses on
this page pushing these innovations is that all this shit has been
tried before and doesn't work very well.

JCT: Global computer barter has failed in the past?
--

JCT: James Bowery answered on Tuesday, 17 March 2009:

JB: The World Dictator's IRON FIST: What's wrong with electronic
currency? How many places of business don't have electricity and
telecommunications?

JCT: Dictator must think that because they didn't have electricity,
computer barter could not have worked in the past?
--

JCT: Dictator continued:

WD: local-type currencies were tried in Argentina as a response to
the
economic collapse there. They failed hard and went into unuse for a
very simple reason - COUNTERFEITING!
apparently, "global guerrillas" can't secure their own fiat
currencies
very well either.
keeping the fiat currencies of the big boy currencies from being
manipulated into worthlessness is hard enough and demands nation-
state
level resources.

JCT: Yes, poker chips can be counterfeited and local currencies can
be
sabotaged. But the casinos haven't stopped using chips because there
could be cheating problems. By the say, Hugo Chavez is supporting
community trueque (barter) systems and those tokens will have the
nation-state resources to make sure there is little sabotage.

WD: in the end it's all tricks to make perfectly copyable paper and
plastic harder to copy, and they still have a hard time of it.

JCT: Okay, so do it all by the LETS software on computer if you're
worried about counterfeiting. Pure electronic currency can't be
counterfeited because each credit is matched by a debit somewhere
else everyone can see. But if you really wanted the convenience of
portable tokens, you could do like King Henry I's interest-free
government tallies. He took a stick, etched "10 pounds of gold" on
it,
split the stick, one half was the poker chips, the other half was its
tally. When came time to pay, the wood grains had better tally up.
There was no way to counterfeit a tally stick system. So if your
local
currency is vulnerable to counterfeiters, (bankster agents sabotaging
the real competition to their usury-based system), you can solve the
problem by using popsicle sticks and splitting them.

WD: small time players setting up their own fiat currencies do great
until their currencies become important enough to be worth
counterfeiting.

JCT: Then they start using popsicle tallies.

WD: Then you have the current flood of amateurs with high-quality
color copier/printers inflating the money supply with a note or two,
and if the currency is truly looking tasty, you'll have professional
counterfeiters making their own high-quality copies.

JCT: Casinos chips can't be photocopied so buy your tokens from a
casino chip maker.

WD: small time fiat currencies have tenuous trust in the first place
and can't survive the onslaught, period.

JCT: And IOU for a neighbor's time is the least tenuous promissory
note I can imagine. I'd rather invest my savings in loans to my
neighbors in exchange for their promised time than in deposits to
banks in exchange for their promised interest.

WD: The only real solution is to implement highly detailed, invasive
record keeping of transactions, which also destroys most of the value
of paper currencies.

JCT: As I pointed out, the first LETS didn't use counterfeitable
tokens. Everyone called the timebank to register the debt for the
service they had just received so it could be posted to the server's
account. But why not use paper notes for small transactions and the
computer for big ones?

WD: governments and states for whom these currencies might become an
annoyance, take (bank) note.

JCT: Several US states made the IRS declare that timebank
transactions
will not be taxable or reduce unemployment benefits because if the
old
lady bakes a pie for the kid who mowed her lawn, it means they won't
need to ask the state for such help, and therefore should not be
deterred. The good genie's out of the bottle and global computer
barter cannot be stopped. The inevitable union of LETS groups of poor
people and commercial barter groups happens the moment the barter
groups adopt the time standard of money.

WD: NOTES STRAIGHT FROM THE IRON FIST OF THE WORLD DICTATOR, ENGAGING
IN SIXTH-GENERATION WARFARE AGAINST RANK STUPIDITY

JCT: To mistake abuse of a system for a system failure is like saying
that bicycles don't work because you fell down while riding it
backwards.
--

JCT: JR wrote on Tuesday, 17 March 2009

JR: IF, the amounts used in any single transaction are typically very
small and the types of goods typically bought have limited
fungibility. Better yet, the currency in this model depreciates
quickly. Counterfeit it? Good luck That works fine in a high volume
and relatively anonymous economic system, not in a community that you
want to work and live in.

JCT: Yes but Dictator's comment does apply to my suggested UNILETS
world-wide time-trading network so I have to answer a valid worry
about the paper notes.

>More goofy hippy monetary theory.

JCT: Sure I was part of the Woodstock generation but hippy isn't
necessarily goofy.
--

JCT: Brother Mark wrote on Wednesday, 18 March 2009

BM: John, here's what will happen in a rational market that uses
"this
scrip will self-destruct" pseudo-money:
The local government will use the power to tax as a way to a)
force/manipulate use of the scrip and b) peg the depreciation
dynamically (just below) the inflation of the higher-order
national/global legal tender.

JCT: They're going to make a 1-Hour bill that used to be worth $10 US
Greendollars only worth 50 minutes? 70 minutes?

BM: Any one else using this crap voluntarily is a moron hipster or
hippy altruist.

JCT: There's something wrong with being a hippy altruist? You'd
rather
sit doing nothing when the banks won't provide any chips for you to
do
trade than print up your own chips? My first political poem was:
Why represent our collateral with their chips for a fee?
When we can represent our collateral with our chips for free?
Should we sit and starve until the malfunctioning "chips for a fee"
system reboots or should we set up our own "chips for free" system?


BM: And these people could do a better job by investing wisely then
gifting their communities with the profits.

JCT: Who has all this money to invest? The problem is that no one has
any money.

BM: Btw, when I wrote "force/manipulate" in relation to what local
governments could/would do I meant that in a good way. As long as
they
can extract rents at the point of a gun they should do it in the
least
harmful way possible. "Pay the bastards in scrip" is a good slogan
for
local currency.

JCT: Pay the King with the King's tallies? Great idea. Just like the
Argentine provinces who paid their employees in small-denomination
provincial bonds everyone could pay their taxes with.
--

JCT: rick wrote Wednesday, 18 March 2009:

R: That works fine in a high volume and relatively anonymous economic
system, not in a community that you want to work and live in."
I think that hits a key issue in the topics discussed here:
scalability.
How large can a tribe grow before the governance structure morphs
into
one similar to those found at the state level. How large can a
resilient community grow before it morphs similarly? How large can a
scrip system grow?

JCT: How many poker games can Ceasar's Palace provide the chips for
before problems occur? LETS time-trading software has worked for a
databases of 10 records, 100 records, 1000 records, more, with no
problems so at what point do you think the database gets too big for
the software to work right?

R: When my father and I discussed tribal systems, many years ago, the
number of approximately 1,200 seemed to work well. That wasn't the
total number of tribe members, but the total number that could
participate effectively in a very loose, very democratic system of
governance. And I believe that was reflected in the size of most
native american tribal groupings.

JCT: And the banking systems engineer believes being able to
intertrade on the internet with everyone else is optimal.
--

JCT: Duncan Kinder wrote on Wednesday, 18 March 2009:

DK: An alternative to Schwundgeld and other such newfangled
contraptions would be to use valuable commodities. Gold and silver
obviously fit this bill. Global guerrillas, of course, can and do
also
use narcotics for this purpose. Stolen art can also serve.

JCT: Okay, but we should use not only the gold standard of money, or
the stuff standard of money (commodities, houses, autos, etc) but
also
the time standard of money. Collateral should be not only gold and
stuff that poor people do not possess but also time to work which
poor
people possess in abundance.
--

JCT: Jonathan wrote on Wednesday, 18 March 2009:

J: Local monopoly money would not be a better economic fix than
national monopoly money.

JCT: Interest makes the national money monopolize in the hands of the
winners of the mort-gage death-gamble musical chairs financial game.
There is no interest on local money so no monopoly on supply. The
problems of "never-enough to pay the interest" money do not arise.

J: If you want to revive an economy, you must promote financial well-
being through savings and capital accumulation.

JCT: I guess it's no solution for people who don't have any savings
or
capital.

J: Only then can a strong and productive economic base be created
from
rational economic behavior.

JCT: And since there is no spare savings or capital, only then means
only never. Great solution.

J: Depreciative fiat currencies, whether it be scrip or dollars,
disincentivizes the critical behavior of saving and capital
accumulation and promotes irrational spending and indebtedness. You
should be promoting precious metal currency, not fiat paper.

JCT: We should be promoting a system where only the gold bullion
brokers make a killing? And how does a piece of "fiat paper" worth 1-
hour of my time owed to you depreciate?
--

JCT: James Bowery wrote on Thursday, 19 March 2009:

JB: Jonathan, let's take the libertarian position to its logical
extent: No state. No taxes. No "monopoly on force".
Competing currencies backed by businesses.

JCT: And backed by people...

JB: There will be a market for security companies. The security
companies will be retained by those who have much to property to
protect. Would you deny security companies the right to issue their
own currency, redeemable with them for protection of property?

JCT: I'd take G.M. or Ford Dollars without qualm if I could get cars
for it as certainly as I accept Canadian Tire Dollars without qualm
because of the store goods I can get for it.
--

JCT: Pat wrote on Thursday, 19 March 2009:

P: "Business" wouldn't be the backers of currencies, fiat or no, in
an
libertarian, anarchist system. That's too generic of a term.
Probably,
competing banks would issue currencies.

JCT: I can understand how Ford could issue its car-dollars but how
would the banks "issue" their "bank-dollars?"

P: Rapidly depreciating fiat currency, or scrip? No thanks.

JCT: You can only keep asking yourself this question as long as you
keep out of mind that a 1-Hour bill is always worth 60 minutes of
unskilled labor. Inflation is a thing of the past once the UNILETS
Time Standard of Money is adopted.

P: Rapidly depreciating receipts of money, i.e. redeemable for some
amount of whatever (gold, silver, sand dollars, cigarettes)? Sure.
This is what the dollar used to be, minus the expiration date part. A
20-dollar bill was, at one point, redeemable for an ounce of gold.
The
bill was not the money. The gold was the money. The bill was simply a
more compact, more easily traded, and more easily divisible form of
that money.

JCT: So you have faith in yellow rock but not your neighbor's time?

P: A security company could have its own currency redeemable with
protection. Let's call this a receipt.

JCT: Bingo, you finally got it.

P: I exchange whatever currency I have, issued by whatever other
institution issues currency, with a receipt that says I am entitled
to
a certain amount of their protection.

JCT: But what's the numeraire we judge by? Gold? Silver, basket of
commodities? Time? What do you think is best for global trade?

P: In effect, I buy the guarantee of their future service, should i
need it. The currency I give them they would have to be willing to
accept in the first place, but why shouldn't they? If they don't
they'd lose my custom. This service I purchased from them would be
delivered whenever I needed it. This actually happens in the real
world, right now, every day.

JCT: Now let every company, instead of issuing their own chips, come
to my cage and leave me an IOU for the chips I provide? Now
everyone's
using the same chips backed up by the same products as the multi-
currency version. More efficient, same result.

P: You ever buy a car wash at a gas station? They give you a receipt
redeemable in one car wash, of a certain quality. And one more thing,
this receipt expires. Theoretically, these receipts gas stations give
out for car washes could easily be traded as de facto currency In
fact, they are currency. However, the demand for this currency is not
very high, and people would rather have other things, namely Federal
Reserve Notes, instead of car wash receipts.

JCT: But a receipt for a car wash from your local dealer won't inflate
like
holding cash would have. It's always worth 1 car wash. So are car
washes becoming more valuable or is money becoming less?

JCT: James Bowery wrote on Thursday, 19 March 2009

JB: Pat, why is it that currency backing would be limited to "banks"?

JCT: But in the next breath, Pat accepts backing by corporations.

JB: Aren't traditional banks merely storehouses that issue claim
checks on their stores? Probably the original banks were the grain
inventories protected by fortifications. You deposit your grain. You
get a claim check redeemable for your grain minus the cost of
protection. So there you have it -- protection service -- right from
the start.

JCT: Receipts for collateral, whether gold, grain, or time.
Time is the best money numeraire.