This guy is onto something...

Money and the Crisis of Civilization (Part 1)

Money: A New beginning (part 2)

You might not agree with everything there, of course, but there's a lot of food for thought and definitely some parts of a workable solution.

This concept of necessarily replacing personal savings with investment through demurrage-based money is really interesting in the way that it would reshape the fundamental ways in which we interact with one another and how society would be moved forward. Demurrage is a situation in which there is a cost associated with holding money for a period of time (as is the case with using many commodities, such as tobacco as was the case for ~200 years in the Americas. This is of course because these items tend to decline in quality, hence value, over time). It contrasts with the current system of inflationary money in that in a properly exercised demurrage-based system there is no benefactor to the decrease in value, which in the inflationary case is the initial user of the money before its value declines, often corporations or government contractors. The benefit coming out of this understanding about demurrage-based loot, though, is that money is constantly circulating and there is a disincentive to hold any for long periods of time, meaning it will always be going towards some sort of investment either in the form of direct investment in a company or in the consumption of a good or service. I have been thinking about this idea lately in the context of hoarding and how even the hoarding of commodities is very unproductive as it leaves capital that could otherwise be invested and productively used dormant, which is not advantageous to society as a whole. The redefinition of money from a store of value also used for trading towards one that is primarily for the use as a trading tool is one that would be hard for people to get used to, that's for sure.

Nonetheless, I have a hard time buying into forgetting about personal, as opposed to societal (so to speak), savings... But if I can use some demurrage-based loot to buy gold and use as a store of value in the event that I believe it's necessary, I'll be doin' that, thank-you-very-much. Buuuut.... My verdict on demurrage, which I will expand on later, is that it is an unnecessary mechanism that was created in order to counteract the interest growth caused by lending. With other fundamental changes, demurrage is just irrelevant. Later...

Discuss amongst yerselves? Anybody been looking at the silly versions of local currencies people have been throwing around? Now I know this is nothing too new, but the incidence of it has been exploding lately. I was immediately for it when I heard about the idea a while back; it promotes local economies, "disconnects the folks that use it from the Fed," and lessens the risk of fluctuation of value. Right?

Upon further study, most of the major alternative currencies I have looked at don't stack up (money: you must define this before going on. "The main uses of money are..."). Where is the guaranteed 100% reserve backing? (this distinction alone reduces all of the versions I have seen to distractions, wastes of time) Often these things are just mirrors of the dollar that just look different and are localized. And as far as the localization goes, I would argue that none of the local businesses participating are doing any better because of this. I haven't looked at the numbers, if there are any, but theoretically what would happen if say Boone, NC traded $100,000/day on average locally, then some amount close to, but probably not quite that amount would over time be changed over to the new notes and would be traded within the city to compensate for work or to trade items of value. The rest would remain traded in dollars, but the total $100,000 would remain the same. It would not necessarily have any impact on the Wal-Marts and McDonalds' in the neighborhood due to its peg to the dollar and the fact that that many dollars are still being held (or maybe not, it seems like the founders of some of these currencies have profit motives) in town as reserve for the new notes.

If however, there is a backing to the notes, like in some cases a bundle of food varieties (read the comments on this page to get some good insights, skepticism reigns supreme), these systems tend to become nothing more than "gift cards" usable only at the particular general store or farmer's market where they originate, and dollars still have to be transacted to get the notes out and get the goods bought in the first place. (On a separate note, currencies that are tied to a fixed amount of multiple goods have a strong tendency to fail. This is due to the unequal and varying valuation of the individual goods in the basket and the inevitable crushing hand of Gresham's Law. Gresham's Law states that bad money crowds out good money in a market, meaning that if two things are mandated as having equal face-values, but the market knows that one is more valuable than the other, the lower valued one will be traded while the higher valued one will be held.)

to be continued...