The Secret Life of Money

I have come to the conclusion that this is going to be a multi-part series discussing the history, theory, and practice of complementary currencies. I’ll be giving people a few definitions that describe how I view money, and outlining how I came to those conclusions. Hopefully when this series is complete, you will have a much greater understanding of my perspective of money.

Before we begin, here is a list of books that I will be drawing heavily upon, for your reference.

  • “The Natural Economic Order”, Silvio Gesell
  • “The Future of Money”, Bernard Lietaer
  • “The Origin of Wealth”, Eric Bienhocker
  • “The Ecology of Money”, Richard Douthwaite
  • “Money: Understanding and Creating Alternatives to Legal Tender” Thomas Greco

Welcome, How Will You Be Paying?

The world is rich with monetary history. From Mesopotamia to ancient China to the Middle East…to more recently; Europe and the US, diverse types of money systems have existed. Unfortunately for most people, money is something that is taken for granted. Even in monetary economics, textbooks assume a certain type of money system — which, to no one’s surprise, is the money system that we use.

Our money system has specific characteristics which we will explore later in the series which define both the system, and the types of interactions which take place under it. It comes as a shock to most people — even economists! — that money could operate under different rules, and thus create an entirely different ecosystem in which to live.

In traditional economics, money has been defined and though of as a passive accounting device…a way to keep score. In the modern economy, money fulfills three roles which are sometimes in contention with eachother: medium of exchange, unit of account, and store of value. As we will see moving forward, the first two roles are integral to the concept of money, while the last is not…and is an artifact of our version of money.

Quick Caveat

Perhaps not surprisingly, the concept of complementary currencies is very attractive to the left (and especially, the far left) of the political spectrum. Unfortunately, these are the same people who nearly completely reject the tenets of mainstream economics. Thus, of the little resources on the net dealing with complementary currencies, most of it is depressingly wrong-headed. To make it clear; complementary currencies do not circumvent established principles of economics.

A very common fallacy that you will encounter when doing research about complementary currencies has to do with the nature of trade: a fallacy of composition. It is very common to view the economy as a zero sum game. Thus, if I win, by definition, someone else has to lose. This type of competition does occur within economies. For (a very simple) example; if you buy a Coke, Pepsi loses your business…and if everyone in the world buys Coke, Pepsi goes bankrupt. However, this type of competition doesn’t happen between economies. Economies as a whole do not compete. If everyone buys Toyota cars and GM goes bankrupt, the US economy does not lose — indeed, the economy has become more productive and thus wealthier.

It is common on the left to view complementary currencies as a way to “keep money within the community”. In this view, when we purchase things locally, the money stays within the community whereas if you purchase something from a different city, state, or country, the money leaves the community. There is absolutely no truth to this view, and the logical conclusion to this is that real self-sufficiency maximizes wealth…but then money is absolutely worthless! Never mind the fact that self-sufficiency makes everyone poor.

Description and Definitions

So if the above is not the purpose of complementary currencies, what is? If you view money from the perspective of traditional economics, then the only reason to have a complementary currency is to avoid the limitations of the zero-bound on positive interest rates. However, since the zero bound simply represents a lack of imagination, even within the current monetary paradigm, that the primacy is important, but it is not the only reason.

More philosophically, if you happen to view our money system as a value transmission mechanism, things are different. I believe not only that money makes transactions easier, but even that the types of money we use emphasize certain types of relationships between people. The way our money system works (and indeed, the way money systems work the world over) incentivizes competitive relationships. These types of relationships leave much demand for services unmet by supply — education is a prime example. I advocate complementary currencies because they can effectively bridge the gap between unused supply and unmet demand.

Complementary currency systems have also been shown to increase the velocity of legal tender within a local economy (Lietaer 1998), a goal which is exactly contrary to the claims made by leftists in the previous section. However, given that whole concept, as mentioned earlier, is based upon fallacy; we should consider focusing on their positive effects on velocity, which we will do in the coming sections.

Here are two definitions that I would like you to keep in mind, that may give you a better perspective on where I’m coming from when I think about issues of money. The first is the definition of money itself, and I like to quote Bernard Lietaer on this one:

“Money is an agreement between a group of people (or society) to use something as a medium of exchange (and thus, unit of account).”

Most fundamentally, money is nothing more than a belief system. Money derives it’s value from the fact that I “believe” that you will accept it. Legal tender emphasizes this belief by coding into law — it’s against the law not to accept US legal tender within the United States…but fundamentally, it comes back to the simple belief that you enjoy the convenience of carrying around paper (or plastic virtual numbers), instead of gold, silver, cows, or seashells…and you believe that I believe the same. Thus money becomes a unit of account that takes place of other goods and services that would be paid in kind.

The second definition is the definition of complementary currencies. I mostly use the term “complementary” to mean exactly a dictionary definition:

“3. mutually supplying each other’s lack.”

I do not advocate alternative currency systems taking the place of legal tender, but operating in tandem with them.

— — — —

In the next section, we will take a look at some historical instances of complementary currencies being used, explore some philosophical concepts that help me in understanding how the rules of complementary currencies differ (and how they related to their respective cultures), and what (if anything?) we could learn from the wisdom of ancient civilization.

This introduction was intended to be a brief overview of our concepts. I hope you enjoyed it!


2 thoughts on “The Secret Life of Money

  1. “It is common on the left to view complementary currencies as a way to “keep money within the community”. In this view, when we purchase things locally, the money stays within the community whereas if you purchase something from a different city, state, or country, the money leaves the community.”

    Why would the left be against keeping money within a community if they believe in a zero-sum economy? Silliness.

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