As we move into the next month of the Econolypse, and things don’t appear to be turning around, it’s probably a good time to oversimplify things. Personally, I get some of my best insights from looking for overgeneralizations — perhaps wrong on a specific level — but which offer some central handholds. It allows me to turn things around and look at them, and then later, I can go back to complexity.
One of these mental models is the velocity of money, and the troubles we have gotten into by speeding money up.
Today, the outgrowth of global business is that money is fast: it moves from one zip code to another in moments. Enterprises transfer millions in nanoseconds, buying good in NYC that are manufactured in Taiwan and assembled in Vietnam for delivery in Saudi Arabia.
Many of our international monetary policies lead to fast money, either directly — like countering tariffs and protectionism — or indirectly, through the general incentives toward globalization, like the differential in costs of goods and labor across the world.
I have come to believe that fast money is dangerous. It is an indicator of complex, global integration of our economic systems and the destabilization of the economies linked in this high speed network.
My study of software-in-the-large and complexity theory has led me to believe that some sorts and scales of complexity are beyond human comprehension, and therefore when we are confronted with systems of that sort, we cannot control them even if there might be ways to do so. It is also the case that some systems cannot be controlled: they play themselves.
From that perspective, the recent mess that we have blundered into might be seen as inevitable. No amount of regulation is really going to work if the core principles of unfettered global markets and growth-based economics are going to remain the foundation of our economic — and geopolitical — policies.
I think we — the world — need to slow down money, to decouple the global systems.
Slow money is the perfect choice to counter this trend. Woody Tasch may be the first to use the term, perhaps in a narrower sense than it is now being used by me and others. Basically, slow money is about slowing the velocity of money: having it passed around a few times in the community before it is used to buy iron from China or coffee from Venezuela.
As I recently wrote (prior to knowing about Tasch’s use):
[from The Slow Money Movement: Demassifying Retail]
“I maintain it [slow money] is more grounded: the aware customer wants to know where the milk in the chocolate is from, or whether the company takes back its empties, or whether local manufacturers create the packaging. Once people buy into the logic of local, they want the money to go around the community in as many cycles as possible before leaving, because those economic cycles mean social capital is built up, and local resilience is increased.
It’s a slow money movement, where the outputs of one local economic transaction is the input for another local economic transaction, binding the parts closely together, and making the whole stronger, and the local environment richer.
It’s not just comfort, Jeff: it’s tribalism. We want to keep the money close to home, as long as possible, because the people closest to us are the ones most likely to care about us, and to take us into their circles.
So when we make economic choices, it’s no longer just cost, or convenience. Just as we have rejected the ease and convenience of littering — which was commonplace in my childhood — we need to move past the superficial benefits of cheap goods distributed by global corporations. Even when the products are equal, the impacts of having the money stay local create an exponential impact. The local accountant gets work, the local marketing firm, the local packaging plant, the local farmer: all are benefited. And it comes back to us, in a richer and more dynamic local environment. We get the second and third order benefits.
The alternative is that local economies become thin, like soil that has had decades of pesticides and inorganic fertilizers piled on it: the microorganic life that makes soil rich is all gone. Then, without the enormous inputs of fertilizers and pesticides, there is no crop. If we let the organic richness of local business die off, we will be a fragile as overfarmed pasture, and what is left could blow away after a single season of drought.”
Some aspects of slow money can be realized with standard money: you can intentionally buy local using US tender. But perhaps local money is a more efficient way to get to slow.
I have been reading about local scrip, and how it has been used in other places. One sort of local scrip has a tax built in, so that people have a strong incentive to spend it quickly.
[from A Depression-era deflation remedy.
“Though there are alternative currencies everywhere, Germany is particularly fond of Gesellian depreciating varieties. Bavaria still boasts the biggest in the country, the chiemgauer.
Named after the region where it originated in 2003, the chiemgauer can be used alongside the euro in more than 600 shops and firms in the area. About 300,000 of them are said to be in circulation. In the town of Traunstein, the chiemgauer can be spent on newspapers and food and some people are paid in it.
Spent it must be, because it loses value every quarter. The notes have an expiry date after which they need to be renewed with a sticker costing 2% of their value. The quicker money is spent, the faster, in macroeconomic terms, its velocity. Gesell argued that a higher velocity of money helps combat deflation.
Some of Gesell’s theories were rejected by Fisher. But generations later, zero interest rates in slumping Japan led to renewed debate about a temporary tax on money to encourage spending.
Gerhard Rösl, professor of economics at the University of Applied Sciences in Regensburg, who wrote on alternative currencies in 2006 for the Bundesbank, says the overall stimulus from such schemes in times of deflation may be short-lived because, though the velocity of money increases, its supply tends to shrink. For now, the amounts in circulation are minuscule. Most are a gesture of defiance against globalisation by encouraging local commerce rather than a rigorous economic experiment.”
Imagine a situation where municipalities or region issued local scrip, for example San Francisco. The currency would be accepted by local utilities, landlords, restaurants, grocers, transit, and gas stations.
Individuals and organizations that are concerned with localism would acquire the scrip and use it, knowing that the scrip would be accepted — by fiat — by national chains and retailers, but poured back into the economy locally.
One simple mechanism — for example, using scrip as change in retail cash transactions — would pour a large amount of scrip into use very quickly. People would have an incentive to use scrip first, and dollars second.
National chains — Exxon and Wal-Mart — would have an incentive to spend the scrip quickly and locally. The Federal government could push local scrip into use by providing part of welfare and other financial aid in the form of local scrip. And of course, scrip could be converted to dollars after some appropriate conversion fee, so if Hilton wants to take Bay Area cash flow out of the local market to support a national ad campaign they can, but they might be better off using it to pay for local food instead.
But in the case of a local scrip with a timebased tax, the velocity increases without moving the wealth out of the region. So it is local, but changing hands fast.
I still consider this slow money, since the money doesn’t leave the local area quickly, even though it is involved in more transactions.
Slow money doesn’t have to mean local scrip: it’s a large idea than a single tactical realization. But scrip offers some real benefits. Not the least of which is that the people in a given region — the Bay Area, for example, or Chiemgauer — can agree to support a scrip and get the benefits of slow money, without the direct involvement of the national government.
