I have described myself as “A recovering Keynesian” in that my training was substantially all in Keynesian Economics with “Honorable Mention” for Communist / Marxist Theory and a smattering of Economic Theory that reached back to Say and some of the French traditional economics and a bit of the Scholastics of Spain. Notice what is missing from that list? Yup. Austrian School.
There were occasional sideways comments about The Chicago School and I’d heard the name Austrian School (often in a disparaging remark that we ought not to waste our time on them.)
As I’ve slowly started going back to re-learn Economics with an Austrian Accent; and fill in the missing parts, I’ve occasionally had “interesting insights”. This often happens when I’m first wandering in a new field, so that it is happening when looking at The Austrian School tells me “there is some there there” worth continuing.
In this case, I was reading a general introduction to The Austrian School:
Along with suddenly being forced to learn some strange words, like “praxeology” ( the study of what makes people do things http://www.wordiq.com/definition/Praxeology ) I also ran into a different view on money.
At that first departure into “why folks do things”: The Austrian School bases insight on rumination about just that; why people do things. The non-Austrians critique this as ‘non-scientific’ and like instead to gather data and from it discover what the result might be. So Austrians say reality is too complex to observe and measure, while the others say “you are not scientific”. I’m left looking at it thinking Economics is just chock full of “Emergent Behaviour” and feedback loops. The economic models have been about as accurate as the climate science models in predicting results.
So while I can see a benefit in all the data gathering, measuring, and modeling, IMHO the Austrian School has the “common sense” sanity check on that analytical approach. My first suspicion is that these two methods are likely to work best as checks on each other. That will wait to be seen.
But it was the diversion into “why money forms” that caught my muse today.
My prior orientation to Money was largely as Historical Truth. – Money “just was”. The goal was to gather data about the kinds, the flows, the quantities. Lip service to the history of money as ‘funny stories’ about things like sea shells and large rock donuts and other “primative” money. All nice and all; but not very enlightening as to WHY money. Just “something we all agree has value.” The Austrians have a thesis that “makes sense”.
The dominant British tradition received its first serious challenge in many years when Carl Menger’s Principles of Economics was published in 1871. Menger, the founder of the Austrian School proper, resurrected the Scholastic-French approach to economics, and put it on firmer ground.
Together with the contemporaneous writings of Leon Walras and Stanley Jevons, Menger spelled out the subjective basis of economic value, and fully explained, for the first time, the theory of marginal utility (the greater the number of units of a good that an individual possesses, the less he will value any given unit). In addition, Menger showed how money originates in a free market when the most marketable commodity is desired, not for consumption, but for use in trading for other goods.
And a lightbulb came on for me.
I’ve been pondering how to make a usable “money” system that depended less on Central Banks and monetary authorities. A different kind of money that was not based on a precious metal, yet had fundamental limits on creation of money out of nothing from the same basic roots. Here was the key.
Pick some services and products that are widely desirable, very marketable, and make an easily transported and exchanged currency out of them
Immediately what comes to mind is stamps. They have been used almost forever as a way to collect taxes and send small values through the post (where coins can be problematic). The U.S. Post Office now issues “Forever Stamps”. I’ve often used the change in the value of the US Postage Stamp 1st Class as an inflation metric. When I was a kid, there was a great fuss as it rolled over to 5 Cents. It is now on the cusp of 50 Cents and the $US is “worth” about 10% of the value then (measured in my personal basket of goods that includes gasoline – 35 Cents / gallon to $3.50 / gallon and others). So simply by visiting the post office, you can turn $US into an inflation protected currency: The Forever Stamp.
As a first unit of currency, then, it fills in the 50 cent piece area.
What about something in the ‘couple of dollars’ range? What is ‘the most marketable commodity’? I’d suggest it is the nearly ubiquitous Starbucks Coffee. At present they issue gift cards denominated in $US. IFF they could be persuaded to issue a gift certificate for a specific drink, perhaps the standard Latte or Mocha, we would have an inflation protected unit of about $3 or $4 US. The Starbucks Star-Buck. In theory, anyone could create the Star-Buck via an arbitrage / fund creation. Take in $US and invest them. Issue ‘gift cards’ that have a Star-Buck unit and maintain the ‘exchange rate’ at the time the card is used. Rather like issuing a debit card in Euro’s and using it to buy in $US. I think it would be far easier for Starbucks to issue such a card themselves (and make a bundle on the ‘float’ of $US Cash taken in while the costs of providing that coffee have not yet arrived); but even if they don’t, anyone could do this.
The exact exchange rate between the Stamp and the Star-Buck might change from time to time as relative cost inflation has impacts, but it ought to be acceptable.
Moving on to the next larger “bill” in our wallet, I’d suggest the Tank Of Gasoline. In analogy to the Star-Buck, any or all gasoline makers could issue a ‘debit card’ denominated in gallons of gasoline (RUG – Regular Unleaded) before State and Local taxes. A “Tank” could be any size one wanted, but I’d suggest 10 gallons. That would make the “Tank” about $30 at present. A reasonable sized bill. A bit larger than the $20 bill that is now too small for many things (taking up to 3 of them to buy a Tank for a large car). But if folks like a 20 gallon $60 Tank, that would be just as reasonable. Then one could define the 1/2 Tank and 2, 5, or 10 Tank notes. Now we have another inflation protected unit of value and exchange. It will tend to bounce around more than the Star-Buck as oil is more volatile, but longer term is more stable and trustworthy than the $US. Besides, many of us will be using our Tanks up weekly…
Initially the ratio would be about 10 Stamps per Star-Buck and about 10 Star-Bucks / Tank. (Depending on just which standard coffee was used for the Star-Buck base.)
At that point, a 10 Tank Note would be worth about $300 US today.
This same method could be extended to even larger “Notes” if desired. The “Tiffany” would be a 1 carat of middle grade, that looks to be “I” x “SI1” on this chart: http://www.ajediam.com/diamond_price_index.html which IFF I have interpreted it correctly, runs out at 5985 “units” that are $US. So call it about $6000 at present, or 200 Tanks. 20 of the 10 Tank notes.
I’m pretty sure if we needed smaller units than the Stamp, we could come up with a value for the Gumball or the Pez or the Tic-Tac ;-)
So, in very simple manner, we can make an inflation protected currency, anchored in fundamental values of highly marketable things, that could readily be integrated into our “plastic” economy by anyone who wished to set it up. Just as one can have multiple currencies in an account (due to some English donations, I have both $US and Pounds Stirling in my PayPal for instance) the new Debit Card would have distinct quantities of Stamps, Star-Bucks, Tanks, and Tiffanys on it. The exact exchange between them set day to day. Anyone wishing to buy a product would use it just like any other international credit card with an exchange rate conversion. (The default assumption being that you want to spend the unit of currency closest in scale to the item being purchased. If buying $200 of groceries, the 6 Tanks would be spent first, then 5 Star-Bucks (and whatever Stamps were needed to make up the remainder and any slippage).
The really fun thing about this idea is that it generalizes. Folks can make a currency out of any and all commodities they like. If, for example, a Wheat Farmer wanted to set one up, they could have their account credited in Wheat Tons at the time they sold their wheat. A direct ton / ton exchange at the point of sale. Then, as desired, they could turn their Wheats into Tanks or Tiffanys and any other currency desired. They could easily even turn their Wheats into Nitrogens (Tons of Ammonium Nitrate fertilizer) and Diesels ( Tanks of Diesel – though likely a 100 Gallon Tank as combines are bit large ;-) as desired to hedge their expected future purchases.
The only limitation on the money supply is the supply of all stuff that folks wanted to turn into currency accounts. Each individual currency unit would be backed by a different agency (or set of agencies) so the failure of any one Central Currency Banker (such as Starbucks or Standard Oil) would not cause a generalized Financial Crisis. Any currency that tends to inflation problems (i.e. over printing and under delivering) would find itself rapidly ‘run off’ as folks moved to Tanks or Tiffanys, or LaborHours (1 unit of Minimum Wage). Heck, a Fast Food Chain could even pay their wages directly in units of “LaborHours” and keep some of their ‘cash’ in units of “Cows” and “Sugars” (ton of beef and ton of sugar). That worker could then pay LaborHours directly to their hairdresser or dentist (who could pay them to their employees directly).
In essence, the “money supply” becomes the economy.
I would expect that some “currencies” would be the most popular (the most widely used and desired, according to the theory above) but I would also expect that specific to vary by location (and perhaps by market segment).
For example, in 3 rd world countries, the units of currency that might be more desired could be the Rice and Bean ( a kg unit of each) and the Lamp ( a liter of kerosene).
So that’s my proposal for a New Freedom Currency system. Anyone who wishes, creating a currency by monetizing a commodity. Market theory would dictate that the strongest currencies based on the most widely traded commodities would be the dominant ones. Interfaces would be needed between the major global commodity markets and new “countries” (the currency issuers) with their “national currencies” entered into the existing currency exchange system used at present for debit and credit cards. Ratings Agencies rating the various “providers” of any particular currency unit and the markets insured in the same way as present commodity exchanges. (Heck, this would be an ideal market for the commodity market makers).
Just take “money” and “currency” out of the hands of governments and central bankers and put them back in the hands of the folks conducting commerce and creating fundamental wealth. Facilitated by commodity exchanges and our plastic money infrastructure.