Funny Money: Local Currency And Its Ramifications

Money as an instrument of trade has been around since classical times, and has usually had a government as the issuing body de facto, if not de jure. There are proponents of “Free banking” who claim that governments should be completely excluded from the business of issuing currency, who bring robust arguments. On the other hand, the system of government-issued currencies would not have survived for as long as it did were it not a fundamentally efficient and reasonable idea. We've thus reached a strange crossroads:

On one hand, we are aware that governments with the power of currency creation more often than not use this ability to run high deficits, devalue currency, and produce high national-debt-to-GDP ratios. This is often undertaken as a measure of providing for public works, but has been noted in less benevolent cases, such as the US corporate bailouts of 2008. On the other hand, the Startup Societies Foundation first and foremost endorses a free market in governance. If we claim that a free market in the service of government must be established, consistency demands that we do the same of the market of money. A universal solution for money does not exist, and even if it does, it will not remain unsurpassed for long.

We thus realize that governments must be allowed to issue their own currencies as a competitive instrument in vying for the attention and patronage of its citizen-clients. The NATURAL SELECTION cycle that we have discussed previously will make certain that only the startup societies which offer the best value to their citizens will survive in the long run, and offering a government-sponsored currency seems like a perfectly reasonable perk to offer the would-be clientele.

This is far from saying that we support the current system of central banking – the EXIT PRINCIPLE is rarely honored in today’s nation-states and we must slowly transition to a more competitive, connected world. Below is one of the many historical examples of local communities (not startup societies per se) taking the issuance of money into their own hands, establishing a competitive edge over the currency surrounding them and in so doing arguing for the Startup Society approach to competitive governance.

Wörglarbeitsmarke (Wörgl work certificates)

In the 1930s, the village of Wörgl, upper Austria was facing severe unemployment. The village had many repairs and projects to work on, but only 40.000 Austrian shillings to do it with (Not nearly enough for even 20% of the work that needed doing). Instead of using the savings to pay workers for the first few projects, the then-mayor Unterguggenberger devised a clever plan, borrowing from the playbook of economist Silvio Gesell.

The mayor decided to put the 40.000 shillings into a savings bank, and used that as collateral for issuing 40.000 shilling's worth of stamp scrip. The workers on the first project (Repaving the roads) were paid in this new stamp scrip. The stamp scrip was designed in such a way that it lost 1% of its Austrian shilling value every month. Not too much, but enough to stimulate spending - when people had nothing they wanted to buy, they resorted to paying their taxes in advance through the stamp scrip. This ensured the "currency" was spent into circulation quickly and that, in so doing, the stamp scrip stimulates economic activity.

The village was the place with the fastest-growing employment rate in Austria in the months following the implementation of this policy. One must bear in mind, however, that this additional employment did not in fact come from the local government public works programs, but rather from the circulation of the stamp scrip after it was spent into circulation. The stamp scrip was a device to kick-start the economy and worked excellently.

Many neighboring villages saw the success of Wörgl and decided to follow in their footsteps, but the Austrian central bank caught onto the potential ramifications of this development and decided to clamp down on the local governments. The village unsuccessfully sued the Austrian central bank and lost their right to issue stamp scrip and "any other form of emergency currency". Issuing currency remains to this day a criminal offense when perpetrated by Austrian local governments.

Other types of currency

Local currency is a subtype of complementary currencies. Within the current paradigm, complementary currencies are those that are not issued by official monetary authorities of their respective governments – this usually means the central bank of a country.

For example, in the US the official currency is the US dollar, but there are different complementary currencies such as the PLENTY (Piedmont local economic tender) or Ithaca hours (Work certificates used in Ithaca, New York). These are local currencies, but there are plenty of other applications for complementary currency other than the above-mentioned local uses. There is the example of "sectoral" currency, where a certain type of currency is used within a specific economic field.

The potential uses for this understanding of money combined with the emerging blockchain space could be innumerable, not the least of which will be in the attraction of citizens to up-and-coming startup societies who, in addition to the standard government services expected of them, will offer an incentive to residents-to-be in the form of an appreciating currency, providing a separate money for emergencies, and a plethora of other uses limited only by the imagination of the next generation of government-producing entrepreneurs.

Aleksa Burmazovic

Aleksa is an undergraduate student at the University of Belgrade in Serbia, working on a degree in finance and insurance.

He was involved with European Students for Liberty as a local coordinator in 2016, but has since retired from the organization of ESFL events.

Aleksa is fascinated with the idea of establishing new societies, competitive governance and new regulative structures.

An avid supporter of cryptocurrencies and free trade, he joined Startup Societies Foundation in the summer of 2017 while volunteering for the Startup Societies Conference in San Francisco.