Prof. Edgar Cahn in Forbes Magazine
Monday, March 4, 2013
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Posted by: Joe Libertelli
Professor Edgar Cahn was mentioned in Forbes magazine by columnist Peter Ferarra on March 1 as part of a review of a new book, Rethinking Money: How New Currencies Turn Scarcity Into Prosperity, by Bernard Lietaer and Jacqui Dunne. The authors chose the UDC David A. Clarke School of Law as the venue for the book's release and a public discussion on February 25th. See: http://www.forbes.com/sites/peterferrara/2013/03/01/rethinking-money-the-rise-of-hayeks-private-competing-currencies/ Rethinking Money: The Rise Of Hayek's Private Competing Currencies
Auditing the Fed, replacing Fed monetary policy discretion with a mandatory
price rule governing policy, even the gold standard, Nobel Laureate Friedreich
Hayek pushed the envelope beyond all of these. He advocated running the world
economy on competing private currencies.
A competitive private market for money, instead of an arbitrary government
monopoly amounting to a license to steal for the ruling class? How could that
ever work?
Just like any other competitive private market for any other good or service,
Hayek would answer, which is a lot better than a government monopoly. But
doesn’t the government have to determine the standard for any society’s money,
just like it determines the standards for the society’s weights and measures?
Actually, the governing standards for weights and measures historically
grew out of the competitive private marketplace of ideas in every culture. The
government only validated society’s determination. But in regard to money,
governments have abused their monopolies since ancient times.
Kings and Emperors would start out with pure gold or silver coins. But then
they would melt down the old and reissue them debauched with increasing
portions of less precious metal alloys. Hence the beginning of inflation, with
markets devaluing the debauched currency.
Paper currency began as warehouse receipts for specified weights of gold or
silver. The bearer could turn them in for the actual specie. But the custom
developed of just using the paper receipts as the medium of exchange, with few
if any showing up to demand the actual gold. Governments soon began to abuse
this, issuing more and more warehouse receipts without enough gold to back
them, which enabled the government to buy more goods and services.
That meant inflation as well, and threatened to spark runs on the gold
reserves. Governments would respond by "devaluing” the currencies, arbitrarily
reducing the amount of gold each unit of currency was worth. But that meant
more inflation.
Such inflation amounted to sophisticated stealing, of course, as the value
of savings by the industrious would be devalued in the process as well. That
value effectively went to the irresponsible and dishonest governments abusing
their currencies. Inflation also amounted to the first redistributionist
policies, effectively stealing from creditors to favor debtors, who could pay
back their debts in depreciated currency.
Inflationary policies consequently developed a constituency among debtors.
But that policy was short sighted, as the redistributive theft discourages the
savings and investment that are the foundation of economic growth, and rising
prosperity for all, as such policies do to this day.
Hayek argued that in competitive private markets, private currency issuers
would compete to maintain the value of their currencies. Those who were less
reliable or effectively stole from their customers would be driven out of the
market.
From the early rise of capitalism, private bankers issued their own
currencies, or specie warehouse receipts. But governments drove them out over
time, disdaining the competition. The monopoly of the dollar in the United
States was achieved by taxing private and state currencies out of existence in
the 19th century.
But in their new book, Rethinking Money: How New Currencies Turn Scarcity Into Prosperity, Bernard Lietaer and Jacqui Dunne document
the new rise of effectively competing private currencies. Lietaer, MIT PhD in
economics, served as an official of the Central Bank of Belgium, and as
President of Belgium’s Electronic Payment System. He was an architect of the
EU, and Business Week named him "the world’s top currency trader” in
1992. Dunne is an award winning journalist, and a leader in promoting
development of environment friendly technologies.
Lietaer and Dunne report more than 4,000 unofficial, private currencies
already operational in the world today. They call these complementary or
cooperative rather than competing currencies because they are not
competing to replace the official currency, but to complement it where it is
leaving available resources unused.
The most easily recognized complementary currency is frequent flyer miles,
now issued by 92 airlines. These do not involve just bonus or discount tickets
in return for repeat flight business. "Increasingly, frequent flyer miles are
redeemable for a variety of services besides airline tickets, such as
long-distance and mobile phone calls, hotels, cruises, and catalog
merchandise,” the authors write. Yet, more than half of frequent flyer miles
"are not earned by flying. Instead, credit cards that offer bonus miles with
purchases have become the most popular way to earn frequent flyer credits.”
Consequently, the authors rightly conclude that the frequent flyer miles have
"developed into a corporate scrip – a private currency issued, in this
case, by airlines.”
Another private currency model is time-backed currency, which has been
spearheaded by liberal lawyer Edgar Cahn, former advisor to Robert Kennedy and
Sargent Shriver. Participants provide an hour of service to earn an hour of
service in return, involving such services as tutoring students, teaching
English or other languages, gardening and lawncare, housecleaning, helping the
homeless and teaching them skills, rides for those without transportation (or
for seniors who can no longer drive), respite care freeing caregivers for
children with special needs, adults with disabilities, and aged seniors to take
a break, and other services. Lietaer and Dunne add,
"Mayor Bloomberg has launched TimeBanking for seniors in all five boroughs
of New York, as baby boomers turn 65 at the rate of 10,000 per day for the next
two decades. Seniors can live longer in their homes independently because they
can avail themselves of services offered by people within their time bank community,
such as rides to a doctors appointment or help with writing letters to their
insurance company.”
Cahn reports there are nearly 300 TimeBanks in the U.S., another 300 in the
United Kingdom, with TimeBanking now spread to another 34 countries internationally.
This mutual exchange concept is expanded more broadly in the LETS (Local
Exchange Trading System) model of private currencies. Participants trade goods
and services to each other in return for agreed LETS credits, which are
recorded in a central exchange. Lietaer and Dunne quote Michael Linton
explaining how LETS enabled economic recovery in a small town near Vancouver:
"We are a town of 50,000 people, and the major industry was a defense base,
plus the town was a dormitory for timber, mining, fishing, and a bit of tourism
at that stage. In 1982, everything stopped. The defense base moved, and the
Bank of Canada was running at 14 percent prime, and mortgages were
approximately 18 to 20 percent. I was a sole proprietor business….When the sand
ran out of the economy, my business dried up in a matter of months, as it did
for many others.”
But after LETS was created, the currency was used by participating
employers to hire the unemployed to produce the many goods and services the
community needed. This positive result in reviving depressed local economies
has been repeated many times around the world by introducing such cooperative,
complementary currencies in the area. Lietaer and Dunne suggest that there is
special opportunity for such private currencies anytime there are unused
resources that can be linked with unmet needs, which the established currency
is not serving, as in the example above. They suggest that such LETS currencies
"are the most frequent cooperative currency system in the world today.”
Indeed, such private complementary currencies have arisen to serve local
economies around the globe on a regional basis. Lietaer and Dunne write,
"Germany and Austria are now spearheading regional currencies, generically
called regios, which complement the euro.” Participating local
businesses, from shops to restaurants, accept the regional currency for their
goods and services.
One example is the Chiemgauer system based in Bavaria in southern Germany.
Lietaer and Dunne explain,
"Today, there are 600 participating businesses with 550,000 Cheimgauers in
circulation and a turnover equivalent of over 6 million euros in 2011….The
Sternthaler currency, which operates in the adjacent area of Upper Bavaria, and
partnering with Chiemgauer, provides access to an additional 500 businesses to
the system. Seventy-five percent of the money is now in electronic form….Ten
local branches of cooperative banks provide banking services in Chiemgauer.”
Another such private, regional currency is Berkshares, traded in the
Berkshire region of Massachusetts. Lietaer and Dunne write, "The 13 branches of
five local banks operate as exchange bureaus and have issued 3.3 million
Berkshares to date [since 2006]. Currently, more than 400 businesses have
signed up to accept the currency.” The banks grant 100 Berkshares for $95, and
participating businesses accept each Berkshare as $1, providing an incentive
for consumers to use Berkshares to shop at local businesses. This represents
one feature of such currencies, each can be designed as the issuer thinks would
best serve the targeted market. People are free to use the currency or not, and
no government permission is needed to launch it.
Merchants use the Berkshare to trade among themselves as well, and some
local employers partially pay their employees in the currency. Local banks
accept Berkshare deposits.
The most prominent of such regional private currencies is the WIR in
Switzerland, started by businesses in the economic crisis of the 1930s, when
the banks cut off their lines of credit, threatening their survival. They
started the WIR mutual credit system among themselves, paying each other for
goods and services in the currency, instead of succumbing to the worldwide
depression. Their employees and customers began trading in the currency as well.
A cooperative among these businesses keeps the accounts dealing in the
currency. "Over time, the system grew to include up to a quarter of all the
businesses in Switzerland,” Lietaer and Dunne write. The WIR is administered by
a bank headquartered in Basel, with 7 regional offices. The same concept is now
being tried in Vermont.
But the granddaddy of all private currencies is potentially the Terra. This
would be a global currency explicitly backed by a basket of a dozen or so
precious commodities, such as gold, silver, oil, etc. Each Terra can be turned
in for the specified share of the basket of commodities, which would be held as
100% backing of the currency, under contract with producers of those
commodities who are partners in the financial institution issuing the Terras.
The producers would be paid in Terras for their contribution, which they could
use to pay their suppliers and creditors, and their workers (depending on the
extent to which they would each voluntarily accept the currency).
Each unit of Terra currency would be charged each year a transaction fee of
3.5% to 4%, assessed against the face value of the currency, depreciating its
backing by that amount. That would finance the costs of issuing and maintaining
the Terra, including the costs of the storage of the reserve commodities
backing the currency.
The Terra would consequently be an inflation proof, international, global
currency. No government permission is required to issue and trade in such a
currency, except to the extent that someone tried to pay their taxes in the currency.
Whether to accept such payments would be up to each government to decide, just
like any other party transacting in the currency.
Economic players worldwide could decide to denominate their contracts in
Terras, without buying or selling any Terras at all. The Terras would trade in
every currency in the world on world markets, and payment due could then be in
the Terra value of each currency. This would be expected on a widespread basis,
because the Terra would have a fixed, inflation proof value, due to its 100%
commodity backing. The term Terra in fact derives from Trade Reference
Currency.
The
rise of such a currency should be a major boost to global economic growth and
prosperity, empowering the world economy to trade in currency not subject to
inflation, devaluations, and variation in real market value. Such a fixed
yardstick by which to measure commerce would promote global production, trade
and growth. This could be a major, game changing, 21st century
breakthrough.
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