In the last Congressional session, Rep. Ron Paul of Texas introduced the Free Competition in Currency Act. I hope and expect that he will introduce it again. This Act would . . .
- repeal the legal tender law, which gives the Federal Reserve a monopoly over the money supply
- repeal the words of Title 18 Section 489 of the U.S. Code, which gives the United States government a monopoly over the creation of coins for use as currency.
- prohibit federal and state taxes, such as capital gains, on precious metal coins and bullion.
Alternative currencies and barter exchanges are currently legal, but they are subject to taxation. Also, the legal tender law means that the Federal Reserve dollar can be used in the payment of debts, regardless of any prior contractual agreement. With this favored status, the Federal Reserve dollar tends to “drive out” other currencies. This is known as Gresham's Law.
And yet, alternative currencies are possible . . .
- Michael Rozeff suggests one method using silver.
- The E.F. Schumacher Society has a page on local currencies.
- The Cascadia Hours Exchange is one example
- A web-based currency called Ripple is in development.
It is based on the idea that money must have intrinsic value apart from serving as a means of exchange. When it has value of its own, the public is spared the uncertainty of price inflation.
And yet, the value doesn’t necessarily have to come from gold or silver. It can exist in a product or service that has already been provided.
One such service is advertising, and this idea was inspired in part by the free advertising offered in some local currencies. The following is an edited portion of my original column:
Let's say I am the publisher of a newspaper, called the Wilson Times, in a struggling town. I realize that the cause of the unemployment is access to capital; nobody has any money to even get a start on what they want to do to make a living. So I try something new.
- I stop charging U.S. dollars for ad space.
- I instead create an alternative certificate with the same face value as dollars, called wilsons
- If a business wants to run an ad that would cost $1,000, instead of charging that business $1,000, I give the ad space away and print up $1,000 in wilsons. If another business wants a $10 classified ad, I would give it away and print up $10 in wilsons
- Every advertiser MUST receive wilsons in exchange for goods and services, and must never charge a higher price in wilsons than the U.S. Dollar price, although they can charge lower prices for wilsons if they choose
- Every advertiser must post a very public sign telling customers that the business accepts wilsons
- As I print up wilsons according to the value of the ad space I'm giving away, I use them to do business with those same advertisers. For instance, I get a deli that I gave $200 worth in free ad space to cater a Wilson Times staff lunch spending the wilsons I created. I use $1,000 in wilsons to purchase needed items from an office supply store who had received $1,000 worth in free advertising. I might offer wilsons as bonuses to employees.
- A business can get out of its agreement to accept wilsons as money by simply paying back in wilsons the cost of advertising to the Wilson Times. So if you were given $50/month in free ad space for a year, in order to stop accepting wilsons you must pay $600 in wilsons back to the Wilson Times.
- If a restaurant advertised at a value of $200, it can wait until it raised the $200 in Wilsons and then immediately send it back to the Wilson Times and tell their clientele that wilsons are no longer accepted.
- Even if a business stops advertising after just one issue, it is on the hook for accepting payment in Wilsons, until it pays the Wilson Times back for the original cost of the ad - in wilsons. After it pays this off, it can remove the "We accept wilsons" sign from their business.
So, the circle is complete:
- Business A wants a $50 ad in the Wilson Times
- It gets an ad for "free."
- The Wilson Times creates $50 in wilsons - the value of the ad
- The wilsons are put into circulation as the Wilson Times spends them by doing business with the pool of advertisers
- Business A must accept wilsons at equal or lower pricing as the dollar
- If at any point Business A wants to stop accepting wilsons, Business A must pay back the Wilson Times $50 in wilsons
- Once received by the Wilson Times, this $50 in wilsons are taken out of circulation, which prevents the inflation or devaluation of wilsons
No new money is ever put into circulation. Unlike the Federal Reserve System, only value for value is created.
And yet, as long Business B happily accepts wilsons, it can create the biggest free ads, thereby pumping more and more wilsons into the economy, and would never have to pay the advertising costs. Business B would understand, however, that the bigger and more expensive the ad, the more wilsons would be printed up, which means the greater the percentage of its revenue would be in wilsons, and wilsons are only of value within the pool of Wilson Times advertisers.
What is the advantage to printing up wilsons instead of just exchanging U.S. dollars?
The first advantage is the free advertising: A down-on-his-luck man could do a "will work cheap, $8/hour" ad at no cost to himself, and once hired may be paid in dollars, wilsons, or some combination. The only condition is that he has to accept wilsons if that's all he's offered. He can at least get food and supplies from the other advertisers, who have to accept his Wilsons as payment.
Another advantage is the fostering of local networks and good business relations. A barber, for instance, who advertises for free might be paid in wilsons; the advertising increases his business, but creates more revenue in wilsons, which motivates him to shop at the local store which also accepts wilsons, rather than travel to the next town to pay in U.S. dollars.
In addition, this method encourages people to “buy local,” creating savings in time and shipping costs. In turn, this will spur development of local natural resources, products, and services that had previously been imported into the community. The more money generated locally, the more development and innovation you will see locally.
Finally, the more localized the money system, the less that is imported, and the less financial capital that is exported. Local jobs won't be dependent on big banks and politicians. As the number and diversity of participating businesses grow, the stronger the local economy will be. This will mean more economic security and less poverty.
The wilson wouldn't ever become the only currency, and wouldn't have to be. But the more that local communities adopt local exchange systems, the less likely that our livelihoods will be ruined by national or international monetary crises and trade disruptions.
The local currency doesn’t have to start out with the local newspaper. It may start off with a gas station that issues certificates in gallons of gasoline. Or, it could originate from the largest supermarket or department store. In any case, local money provides opportunity for individuals and communities to break their dependency on global economies and welfare states. The local economy might just save the world.