Hillbillies, Ancient Egypt, and the Great Depression

LFTWe begin today’s episode with a serious throwback…

A TV show called The Beverly Hillbillies…

If you’re unaware, it was a 1960’s sitcom about the Clampett family. The Clampetts were hillbillies who struck oil in their Tennessee hollow and made millions.

Every couple episodes or so, their net worth would be mentioned. It was a running joke that it was always bigger than the last time.

In one episode in particular, it had risen to $40 million. No small number — especially not in the Clampett’s days.

Upon learning the great sum they held, they asked their banker, Mr. Drysdale, if they could see their money. He refused.

There’s no way, he told them, he could gather $40 million in one place.

The Clampetts, unaware of how the banking system “worked,” rationally assumed that Drysdale had stolen their money.

Why else would he refuse to let them see it?

What in tarnation?

‘If our money isn’t in the bank,’ they asked… ‘where in sam Hell is it?’

In their ignorance, the hillbillies dropped some pretty heavy wisdom about the nature of the monetary system.

And maybe even what was to come…

Had someone paid unusually acute attention to the ‘billies, they might’ve seen the dark lanterns of doom off into the distance: Cyprus-style bail-ins… debt-ceiling crises… looming hyperinflationary death spirals… the rapid degeneration of purchasing power…

And, of course, the national looting of Main Street’s money by the Drysdale’s of Wall Street.

Or maybe not. You know, it was just a silly sitcom on TV.

Nonetheless…

LFT“Twenty years from now,” currency expert Bernard Lietaer begins in his recent TedX talk, “they’ll be speaking about the period that we’re living in now, as the ‘Great Something.’”

What that “something” is, he says, will be up to us. But by the looks of it, it might just end up being something boring… like the “Greater Depression.”

“We are in the middle of it today,” Lietaer said. “I suggest to those who have the leisure, to read the newspapers of the 1930s. You’ll find the headlines of today.”

Lietaer, by way of background, has spent much of his life carefully picking apart 5,000 years of written history about all the various monetary systems that have ever sprung into existence.

All throughout history, Lietaer says, “the sad conclusion is that there has never been preventative change in the monetary domain. One needs to wait until the previous system has died. Until it has lost completely its credibility. And then one builds up something new.”

With our current crisis, he says, we have an opportunity to do that. And to make sure that the system that follows this one isn’t just another pile of dung.

He has some ideas. But let’s not get ahead of ourselves.

The first step to creating this particular “something new” is to make sure those involved understand what it is they are creating.

Do you know what money is? Most people erroneously apply the Gump logic when thinking about money: that is, money is what money does.

Sorry, Forrest. In this case, Mama’s wrong. Stupid might very well be what stupid does, but there’s a difference between what money does and what it is.

Are you too making this mistake with money?

LFTAgain, to truly understand what kind of solution we need, Lietaer says, we must first understand what we are creating.

What is money?

Is it a unit of account? Nope.

Is it a medium of exchange? Nope.

Is it a store of value? Not a chance.

None of those are what money is… again, they only represent what money does.

Money, as defined by Lietaer, is nothing more than an agreement to use something as a medium of exchange. That’s it. An agreement. If the agreement falls apart, so does the foundation of what is called “money.”

This makes money seem like a very wispy, ephemeral thing. And it is. And this is a good thing. It means money is malleable.

“An agreement lives in your head,” Lietaer says. “But that doesn’t make it not real. The nice thing about agreements, is that when agreements don’t work, you can change them!”

Agreements are as flexible as we are. If we can figure out an agreement that creates the maximum amount of prosperity for the maximum amount of people, well, then it’s possible to implement.

There are many theories on what the most equitable agreement is. But Lietaer has devoted his life to studying money in terms of not what is ideal… or what should be in place… or what should work…

Rather, he only gives weight to that which does work. And what works, he says, is simply monetary diversity. The monoculture of money — i.e. the monopolization of currency — is the very thing that creates economic instability.

LFTA competition of currencies is the most ideal playing field. Many will try in this landscape, and the few that serve the most, will survive.

Monoculture in any system is bad. It’s unnatural and completely unsustainable. It’s what caused, you’ll recall, the horrid potato famine in Ireland.

What the nation’s monetary system needs — just as with all natural systems — is diversity. As opposed to a one nation currency, we need a competitive landscape for currencies. If this sounds like a crazy idea, it’s not. Every state had its own currency at one point, but they were taxed out of existence and swallowed whole by the dollar.

While the national currency can act as a speculative tool, Lietaer argues, communities must deal in a currency that is meant only for local trade. It should be a currency based on abundance, not on scarcity. And it should be designed to spread wealth around as quickly and efficiently as the goods and services — and the demand for these things — present themselves.

For an idea of how this would work in the real world, let’s rewind way, way back to Ancient Egypt.

When Joseph saved the Egyptians from starvation.

LFTYou know the story: Joseph interpreted the Pharaoh’s prophetic dream and saved Egypt from starvation by stockpiling food.

But the story you haven’t heard is how he did it.

No. It wasn’t by coercion. But instead through carefully placed incentives, which eventually became the basis of the Egyptian monetary system.

Each farmer, in exchange for food, would receive currency in the form of a piece of pottery, backed by the commodities held in the stockpile. Each piece of pottery had an inscription of the farmer’s contribution and the date. The farmer could then use these to buy goods and services in the marketplace.

But there was an unusual catch: There was a time charge. Meaning, the longer you took to spend the currency, the less it was worth. The farmer who spent his money quickly would receive the most out of it, thus there was no incentive to hoard, and every incentive to circulate the wealth.

“So we can understand,” says Lietaer, “that Egyptian farmers would never hoard this currency, but invest in what was most handily available to them: improvements on their land and irrigation systems.”

This system worked so well for the people of Egypt, that the country ended up using it for more than a thousand years. Until, that is, the “Money Changing” Romans swooped in and replaced it with their own currency, which incorporated the opposite: positive interest rates — or usury.

This, as you know, led to debt and more debt and… eventually… collapse.

“Note the apparent consequences of this change,” Lietaer says.

“As long as negative interest currency was used, the Egyptians built monuments that would last forever and maintained their agricultural system in remarkable condition, making it the breadbasket of the Ancient World. All this quickly disappeared when the Roman currency was generalized.

“Since then, Egypt has remained for two thousand years a ‘developing’ country.”

LFTFast forward ahead in time to the 1930s.

In the town of Worgl Austria, another similar experiment was about to begin…

When the mayor of Worgl, Michael Unterguggenberger, was voted in in the early 1930s, Worgl suffered from a 35% official unemployment rate and only 14,000 shillings left in the coffers.

Fortunately for Worgl, though, their new mayor was a fan (along with Hayek) of the ideas of an early 20th-century economist named Silvio Gesell . Namely those on how to stimulate a local economy.

The mayor, inspired by Gesell’s work, immediately convinced the town hall to issue 14,000 Austrian shillings’ worth of stamp scrip. The same type of currency, in essence, that was created by Joseph in Egypt.

This currency too had negative interest rates built in. The longer you held onto to it, the more it depreciated. If you got rid of it quickly, you received more value for your money.

And again, the miraculous happened. In only two years, in the midst of the Great Depression, Worgl had achieved full employment. It was the first Austrian city to do so. Ever.

And everyone prospered.

Water distribution was, for the first time, laid throughout the entire city. The roads were all newly paved. The houses were repaired and repainted. The citizens were even paying their taxes early. Which were, by the way, minimal.

People started, without being told to do so, spontaneously replanting forests just to dispose of their negative-interest currency in anticipation of future cash flow to be expected from the growing trees. (Furthermore, you always have the option of switching this currency into any hard asset, such as gold. The scrip is just a voluntary medium of exchange.)

Because money was easier to come by and quickly lost its value, investing in the future became more valuable than money held in their hand, “thereby automatically prioritizing the long-term implications of today’s actions,” Lietaer said.

“According to the same logic, people would tend to build houses intended to last forever — and spontaneously invest in further insulation and other improvements whenever they have extra cash.”

The velocity in which Worgl’s currency circulated was 14 times higher than Austrian shillings.

Meaning, the same amount of money created fourteen times as much wealth and put fourteen times more people to work. All because of an incentive to spend it quickly.

Over 200 Austrian communities, after seeing Worgl’s success, jumped at the chance at using this system too. Alas, the Central Bank blocked the project.

“A legal appeal was made all the way to the Supreme Court,” says Lietaer, “where it was lost.”

LFTOK. Our final example. Let’s pan the camera over to the United States…

American economist Irving Fisher was largely responsible for planting the idea of local currencies into America’s collective consciousness during the Great Depression.

Fisher learned of the idea’s amazing success from studying the town of Worgl.

He wrote several wildly popular articles about Worgl’s success, and called for the adoption of these currencies in the States.

He was right on time too. An entire nation was in search of a solution to the crippling poverty the Great Depression had wrought.

And this “scrip” was just what they were looking for. More than 400 cities and thousands of communities all over the U.S. quickly issued a form of scrip, also known at the time as “emergency currency.”

There was even, believe it or not, a growing movement to issue this stamp scrip on a national level — to every community in the U.S.

First, on Feb. 18, 1933, Senator Bankhead of Alabama presented a bill to the Senate. And then, on Feb. 22, 1933, Rep. Petenhill of Indiana presented another bill.

At the same time, Irving Fisher approached the Under Secretary of the Treasury, Dean Acheson in search of support.

Acheson didn’t know what to think. So he consulted an old Harvard professor of his. The professor told him that, yes, it would work. But there was a problem: it would decentralize decision making in America, and stretch power out the State’s hands. And the banks would be none too happy about this.

He should, the professor told Acheson, see what President Roosevelt thought of the idea.

Well… Roosevelt clearly wasn’t too keen.

In short order, he prohibited the use of emergency currencies and slapped the country in the face with the what Baltimore’s H.L. Mencken identified as a “puerile amalgam of exploded imbecilities, many of them in flat contradiction of the rest.”

Yeah. The New Deal.

But despite the Establishment’s distaste for the “emergency currency,” they are making a comeback.

LFTBut despite the Establishment’s distaste for the “emergency currency,” these little notes are making a comeback in a very big way.

To name a few…

There is the Berkshare in the Southern Berkshires region of Massachusetts.

One reader, John H. was already familiar with the Berkshare. He wrote:

“If you have been exploring local currencies, then you have no doubt heard of Berkshares ( the name is a play on Berkshires)- a currency founded years ago in the Great Barrington, MA area to, as you noted, promote local commerce.

“It has over time become so embedded in the local economy/culture that, were you to use Berkshares for your week-long experiment, you would probably not even notice the change.

“The Berkshares story is an interesting one. I believe (I am no expert on this) that it was actually illegal to have an alternative currency when it was invented. I don’t know how the inventors circumvented that issue. You may do well to check this story out if you haven’t already.

“Anyway, I enjoy your missives — keep up the good work.”

[Thanks, John!]

There’s also the TEM in Volos, Greece.

The fascinating Time Bank system in Vermont.

The Boston Bean in… you guessed it… Boston.

The interest-free WIR in Switzerland, formed in 1934.

And the Bristol pound in the U.K., which can even be used to pay local business taxes.

Today more than 60 communities in the U.S. have their own form of local currency. And hundreds others are considering starting their own programs.

The best part about them is what James Corbett pointed out on his Corbett Report blog:

“These alternative systems do not require a resolution to be passed in Congress or Parliament, and do not require any wholesale change in the international financial order. These currencies already exist and are already thriving in numerous localities around the globe.”

Moreover, one study, conducted by the Local First of Grand Rapids, Michigan, showed that a 10 percent shift in spending away from the chain stores to local businesses “would generate an annual economic impact of nearly $200 million and create 1,300 jobs with over $70 million in payroll.”

LFTLocal currencies aren’t just a way to keep the money local. They’re also a way to get people to think differently about money.

That’s why I’m embarking upon this journey of local currency discovery this week.

But alas, today’s journey ends here. We’re out of time.

So far, as a quick update, I’ve spent BN64.

I bought beer for a few of the fellas at our Baltimore HQ (National Bohemian.. only the best), and a shepherd’s pie at an Irish spot called Liam Flynn’s.

Total: BN28

And, hey, free live music.

Liam Flynns live music

Here’s the rest of my stash…

BNotes and Natty Bohs

LFTAll right.

Time to wrap up.

Later this week, we’ll talk to the founder of BNotes, Jeff Dicken. He’ll answer all your questions on the BNote.

[Have one? Email it: Chris@lfb.org.]

Also, we’ll be taking a look at other alternatives. Alternatives in education, healthcare, entertainment… and even alternatives to grocery shopping.

More on that to come.

Have a great day, dear LFT reader.

I’ll talk to you tomorrow.

Until then,

Chris Campbell

Chris Campbell

Written By Chris Campbell

Chris Campbell is the Managing editor of Laissez Faire Today. Before joining Agora Financial, he was a researcher and contributor to SilverDoctors.com.