communal currency13 May 2006
Is there any evidence of effectiveness in alternative currencies?
There isn’t anything particularily “alternative” about Venture
Communist Scrip, it is just foolish to let external forces control
your money supply.
One critique that can be offered from a modern monetary theory perspective is that with our currency, central control is assumed to be necessary to control liquidity. This perspective is best explained by Krugman in a simplified version of “Monetary Theory and the Great Capitol Hill Baby-Sitting Co-op Crisis.”, which summarizes some issues encountered by a babysitting co-op using a labor-oriented scrip very much like what seems to be proposed by Dmytri:
The Capitol Hill co-op adopted one fairly natural solution. It issued scrip–pieces of paper equivalent to one hour of baby-sitting time. Baby sitters would receive the appropriate number of coupons directly from the baby sittees. This made the system self-enforcing: Over time, each couple would automatically do as much baby-sitting as it received in return. As long as the people were reliable–and these young professionals certainly were–what could go wrong?
Well, it turned out that there was a small technical problem. Think about the coupon holdings of a typical couple. During periods when it had few occasions to go out, a couple would probably try to build up a reserve–then run that reserve down when the occasions arose. There would be an averaging out of these demands. One couple would be going out when another was staying at home. But since many couples would be holding reserves of coupons at any given time, the co-op needed to have a fairly large amount of scrip in circulation.
Now what happened in the Sweeneys’ co-op was that, for complicated reasons involving the collection and use of dues (paid in scrip), the number of coupons in circulation became quite low. As a result, most couples were anxious to add to their reserves by baby-sitting, reluctant to run them down by going out. But one couple’s decision to go out was another’s chance to baby-sit; so it became difficult to earn coupons. Knowing this, couples became even more reluctant to use their reserves except on special occasions, reducing baby-sitting opportunities still further.
In short, the co-op had fallen into a recession.
The co-op’s solution for this was for “the management” (read: the Fed) to issue more scrip to stimulate the economy, and so on and so forth. Dmytri mentions further that “Whatever alternative currencies circulate among the members themselves is at their own discretion, if they are usefull is presumably to alieviate liquidity shortages.”, but I am having trouble visualizing from a practical angle how alternative currencies would realistically “spring up” to alleviate liquidity issues.