I am thrilled to have discovered the Free Banking blog.
I applaud the intentions of this blog. We need more discussion about a free market in banking and in currency. The respected economists who are part of this blog will advance the debate.
Which is not to say that they march in lockstep, or even that I agree with everything they write.
I’m interested in this topic. But my own thoughts have been based on two questions that have nothing to do with protectionism:
* How can an alternative currency work?
* In what ways could cash-poor individuals and businesses jump-start their own economies, instead of waiting for federal or state help?
The “folly” of local currencies is that they simply can’t compete with the Federal Reserve’s Monopoly money — that is, money backed by legal tender laws.
Having said that, I do expect that a free market in currency law would, sooner or later, lead to dominant national or international currencies. But in such a system, I believe local currencies would flourish more than they do now. Here’s my own idea of how it could work.
But what would be the motivation for having a local currency?
Is it “protectionism,” as Selgin suggests? That word usually means support for national trade barriers — coercion. But could “buying local” be merely rational self-interest?
I know an elderly couple who retired to a village where they have numerous friends. It is relatively close to immediate and extended family. But the grocery store in town closed. The closest one is now a 15-minute drive each way. If a can of tomato soup is needed in a recipe, suddenly dinner preparation is an ordeal. They said they would never have moved to that town if it didn’t have a grocery store.
There is a reason the local grocer went belly-up. Most residents already commute to other nearby towns and cities. The supermarkets there are able to get better deals from wholesalers and pass those lower prices on to customers. That makes solid “economic” sense in terms of monetary savings. However, even these residents lose the convenience of having the store there for last-minute purchases. Besides, it’s depressing to drive past yet another vacant building in the town.
I, too, live in a tiny village, but in a very sparsely-populated county. I support the local businesses as much as I can. When they go, so do the jobs, and even more people leave this area. And when more people leave, there goes the movie theater, the swimming pool, the park upkeep, etc.
So it is in my own interest to pay higher prices, if necessary, in order for businesses to stay in my area. If I don’t, then I’d have to drive farther away to get what I need. The reduces my options and hurts my quality of life.
The economic utility of lower checkout prices is just one of a bundle of “values” that a person has when choosing one thing over another, such as where to live. In remote areas, it can be in the self-interest of everyone that they buy from each other as much as possible, even if it means higher prices.
I am not under contract, nor am I forced by the county, to “buy local.” I would NEVER force anyone else to do so, and I don’t think anyone in any “local currency” movement would demand local or state laws that are “protectionist.”
But there ARE reasons people choose to live where they live, and there are legitimate, ECONOMIC reasons why they would buy from their neighbors rather than from people outside the community. The reasons aren’t “protectionist,” they spring from self-interest.