The Ecology of Money foreword by Richard Douthwaite

Author:Richard Douthwaite
Language: eng
Format: azw3, pdf
Tags: UNREGISTERED
Published: 2005-02-10T17:15:13+00:00

Chapter Two

commodities will fluctuate quite widely from year to year, according to relative growing and harvest conditions. With LETS and WIR, the value of a unit is determined by the readiness of other members of the system to provide their goods and services in exchange for it at its nominal value in the national currency. The range of goods and services available in exchange is also a consideration.

Question 6) Where is the money created? Within the group of people or the territory using it. It does not have to be earned or borrowed from outside first.

Question 7) How well does the money work?

A. As a means of exchange? Gold does not work well as a means of exchange unless it is turned into coins, something that is discussed in the next chapter. Moreover, the supply of coins has often been inadequate for the amount of trade desired, forcing people to barter, or use a range of gold-substitutes. Yap stones seem to have played the role of large denomination notes, only useful for major purchases, which is why mats, ginger and shells were required as small change.

Wampum strings were designed to make counting easy and obviously performed well since they survived in use in competition with other currencies for hundreds of years. The Egyptian grain and the New England tobacco receipts also worked well and sophisticated money transfer systems developed for them. It would, however, be a mistake to establish commodity-based currencies in economies that were not dominated by the production of that commodity and that were consequently not prepared to allow all price relationships to vary according to its level of production. LETS units perform poorly as a means of exchange because of the lack of pressure on those in debt to earn them. Their use is also restricted to a small group. Wir are better than LETS but still work significantly less well than the Swiss franc, as they are only acceptable among a particular group. As a result, users frequently want to exchange their Wir for Swiss francs and, breaking their system's rules, sell them at a discount to do so.

B. As a unit of account? Only the Wir scores highly here. It functions as well as the Swiss franc since, unless a firm wishes, there is no need for it to distinguish between the two in its books.

LETS units are never worth as much as the national currency they shadow, and the gap between the two is variable (depending on a system's membership and its attitude at the time). The gluts and shortages caused by differing harvests, gold rushes and technological change mean that the value of the commodity-based currencies in terms of other goods and services is too erratic to provide a good accounting base.

C. As a store of value? Gold proved an excellent store of value between 1658 and 1798, fluctuating by no more than a third during this time. The discovery of the cyanide method of extracting it from crushed rock in 1887, coupled with major finds between 1847-97 increased production enormously.

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