Mountain Hours - Local Community Currency

[Mister Mister]

  Have any of you heard of this?  It's an idea for a kind of local/alternative currency issued by local businesses.  Doesn't require ownership of precious metals, massive computing power for bitcoins, or political action.  It has successfuly been put into use in Ithaca, New York; Breckenridge, Colorado; and other towns.

 

http://www.youtube.com/watch?v=1rPcxZboeK0http://mtnhours.com/

 

  The premise as I understand, is that money/currency is defined not as a commodity, as the Austrians and classical economists would have, but as a contract, a promise on future labor.  For example, instead of trading your cheese for my wheat, you agree to give me cheese in return for a promise on my future wheat to be produced several months from now, by written or spoken word.  You could then even trade my future wheat to others.  Other examples of this kind of currency would be tickets, frequent flyer miles, or coupons.  So in the same way that a business can issue coupons, they issue a more flexible coupon, which can purchase any of their products according to prices.  Then several businesses agree to recognize each other's "coupons", which have now become a kind of barterscript or currency.  They form a committee together to regulate how new currency is created, and as long as they don't issue more than they can redeem in goods or services, there is no problem with creating more money; in the same way that printing a new ticket for a concert does not devalue other tickets, and is not fraudulent so long as you don't create more tickets than seats.  Once the local currency can purchase everything necessary to life, you have a sustainable system which is practical and beneficial for all.  So the basic idea is that money should be issued by producers, as opposed to banks or governments who do not produce anything of value.  Also, I think there is advantage to paper money by "fiat" or currency as a contract, in that it does not take resources from elsewhere just to serve as a medium of exchange.  Gold has value as jewelry and in electronics, which become more expensive if gold is being used as currency.  Bitcoin requires massive computing power to produce which could be put to other uses in society.  Also these things are somewhat exclusive and require expensive and specific capital, whereas what is being promoted here is that anyone can create money, in the same way that anyone can create contracts.  He also has some ideas about usury being fraudulent, in that it creates debts or contracts which are mathematically unpayable, ultimately leading to the seizure of REAL assets by banks and governments, through manipulating their fake money.  I understand that if ALL money is created and lent at interest, it creates a ponzi scheme, but I don't see that if you have sound money, lending at interest is necessarily fraud.  As long as some of the money is being used to purchase goods/services or being saved, if some of it is lent at interest it does not create this situation where some debts are necessarily unpayable.  Also, my understanding of the Austrian concept of interest is that it is based on time preference.  If I buy a factory from you, I will want to buy it for less than I expect to ultimately be able to make through the factory.  In my example where I trade your cheese for my future grain, you will tend to give me a better deal for grain now than in the future.  Anyway I'd like to hear what some of you who are more rigorous economists than me think.

[ThomasDoubts]

 Also, my understanding of the Austrian concept of interest is that it is based on time preference.  If I buy a factory from you, I will want to buy it for less than I expect to ultimately be able to make through the factory.  In my example where I trade your cheese for my future grain, you will tend to give me a better deal for grain now than in the future.  Anyway I'd like to hear what some of you who are more rigorous economists than me think.

 

 

     This isn't just Austrian, but you are correct.  Your example describes a forward contract.  It is often adventageous for a farmer to lock in a price for his goods in advance of the harvest.  He is willing to agree on a sale price today for delivery in the future, rather than agreeing on a price in the future that may be more or less.  By entering the contract, the farmer shifts half of the risk of price movements for his grain from himself to you.  For this reason, the agreed upon price is almost always less than the current market price for immediate delivery.  Essentially, you get a discount for bearing the risk of falling prices (could have bought it cheaper), he is willing to bear the risk of rising prices (greater profit), in exchange for certainty.   This is a form of hedging risk.

 

http://en.wikipedia.org/wiki/Forward_contract#Relationship_between_the_forward_price_and_the_expected_future_spot_price

 

     Any time you attempt to determine the future value of something today, or determine the present value of a future promise/asset, you consider the Time Value of Money.  A $100 bill today will buy you more than that same bill in ten years due to inflation and/or the opportunity cost of earning interest rather than keeping it under the mattress.  Finance attempts to reconcile the difference and determine prices/values at any time other than today, or payments made in increments over time (mortgages, annuities, bonds, etc.).  This is also not particular to the Austrian School but generally accepted by most everyone.

 

http://en.wikipedia.org/wiki/Time_value_of_money

 

    

     It goes against everything I've ever been taught but the concept of usery being a bad thing seems foriegn.  It implies that by lending you money, I don't recieve anything in return for bearing the risk that you don't pay me back.  By lending, the best I could do is be made whole, right back where I started.  On the other hand I could never be paid back at all.  It's intuitive that if I'm risking not being paid back, I should require a profit in order to take the risk.  In a world of finite currency (bitcoin for example), the creation of debt that creates the ponzi effect would manifest itself in ever falling prices.  Rather than trending toward inflation, you would trend toward deflation, thus the advantage of infinitely divisible, and free currency (bitcoin).  Such a paradigm shift isn't without it's own challenges, but it does encourage saving, reward delaying gratification, get rid of taxation through inflation, and many other things.  I should note, bitcoin will require very little computing power once they've all been released, and they do have several key advantages that traditional currencies/stores of value lack. For a more refined opinion on usury, you'd have to consult religious texts.     

 

     Speaking on alternative currencies in general; who know's what will work best.  You need a market to determine the answer to that question, but competing currencies are invalid by decree from on high.  It is, however, encouraging to see people experimenting with currencies.  Government currencies will go the way of the dinosaurs, it's simply a matter of time.

[ribuck]

Community-based "currencies" have been adopted in many places, and over many decades. A few, such as Ithaca Hours, have been quite successful. Others have faded away. My own city used to have one, but after a while people lost interest.

 

So the basic idea is that money should be issued by producers, as opposed to banks or governments who do not produce anything of value.

 

That idea sounds great, but I don't think it can work that way. Either the money is issued centrally by the organisers of the scheme (e.g. the Ithaca Hours board), or it's issued by the consumers (those who accept other people's production in return for a promise of their own future production). I don't see how it can be issued by the producers.

 

Therefore, community currencies tend towards failure due to a centralised issuer inflating the supply (usually for their own political objectives), or due to consumers issuing credit then leaving the scheme or moving out of the area.

 

I think Bitcoin has a much brighter future than community currencies. I also expect that future community currencies will be "layered on top of bitcoin" rather than being standalone, because this reduces overheads and keeps the scheme honest.

[Mister Mister]

  Well aren't there solutions to those problems?  What is different about Ithaca hours that has allowed them to be successful?  Why can't producers issue the currency, in the same way they would issue coupons?  The idea is that anyone can issue currency as a credit on their future labor, in the same way that anyone can form contracts.  It's like giving your girlfriend an I.O.U. for a free backrub if you can't afford a gift.  I agree that we don't know what is the best form of currency, but this seems to me like something that can be done NOW by people at a local level, that will actually teach people something about economics, and shows the power of voluntarism.  Often I hear from liberal types that the poor are poor because not enough money "trickles down" from the top.  Of course this is the completely wrong concept of money and value - the poor are not poor because of a lack of money, but a lack of education, infrastructure, healthcare, etc.  Instead of accepting that money is something which must trickle down the pyramid, a system like this can teach that value is created, not distributed.Anyway I would love to see Stef do a short interview with Wayne Walton.

[Wesley]

Bitcoin I think is a currency that people can use now that does not require interest for its creation, is controlled by no one except logic, math, and cryptography, able to be used anonymously and locally, has no inherent transaction costs, is limited in scope, and many, many other benefits. 

 

I would much prefer localities to use bitcoin or create their own bitcoin dollars/ coins that "using" them prevents resale, or making a local bitcoin spin-off that is exchangeable for other bitcoin types in a market. This satisfies anonymity, interest at creation (but still allowing interest between users) and many other things.

 

I have researched the mountain hours concept a whole bunch, and love it as an alternative and would use it if it was available near me. However., I much prefer that we advance technology of money fully to make a superior product to that provided by the government, which I believe bitcoin and wider bitcoin acceptance could provide.

 

I think Wade would still be an interesting interview for some, I just have heard him 4-5 times now, so I personally do not think I would gain much from the interview. This is just evidence of my interest in alternative currencies, not in his quality of being interviewed.

[ribuck]

Why can't producers issue the currency, in the same way they would issue coupons?  The idea is that anyone can issue currency as a credit on their future labor, in the same way that anyone can form contracts.  It's like giving your girlfriend an I.O.U. for a free backrub if you can't afford a gift.

 

Community credits are fungible.

 

Issuing community credit is not like giving your girlfriend an I.O.U. for a free backrub. It's like giving her a credit that any other participant might be called upon to fulfil.