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9. Potential Misunderstandings

In today's politico-economic minefield some may discard the concept of community currencies because of some simple misunderstandings. I address two such issues coming from different parts of the political spectrum.

Is a Community Currency Just Another Welfare System?

To many people, anything that helps the poor is a welfare system. (note 11) While that is indeed the case in most programs, community currencies are an exception.

Let us consider a practical example from a city that, by American standards, would be considered an extreme case of poverty. It will show that a community currency does indeed help the poor--but by using market forces, not any transfer of resources from the rich to the poor. In fact, it makes some welfare systems unnecessary because it puts the poor to work to help themselves.

When Jaime Lerner became mayor of the medium-sized Brazilian town of Curitiba in 1973, he had a tricky garbage collection problem. The majority of the 500,000 people of Curitiba lived in shanty towns (favelas), which had been built so haphazardly that even the garbage trucks could not get into them. The accumulation of garbage attracted rodents, which in turn spread diseases at alarming rates. The classical solution would have been a welfare program to try to clean up the mess, but Lerner did not have that option because there were too few rich people in Curitiba, and the necessary funds were not available.

The mayor was forced to invent another way. His solution was to pay public transport tokens to people for their garbage, under the condition that they pre-sort and deposit it in recycling bins around the favelas. For organic waste, which was composted for use by farmers as fertilizer, people received chits that could be exchanged for food. The program worked spectacularly: the favelas were clean-picked by the kids, who quickly learned to distinguish between the different types of recyclable products. People could leave the favelas by public transport and travel to the center of town where the jobs were. The additional buses and gasoline were paid for with the proceeds from the sale of the pre-sorted garbage to the glass, paper, and metal manufacturing companies. Even "normal" money was saved because fewer trucks and less gasoline were required to pick up the pre-sorted garbage. And all this does not even include the savings due to reduced disease and a more efficient labor market. Today, Curitiba is clean, prosperous, self-sufficient, and the only Brazilian city I know to refuse money from the state. It has a state-of-the-art public transportation system and a popular mayor who has been repeatedly reelected. Perhaps most significant, a strong sense of community and pride has arisen in a place where none was visible before.

There is a general lesson here that politicians from every country should become acquainted with: welfare programs can be replaced by imagination and creativity if the right leadership is available. Also, politicians get reelected for providing such leadership.

Won't This New Money Create Inflation?

A common reaction to the concept of a local currency is that it will increase the money supply and therefore fuel inflation. This reaction is further reinforced by the observation that the built-in incentive to get rid of a booster or demurrage currency reflects behavior observed in an inflationary environment. What happens beyond these first impressions?

Consider the issue of increased money supply: Do airline frequent flyer programs increase total airline flying? The answer is obviously yes. But does a frequent flyer ticket create inflationary pressures on air fares? The answer is no, because the airline will readjust as needed the constraints on frequent flyer usage (by, for example, having frequent flyer seats available only on weekends or in off seasons, or only for red eye flights, or only for a certain percentage of the seats). In other words, the airlines will ensure that only otherwise empty seats will be used by frequent flyers.

The same is true for community currencies: their natural niche is linking unused resources to otherwise unmet needs. The more sophisticated community currencies even specifically target this application. The local businesses participating in the Commonweal experiment in Minneapolis accept the community currency only for otherwise unused resources, as when, for example, a restaurant accepts community currency from early diners. Even the quantity of local currency issued is only 75 percent of the discounts of goods or services made available to the system by participating merchants. So long as community currencies are issued specifically to ensure the use of otherwise idle resources, inflationary pressures cannot be generated.

In summary, while the behavior patterns generated by the booster concept may look similar to what is observed under inflation, the cause is different. More importantly, the consequences of spending are diametrically opposed: Under hyperinflation, society collapses, while with community currencies the fabric of society is reinforced.

It is important to realize that "normal" national currencies and community currencies play different roles. Nonetheless, theory and practice show that it is possible to design a truly symbiotic relationship between them. This will be the subject of another article.

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10. Conclusions

Community currency is a tool for tackling the major contemporary issues of unemployment, community breakdown, and ecological destruction. This tool represents some (very) old wine that could play a broader role if served in the new bottles that today's technologies make available.

Is this community currency phenomenon a short-term fad that will disappear when the global economies pick up again, or is something more significant going on? In support of the thesis that this is only a temporary fix, one can point out that its reappearance today corresponds with the long economic cycle termed the Kondratieff Wave. Indeed, as I pointed out earlier, U.S. "emergency currencies" have appeared with the regularity of clockwork in the 1830s, 1890s, 1930s, and now. But I would nevertheless argue that--unless govemments decide to snuff them out for the wrong reasons--the community currencies we see today are only the beginning of a significant new long-term trend.

My claim is based on the observation that the current cycle is structurally different from all the previous ones. One of the most compelling explanations for the origins of the Kondratieff Wave has focused on the fundamental shifts in technology that have worked their way through the entire productive system. At intervals of about every fifty to sixty years, we have seen the "water technology" of the 1830s be followed by the steam engine in the 1880s, the internal combustion engine in the 1930s, and the microchip in the 1980s. But the information age is creat- ing a situation without historical precedent: jobless growth, or economic production growth, accompanied by worsening individual conditions. The scales of ecological and community breakdown are similarly without historical precedent. Since the centralized tools for stemming this phenomenon have failed, the local community is the most logical place to do something about it. As I have attempted to show, community currencies have a proven track record for solving problems for which we have no other tools of equivalent simplicity and effectiveness.

It is ironic that we find ourselves again in quandaries similar to our predecessors of the 1930s. Most of the advantages described here for letting people help themselves applied at that time as well. We will never know for sure whether Hitler would have been propelled to power if the people of Germany had been allowed to continue to solve their problems from the ground up and find employment and dignity in their own communities.

Would it not have been worth letting them try it?