[e-gold-list] Re: old timer returns (and free markets in refugee camps)

[Pete Chown]

Vinay and Lindsey wrote:

> Initially the tokens aren't worth anything. People have nothing to
> back a currency with, so initially the currency is unbacked: they're
> simply too poor to have real money, so notionally we give them fake
> money.

I suppose the only way of finding out whether people will accept a
currency like this is to try it.  It seems to me, though, that the first
person who sells something in return for the currency is performing an
irrational act.  He has no way of knowing whether anyone else will
accept the currency, or whether he will be left with the tokens he just
took.

How would someone price this first transaction?  Let's say you have some
firewood and I have a hundred camp tokens.  How many of those do you
want for the firewood?  I don't see how that question can be answered if
the currency isn't already being actively traded.

Perhaps you could get round this by "selling" the relief supplies which
are made to people in the camp.  I don't know much about the logistics
of running a refugee camp, but presumably people have some kind of
identity card that entitles them to a certain amount of food each day?
Perhaps you could allow people to trade in these entitlements.  In the
beginning, people would mainly spend camp tokens buying the food
supplied by NGOs, the UN, and so on.  Later, as the camp economy began
to develop its own momentum, they would spend them buying things from
each other.

This would, of course, only work if there was more food than was
strictly required.  If people were given their daily tokens, and had to
spend all of them on food in order to survive, then there would be no
opportunity for an economy to develop.

> This is speculative, I know, but there do seem to be some historical
> precedents. The "local currency" folks point to a fair number of
> historical examples of cold-start currencies (often with demurrage or
> other schemes).

What is demurrage?  I thought it was something to do with shipping, but
that doesn't seem to make sense here. :-)

> Obviously this entire field is a potential social minefield - the
> modes of failure for such a scheme, in a camp where life is marginal
> at best - are horrible.

I was wondering whether it would make the camp easier or harder to run.
A functioning economy would make the camp easier to run.  On the other
hand, what about people who steal tokens from each other?  What if
someone amasses lots of tokens and uses them to establish himself in a
powerful position in the camp?

When people get rich in the West, their activities are curtailed by the
rule of law.  I can't assemble a private army, and I can't defraud
people.  How are you going to provide these kinds of rules in the
context of a refugee camp?  Providing a complete commercial legal code
would be an enormous undertaking.

> Alas, the one thing I've learned from thinking this whole thing
> through is how little I trust the Dollar. While it is huge, stable,
> and backed by a lot of people who percieve it to have value, the
> mystery at the core is how paper ever came to replace gold as value.

E-gold has a value that is fixed by contract -- or at least, given the
rules about bailing bars in and out, the value is going to be fixed in
practice.  Perhaps there is a kind of "democratic contract" which fixes
the value of Western currencies.  Governments know that hyperinflation
would be a huge vote loser, so they don't go there.

Of course, this isn't to say that the calculation won't ever change.  If
the more alarming predictions about US government debt come true, then
hyperinflation might seem like a good option!

Pete




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