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

[Vinay and Lindsey]

> What I'm wondering is whether such a token would have any value at all.
> Why should a piece of paper with "Camp Scrip Token" printed on it be
> worth anything?

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.

However, even fake money (strings of beads, say) turn out to be useful
because they enable exchange between people who might otherwise not
trade. And those transactions begin to establish a market value for
these tokens who's only virtue is scarcity and portability.

This is the bootstrap, cold-start problem which local currencies have
historically addressed.

1> Start with nothing
2> Introduce an "empty" currency
3> (If) People start to trade with the "empty" currency
4> The goods and services available with the pseudobucks now form the
backing of the currency
5> (If) the currency stabilizes enough to be traded with other
currencies, then people who were too poor to trade have successfully
joined the economy.

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).

> So now imagine that I'm launching a "Camp Scrip Token".  I'm a good
> monetarist, so I'm going to keep the purchasing power constant by
> balancing supply with demand.  The problem is that there is no reason
> for demand to exist, and so to maintain the value of the tokens, the
> appropriate number to issue is zero.

The currency initially has a value based on its scarcity (it's a
collectible) and the faith (however misplaced!) that the people
running the camp are providing it for a reason. That might not be
much, and I can easily imagine some instances where the money simply
never gets used... but given the negligible price of providing the
tokens, that doesn't really matter.

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. But I can't think of a way of seeing if this
would work short of trying it.

> Issuing ten additional tokens per week isn't *necessarily* inflationary.
> It only becomes inflationary if the rate of money supply growth exceeds
> the rate of economic growth in the part of the camp economy which uses
> tokens.

An excellent point which I had missed. Thank you!

> You also might find some inflation helpful, as a way of encouraging
> people to spend the tokens rather than hoarding them.

Yes.

> > Isn't this essentially how the Federal Reserve works?
>
> I suppose it is.  Perhaps one day your currency will be as widely
> accepted as the US dollar. :-)

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.

I know that's a long, long story, but it's in so central to our
civilization that I wish there was a class in every high school
explaining what this "money" is and where it came from.

Simply *defining* money blows minds, never mind putting it in
historical context. It is, in it's own way, as radical as discovering
that air is a substance and has mass.

Vinay

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