This article, published in the The Telegraph, is interesting not for what it says about local currencies but instead the wider, unstated, political atmospherics of our time.
Putting to the side the claim that Bristol is a hot bed of left-wing radicalism, as opposed to an historic hub of global trade, it strikes me that when people are against big business, big banks, the Bank of England, or for that matter a nationalised pound, they in fact smell the unjust corporatism of crony capitalism. Unable to articulate this with a coherent body of knowledge and an understanding of ‘state failure’, they instead turn to the ever decreasing circles of protectionist localism.
While such conclusions are wrong, they are at least borne of people starting to try and articulate the right question. The key thing for them to learn is that they should try substituting the word ‘big’ with the word ‘state’!
Yet if it’s tied to the pound, then it’s the pound but not legal tender. If it floated, that would be interesting – or tied to gold.
It seems they’re gouing to fix it at a rate of 1:1 with the GBP
But, this Bristol Pound… will it benefit Bristol?
It will keep a certain level of Money Supply (M) within Bristol (as GDP Pounds are exchanged for Bristol Pounds, which cannot be spent elsewhere but Bristol).
We would assume that total level of Money Supply Within Bristol will increase, after the Bristol Pound is introduced.
The relationship between velocity (V) , the money supply (M), the price level (P), and output (Y) is represented by the equation M * V = P * Y
We shall look at this equation within just the geographic area of Bristol
Traditionally we assume the Velocity of money to stay constant of have minimal change over time, and Price to stay constant within Bristol.
Thus if M increases we would assume:
M (increase) * V (constant) = P (constant) * Y (increase)
Assuming no change in the speed that money changes hands (V) and no change in the price level (P) you would see as they money supply within Bristol increases with people purchasing the Bristol pound alongside using GBP then you would see Bristol’s Output (Y) increase.
HOWEVER, Will this happen?
I propose that the Bristol Pound, being more difficult to spend than a GBP pound, will actually exchange hands less frequently. So we would see the velocity (V) of money decrease.
We agreed earlier Money supply within Bristol is likely to increase, rearranging
V = (nominal GDP) / M.
If V (decreases) = nominal GDP (either must stay constant or decrease) when Money supply increases
I would personally say it’s all about trying to speed up the velocity of money within Bristol. You’d assume keeping Bristol pounds in Bristol means the Bristol pounds change hands faster, increasing the amount of monetary transitions, hopefully positively impacting trade.
SOOOOO… Basically hoping to achieve higher GDP within Bristol?
BUT, Wont the velocity decrease? As it will be harder to spend the Bristol pounds, you’d see them changing hands less frequently than GBP Pounds.
V (decrease) = GDP constant / Money supply (increases)
Or
V (increased) = GDP within Bristol increases / money supply increases (at a increased level proportionally lower than GDP to get velocity to increase)
I can’t see any economic benefit.
Am I going wrong with this equation somewhere?
“Local businesses need to compete on quality and service.”
That’s it. That’s all.
These local currency schemes continue to pop up and I can’t imagine what the promoters expect to achieve. Buying locally certainly can help the merchants of a given area, though overall net economic growth is doubtful.
Trade with other towns and, indeed, countries expands prosperity. If Bristol has economic problems, I’d guess they’re caused by government regulations and taxes. The Bristol pound won’t do a thing to change those.
Of course, the lefties (and they often are at the center of these things [think Ithaca Hours]) wouldn’t even think about cutting regulations and taxes. No. Our problems must be caused by poor consumer choices.
Ah, it’s the old market-failure thing, is it? If something’s wrong, it could never be government. Must be the idiot consumers exercising their stupid choices again. Got to stop that. Tax, spend and intervene. That’ll teach them.
Yes Paul.
To the Bristol activists even a little local Tesco is not a new shop – it is a vile capitialist plot (the Koch Brothers hide behind the shelves).
It (the Bristol “activist” problem) is an interesting example of the work of Herbert Marcuse (and others of his ilk) – a de facto alliance between students (and ex students – who seem unable to grasp that the “facts” and attitudes they were taught are total nonsense) and life long welfare payment people.
Although (hopefully) the activists make up only a small percentage of the population.
So they are exchanging one currency backed by nothing for another currency that nominally appears to be backed by the first. Great thinking.
It is crazy (like the Brixton pound) if not illegal. I wonder if any of these schemes might involve a trader’s refusing to take legal tender in preference for made-up money. The EU may have a view on whether it’s in restraint of trade – giving people change in money they can’t spend properly.
I remember something in the West Country from the late 90s (?) and it’s still going if this website is accurate, the Bath LETS scheme:
http://www.bathlets.org.uk/index.htm
I can’t see HM Treasury accepting the Bristol £ when it rakes in the local taxes. The State always wants its pound, or flesh!
Indeed. Legal tender must mean something. I say abolish it and let currencies and commodities compete. They could include commodity-based currencies such as gold-notes. A troy-pound of silver’s now worth about £215. Wait till it gets to £240 and reintroduce old British money where £1 buys you 1d.
@ Paul. Absolutely, a troy silver pound would put paid to legal tender (a device to protect tax revenues and monetary monopoly, not the consumer). Also shows how rampant inflation has been for the last 60 years. Pint of bitter in 1970 12 new pence (pre-decimal conversion chart in a pub in Suffolk).
So true. As new undergraduates at Leeds in 1973, we decimally paid 18p for a pint of mild, 20p for bitter. And we still ‘ad t’change for’t tram ‘ome.
Tim – Bristol is indeed a hotbed of leftist activism.
As for the Bristol Pound – I suspect they want a looser money and credit policy (not hard money and people only lending out real savings), in short the old “low interest rates”, “cheap money” stuff.
Ditto with “crony capitalism”.
What we have now is certainly not a free market – but to the activists in Bristol (the sort of people who read the vast pile of “New Statesman” magazines I spotted at the railway station) it is TOO CLOSE to a free market, not too far away from one.
It’s all kind of ironic when you consider the economic history of Bristol – ie, they got rich on worldwide free trade.