It is not uncommon these days to see advertisements urging us to buy local because local shops have done it hard during the Covid-19 lockdowns. This sentiment used to be confined to the Greens and the new economics groups, but it is now widely accepted.
In 1996 economist Richard Douthwaite wrote in his book Short Circuit – Strengthening local economies for Security in an Unstable World, “The establishment of a local money system is fundamental to greater economic self-reliance.” He went on to describe the various local currencies possible, spending considerable time on the dramatically successful Austrian depression currency in Wørgl in 1932-33. You see the Mayor of Wørgl had read and digested the message of Silvio Gesell in his book Natural Money 1906. Gesell said that money should decay like ordinary goods and it was completely unnatural that those with money should find it increased. (of course those were the days of higher interest rates)
Another chapter of Douthwaite’s book was entitled “Banking on Ourselves” and argued that to strengthen a local economy we must have local banks. Douthwaite himself had been a development economist and knew how essential it was to have development finance for business.
Up to now it is only those on the fringe – for example the Schumacher Institute in US, the New Economics Foundation in UK and the Living Economies Educational Trust of New Zealand who have advocated for local currencies and local banking.
It was a surprise therefore when I listened to economist Steve Keen being interviewed by Phil Dobbie for his Patreon site. Steve Keen, an Australian economist who currently lives in Thailand, argued that the German system showed the importance of local banks. He said he was once being driven to a small town of 5000 people when they came across a factory building satellites. He said that sort of thing only becomes possible if the local bank manager knows and trusts the people involved. (He also argued that the bank should take shares in the business to share the risk). Keen said the big banks of Germany influence only about half the economy and the rest comes from banks called Sparkassen, local non-profit savings banks publicly owned. According to the OECD, the German public banking system had a 40% share of total banking assets in Germany.
Dobbie said that wealth in UK was concentrated in the London/South East where the GDP per capita was about twice that of the poorer North East of England. Dobbie asked Steve Keen about relocalising, banking, taxation, democracy and even currencies and Keen rose to the occasion, describing the success of the Wørgl currency in the 1939s. They talked about the possible Scottish devolution. It is one thing to have a budget from the national government, but quite another to have your own currency, Treasurer and central bank.
“We don’t want to rely on gratuitous payments of a central government handing out case for political point scoring”, said Dobbie. Now that sounds familiar! That lesson is so clear in New Zealand after the spectacle of a $3 billion Provincial Growth Fund where the Minister, over three years has favoured Northland which, although poor, just happens to be where that Minister is contesting the election. It received $553 million whereas the West Coast got $140 million and the Wairarapa received $10 million.
Imagine instead if there were 16 regional banks, all supplying local money to their regions. Imagine if the regional government was able to run a deficit because it is an issuer of a currency. Can you? Wealth would be more evenly distributed in our country. But with banks and Government all being centralised we can’t help but have a concentration of political and financial power in the cities of Auckland and Wellington.
Maybe the unimaginable can become possible in these Covid days.