In Part 1, I ended with a chart depicting the velocity of money trend from 1900 – 2007. Interesting to note that the lowest levels ever for the velocity of money were 1.17 in 1932 and 1.15 in 1946. The decade of the 1930s saw the Great Depression in the United States and many other countries. During this decade large numbers of people lived in poverty, desperately in need of more food, clothing, and shelter. Yet the resources that could produce that food, clothing, and shelter were sitting idle, producing nothing. At the worst point of the Great Depression, in 1933, one in four Americans who wanted to work was unable to find a job. Further, it was not until 1941, when World War II was underway, that the official unemployment rate finally fell below 10%. There seems to be a very strong correlation between the velocity of money and purchasing power. The velocity of money seems to be the heartbeat of an economy.
In the example of the Capitol Hill Baby-Sitting Co-op we saw how an agreement that was meant to be beneficial for the members turned out to be worthless simply because each chose not to use their coupons for the purpose for which it was intended but to hoard it (store it up). I think the statement by Bernard Lietaer is good to bring into the picture at this time which goes "While economic textbooks claim that people and corporations are competing for markets and resources, I claim that in reality they are competing for money, using markets and resources to do so." The implications of this if true are immense. It means then that today, money will never serve its main purpose of being a medium of exchange because it is seen as a source of power and the more of it that one possess the merrier and thus it is hoarded which inevitably defeats the purpose for which money was ultimately created.
Silvio Gesell, in the book called "The Natural Economic Order" had this to say about Money. "Money is an instrument of exchange and nothing else. Its function is to facilitate the exchange of goods, to eliminate the difficulties of barter. Barter was unsafe, troublesome, expensive, and very often broke down entirely. Money, which is to replace barter, should secure, accelerate and cheapen the exchange of goods. That is what we demand of money. The degree of security, rapidity and cheapness with which goods are exchanged is the test of the usefulness of money. If, in addition to this, we ask that money shall cause a minimum of trouble by its physical properties, we make a claim that is valid only if the purpose for which money exists is not thereby defeated." http://www.utopie.it/pubblicazioni/gesell/free_money.htm
Now what if in the example of the Capitol Hill Baby-Sitting Co-op where one coupon entitled the bearer to one half-hour of sitting time lost value in that each month that passed by, from the date of issuance, the coupon lost value to the tune of 5 minutes? It means that after 6 months a coupon would be worthless (coupon expiration) and new coupons would need to be issued. If you had a 100 dollar bill that lost value at 1% per month would you still hoard it? Well some persons would because they are technically doing it now considering savings are less than 1% and inflation is over 4%. Nonetheless, the point I am trying to make is that we need to find a way to maintain a minimum velocity factor that will prevent recessions while keeping speculation at bay. So we need to maintain a level of velocity that is beneficial to the economy but without increasing the money supply unnecessarily. The money supply is the last thing that is needed to be increased because the world is awash in money (credit rather) despite what others may believe. Furthermore, here in St. Maarten in particular banks are over liquid. Therefore money is being hoarded.
If government has no interest in going into the banking business to help lower the playing field, then another way is to charge a small fee for the use of money. Money is a public medium of exchange agreed upon by consensus of the community. Therefore national money is publicly owned and not privately owned. A small fee charged for the use of money together with a sales tax structure would mean that both wage tax and profit tax can be abolished. This charging of a fee for the use of money was experimented with back in a small town in Austria in the brinks of the recession of 1932 – 1933 and proved to be extremely successful. This experiment is known as The Wörgl Experiment. In 1932, in the midst of the Great Depression, the small town of Wörgl in Austria successfully experimented with its own local currency (in the form of a stamp scrip). Based on the thinking of Silvio Gesell, an early 20th-century economist, and designed to stimulate the local economy, the new currency helped put the population back to work, and inspired many other communities to want to follow its example, until the experiment was abruptly terminated by Austria's Central Bank in 1933. To read more on this experiment see further reading at http://www.lietaer.com/2010/03/the-worgl-experiment/
How much such a system could generate in revenues for government? That would be an interesting research project to undertake to find out by creating a financial and economic model to determine whether a fixed or percentage fee might be best as well as to determine the best rate under various conditions. But in essence it would mean that current account and normal savings deposits at the end of each month would be charged a fee. Currency in circulation will not be charged a fee as this is money circulating and is assumed to be generating funds for government via sales tax. Is it equitable, justified, or fair for Government to charge a fee for the use of money? Well, first of all banks already do this. For example the bank takes $3 or 0.522 % monthly off of my dollar account for so called administration charges whether I use the money or not. Secondly, we know longer use commodity money nor is money backed by gold, silver, or anything tangible. Therefore the existing money system should only serve as a medium of exchange and not also function as a store of value. Savings or store of value purposes should be accomplished by other means such as investments in: real estate, businesses, stocks, bonds, gold, silver, etc. Thirdly, because money was primarily concocted to alleviate bartering, in the bartering era if you hoarded perishable commodities (grain, tobacco, corn, cattle, etc) you would experience a lost in value over time.
Emilio Kalmera