Tuesday, November 17, 2009

Pen Meets Paper Nov.16'09

Opinion by Helge Nome
As money and credit gets scarce in a geographical area economic activity tends to slow down and people are let go from jobs. Whoever controls the taps of credit can literally choke off the lifeblood of a community.
Is there any kind of remedial action that can be undertaken to alleviate the severity of this control from above?

Let’s check into it by lifting the curtain on the past: You produce eggs and I cut firewood. We both eat eggs and use firewood. So we exchange eggs for firewood.
That could be awkward though, one cord of firewood is roughly worth 50 dozen eggs and a dozen eggs and one cord of firewood are the commonly used units of trade. I haven’t got room for 50 dozen eggs in my fridge and I don’t really want to carry a few sticks of firewood over to your place every time I have eggs for breakfast.
Necessity is the mother of invention: Numbers and letters come along and allow themselves to be arranged in rows and columns on paper, or as knots on ropes or marks on sticks. External memory is born, keeping track of how much firewood you got from me and how many eggs I got from you.
The only thing that remains is to agree on the relative value of our products after which fair trade can take place.
Along comes George with a hammer and saw. He builds sheds, houses and such in a very efficient way and he eats eggs and uses firewood. Both you and I need a shed built and he can do it better and faster than either one of us, so we incorporate him in our little trading scheme.
Then Sonja the Seamstress pokes her head in the door, suggesting that we are looking rather scruffy in our worn out garments, and the trading scheme grows again,
getting more chaotic at every step.
Somehow a central location is needed to keep track of all this activity and who owes what to whom. Rather than keeping track of the firewood, eggs and garments, we find that it is a lot easier to simply keep track of the values of these items, expressed in some agreed upon unit of value. Once that’s done, all you are left with is a whole bunch of numbers to keep track of, expressing the number of units of value that are owed or owing, as the case may be.
As things get more complicated you want to make sure that all the numbers are tracked correctly so a number tracker is engaged to take on that job, his hourly work is given a value in terms of the unit of value previously agreed upon, and he is put to work and is supplied with eggs, firewood and clothes, etc., by the members of the little community to point where he is quite comfortable and can devote most of his time tracking numbers, which is what he is good at: A bank is born.

Something like that happened in Switzerland in 1934, during the Great Depression, when money and credit were scarce. People found that they could exchange goods and services without using the national currency (which was being withheld from them) by setting up a separate banking system that complemented the regular banks that were no longer making adequate credit available.
This is called WIR Banking and we may need to do that in the near future if access to regular credit is being denied us by those that are supposed to provide it.
This website gives some additional insight into WIR Banking and credit clearing.

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