80. Local Wealth, but no Local Money

Local Wealth, but no Local Money
Bob Komives
::

While wealth develops at all levels, we tend to concentrate our attention at the national level. Jane Jacobs, in Cities and the Wealth of Nations, lays down a solid argument as to why cities, not nations, spawn economic development. Translated into terms that I like to use, she explains the organization of the city as it develops in economic breadth, depth, and density. The organization occurs not only within the city but within its region; local wealth develops inwardly and outwardly.

Jane Jacobs argues that cities are the sole source of economic development. I disagree on this point, of course. Examples of exceptions abound: cityless gatherers developed wealth by spreading seeds of their favored food plants; neighborhoods and families have produced artists, athletes, scholars, and entrepreneurs out of proportion with their neighbors in the city; E=mc2 is a product of Einstein not Bern, Switzerland; often cities seem to be at least as much products of their regions as vice versa, as in the Silicon Valley area of California; professions develop wealth as their members interchange discoveries, inventions, and techniques at regional national and international conferences; ethnic and religious groups can spawn economic development across political boundaries; national and international efforts have produced space exploration.

I quibble with her on the exclusiveness of the city's role in economic development, but I strongly agree with Jane Jacobs that cities are important, and that they suffer much more than an image handicap relative to nations. They also suffer a serious monetary handicap.

Many people complain about the overburdening emphasis of national government. Ronald Reagan did so when he advocated a new federalism in his campaign for the presidency of the USA in 1980. But there is a major stumbling block in the way of turning more responsibilities over to local governments: money gets minted at the national level. Jane Jacobs sees that in a monetary society this simple fact puts much economic development responsibility at the national level, whether it belongs there or not.

Fifty united states form the federal government of the United States of America. The constitution guarantees certain powers to the states. Many see as a problem the ever greater concentration of function and authority in the national government, but few, I believe, see it as more a financial than a political problem. State and local governments have two fiscal constraints that the federal government does not have. They must budget for real (not fantasy) balances, and they must not mint money. In short, they have wealth but no money.

Our ideal monetary system would keep money production coincident with our wealth production. New money would join wealth where wealth grows. It would get there well-timed to be either inducement or reward. Since much wealth develops locally but only national governments mint money, our monetary system has a built-in tendency to be disjoint. The problem is not as severe as it might be. Local Banks, local corporations, and the characteristics of location itself help attract new money to where wealth grows.

Our ideal monetary system would also let money flow to where wealth is in jeopardy. The people of U.S. America have turned to their national government often and asked it to spare little expense to fight war, injustice, technological barriers, economic and natural disasters. Given their fiscal constraints, cities and states can do little to help. Only the federal government has the fiscal irresponsibility to respond. Such crisis-solving power leads to federal political dominance over states and towns.  If there is to be a new federalism, states, local communities and their governments must find ways to make money.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 80.  Local Wealth, but no Local Money  ::
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