79. In the Tradition of Delegation

Plum Local IV ::: Part V

Community Finance

== chapters 79 - 85 ==

=== look to right column for direct links to chapters ===

79. In the Tradition of Delegation
Bob Komives
::

The United States of America delegate power to themselves (a tradition) and to private enterprise (another tradition). After a National Aeronautics and Space Administration took the first USA astronauts to the moon this nation of market-oriented states looked for ways to delegate some space exploration to private companies. Why not also delegate to state and local governments? The Missouri Space Administration and The Cleveland Interplanetary Agency might diversify our approach to space —under national and international guidance. Similarly, state academies of science could take responsibility for much of the scientific investment now directed by our National Academy Of Science.

Such more-local entities would be no more threat to national sovereignty than are state and local health, highway, and police departments, or local school districts. Perhaps we do not consider community-based space and science agencies because they are bad ideas. I suspect, however, we would stop long before considering the merit of such proposals. Even though such proposals follow our tradition of delegation, I suspect that we ignore them because we assume that such large, community-based investments are not affordable. For the time being, they are not.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 79.  In the Tradition of Delegation  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

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  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

81. About Location Currency

About Location Currency
Bob Komives
::

What must exist everywhere yet must be everywhere unique? —location.

Location is currency for all communities and governments that preside over geographic areas. Unique sets of privileges and obligations, costs and benefits go with residence in U.S. America, the State of Colorado, the City of Fort Collins. Every place has assets and liabilities given it by geology, geography, weather, history, and ecology. As a community invests and disinvests in the resources that are tied to location, that community's location currency rises and falls in value. Good schools and services tend to increase demand for local property. That demand raises property values and the tax base to pay for schools and services. Pollution and crime do the opposite.

This location-based currency system is inevitable but imperfect. Deeds (to a location) can be traded just as money and stock can. As with money, there are delays and leaks between the outflow of expense and the return of benefit. As with money much of the value reflected in the price of a transaction depends upon larger factors. The value of the deed to one site depends, for example, upon a larger locational currency that reflects value from community investment in facilities and services.

Communities often find themselves in competition with one another. One community promotes its own location currency. This may be good for larger society —driving the quality of local school systems upward to attract industry. It may be bad —driving the enforcement of health and safety regulations downward to attract industry. The wise larger community fosters positive competition and discourages the negative.

Despite its imperfections, location currency is inevitable, powerful, and inalienable. It is inalienable because it is something that no location-based community can give up. Thus, local economic development logically starts and ends with attention to the value people place on living, working, and visiting there —the value of the community's location currency.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 81.  About Location Currency  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

82. For Local Banks

For Local Banks
Bob Komives
::

...

Local banks tend to issue money
as stock in local knowledge.
Thousands of local banks
(together and at odds)
foster diverse and robust investment.
Forsake local banks for
    fewer,
    larger,
    national
    and international banks
and you foster
    monotony,
    vulnerability,
    foot in the mud,
    butt in a rut,
    a people and nation
    of downward mobility.

|| 

Banks expand money supply when they lend out most of the money they are “holding” for depositors. Thus, local banks generate a somewhat local currency.  Given the lack of public minting powers at the local level, private local banks have an important role to play. They have built-in incentives to invest in local economic development that will return local deposits. The money that the bank introduces locally to the national economy responds to —even rewards— success of local investors. Given a centralized, national monetary system, decentralized, local, private banking is a complementary aid to local economic development.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 82.  For Local Banks  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

83. For Local Corporations

For Local Corporations
Bob Komives
::

...

I like local banks because I think they promote local economic development and robust, national economic diversity. I like local corporations for the same reasons, and one more. While money issued by local banks is national currency whose value comes from the national economy, the stock issued by a local corporation gets much of its value from the value of the corporation that issued it.

In the USA there is waning tradition favoring local banks, however there is little tradition that would restrict corporations to local operation. Now that local businesses buy and sell in a marketplace that is every day more global, such a tradition is unlikely to evolve. Nevertheless, when a community does spawn a local corporation the corporate stock is a share of local wealth (albeit restricted to the assets of the corporation). The value of the stock rises and falls with local corporate value.

To the extent that a corporation participates in and reflects the local economy, its stock is a form of local currency. It is a legitimate medium of exchange whose value is determined by local economic development. By encouraging the creation and permanence of successful local corporations that issue common stock a community indirectly mints local currency. 

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 83.  For Local Corporations  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

84. For Local Taxes

For Local Taxes
Bob Komives
::

...

State and local governments have one advantage over their national government. In theory and practice they balance budgets with true taxes. National monetary recall is worse than useless. Like trying to pull yourself up by your own boot straps, nothing is gained. When our monetary policy recognizes this we can leave money collection to state, local, and international governments. Absent the illusory burden of national taxes through monetary recall, citizens may approve local taxes to balance their budgets while expanding and improving services.

The value of the dollar in the USA reflects some discount for an underlying local tax burden, but individual local governments do, nevertheless, get more income when they raise taxes. Because they do not mint money, when they tax they collect money minted by someone else. They collect something they need but cannot make, something their constituents have. They collect a type of “tax in kind.”

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 84.  For Local Taxes  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

85. For Local Currency

For Local Currency
Bob Komives
::

...

If we wish to pass power and  function back to states and localities we may have to give them some of the fiscal irresponsibility that national government has. We may have to let them mint money. This may seem odd, but consider that banks are allowed to mint money when they lend out most of the money that they are supposed to be holding for depositors. Individually we mint a sibling of money when we take out a loan guaranteed only by our promise to pay it back. Corporations mint a fraternal twin of money when they sell common stock. Perhaps it is more odd that state and local government are left out of the minting business. They can issue bonds, of course, but these must be backed with solid guarantees; money is not so backed.

Where I offer fewer answers
may I proffer one more question?
Could your local government
(your community)
mint its own money?
    Miami Marks?
    Saint Paul Dollars?
    ...
I leave it to you
to tell us how to make it work.

||

The USA has tried “revenue sharing” as a way of channeling money and responsibility back to state and local governments. “Mint sharing” would be the correct approach to such a policy, since the federal government raises no true money-revenue. Local governments could share minting privilege as banks do. The challenge would be to induce each jurisdiction to mint money in proportion to how much wealth it is creating. Absent such inducement, not responsible for the national economy, each local government would always have an incentive to print more money. The European Union faces a challenge as it develops a common currency. Will member nations get no local rewards and incentives for creating the economic growth that allows more currency to be minted? Internationally or intra-nationally, with good carrots-and-sticks to keep local production of currency coincident with local production of wealth, mint sharing could be an exciting evolution in our use of money.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 85.  For Local Currency  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

88. Abolish National Borrowing.

Abolish National Borrowing.
Bob Komives
::

     This is all unfortunate, but necessary,
says the economist in his scarcity model of the world.
     We cannot provide for the welfare of the many
     because resources available to the few are scarce.
     We cannot clean up and protect our scarce resources
     because,
again, as the logic goes,
     our resources are scarce.

Where is the evidence
that this scarcity model works?
Where is the evidence
that doing the right thing costs too much,
that doing the wrong thing is affordable?
Where is the evidence
that poor countries
that follow this model
will someday become rich?

Where is the evidence?

Evidence

Monetary recall is not needed to pay for national government. National borrowing is a substitute for these pseudo taxes. Therefore, there is no need to borrow. When a country borrows foreign money from a foreign government, it shackles its own economy with unneeded obligations. When a central bank fights inflation by raising interest rates, it fights a fire with kerosene. A national government cannot enter the borrowing business, whether internal or international, without raising inflationary pressure. While local banks play a key role in financing local economic development through loans, a central bank such as the Federal Reserve System in the USA need have no role in financing national expenditures. Once this is understood, the central bank may assist a healthy flow of money into the economy through independent local banks.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 88. Abolish National Borrowing.  ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::