Locanomics

In 1932, right in the middle of the Great Depression, the tiny hamlet of Wörgl, Austria, was having a relative economic boom that one observer declared “borders on the miraculous,” while the rest of Austria was hemorrhaging jobs. In under one year, Wörgl actually saw employment increase  and allowed for the successful construction of a bridge, new housing, a ski jump and a reservoir. How’d they manage to be so successful during the middle of the Great Depression? Through the use of a local currency.

Local currency is exactly what it sounds like – currency that is produced and circulated by citizens in one small locale for use exclusively in that same locale – and has been used in cities in the United States (like Ithaca, New York) and around the world for many years, including one experiment in local currency in Bloomington called the BloomingHOUR. Bloomington should restart this experiment in local currency.

The benefits of local currencies are many, perhaps most obviously because local currencies are limited to exclusive use within the community in which they are issued, keeping money in the local economy instead of sending it many miles away.

Local currencies also have less obvious benefits, such as the way they help reduce carbon dioxide emissions by encouraging the purchase of goods produced locally rather than those shipped from far-flung locales.

Additionally, local currency use can help to negate the disadvantageous effects of a larger-scale economic downturn because they insulate smaller communities from such downturns. Because local currencies create a network of inter-supporting businesses and consumers that are more independent of the larger economy, communities that use local currencies are less likely to be as negatively affected by recessions.

Purchasing power is also increased through the use of local currencies because of the increased amount of money, which in turn increases the demand for local goods and services.

Because local currencies are limited to use within a smaller area, the velocity with which they circulate is much faster than that of regular currency, which results in increased economic activity in the local community. Because local currencies use their value more quickly than normal currencies, they circulate much faster, generating as much as 12 to 14 times more employment than that of traditional currencies.

One of the lessons of the Great Recession should be that excessive economic globalization can have extreme negative consequences. When one area of the world faces an economic downturn, the rest of the world is inevitably affected as well. Through the use of local currencies, some of the more negative potential implications of financial globalization can be limited.


E-mail: zammerma@indiana.edu