Rajiv Sethi: Macon Money, the Anti-Bitcoin

By Rajiv Sethi, Professor of Economics, Barnard College, Columbia University. Cross posted from his blog

Among the many fascinating people currently affiliated with the Microsoft Research New York lab is Kati London, judged by MIT’s Technology Review Magazine (2010) to be among the “Top 35 Innovators Under 35.” Through her involvement with the start-up area/code, Kati has developed games that transform the individuals who play them and the communities in which they reside.

One such project is Macon Money, an initiative involving the Knight Foundation and the College Hill Alliance in Macon, Georgia. This simple experiment, amazingly enough, sheds light on some fundamental questions in monetary economics, helps explain why conventional monetary policy via asset purchases has recently been so ineffective in stimulating the economy, suggests alternative approaches that might be substantially more effective, and speaks to the feasibility of the Chicago Plan (originally advanced by Henry Simons and Irving Fisher, and recently endorsed by a couple of IMF economists) to abolish privately issued money.

So what exactly was the Macon Money project? It began with a grant of $65,000 by the Knight Foundation, which was used to back the issue of bonds. These bonds were (literally) sliced in two and the halves were given away through various channels to residents of Macon. If a pair of individuals holding halves of the same bond could find each other, they were able to exchange the (now complete) bond for Macon Money, which could then be used to make expenditures at a variety of local businesses. These business were happy to accept Macon Money because it could be redeemed at par for US currency.

The basic idea is described here:

The demographics of the participant population, the distribution of expenditures, and the strategies used by players to find their “other halves” are all described in an evaluation summary. The project had the twin goals of building social capital and stimulating economic development. Although few enduring ties were created among the players, participation did create a sense of excitement about Macon and greater optimism about its future. And participating businesses managed to find a new pool of repeat customers.

Macon money was a fiscal intervention (an injection of funds into the locality) accomplished using the device of privately issued money convertible at par. There was a temporary increase in the local money supply which was extinguished when businesses redeemed their notes. An interesting thought experiment is to imagine what would have happened if, instead of being convertible at par, businesses could only convert Macon Money into currency at a small discount.

Businesses that accept credit card payments are exactly in this situation, facing a haircut of 1-3 percent when they convert credit card payments into cash. Most businesses that participated in the original experiment would therefore likely continue to participate in the modified one. After all, businesses involved in Groupon campaigns accept a 75% haircut once Groupon takes its share of the discounted price.

But there is one critically important difference between Macon Money and a credit card payment: the former is negotiable while the latter is not. That is, instead of being redeemed at a small discount, Macon Money could be spent at par. If enough businesses were participating, it would make sense for each one to spend rather than redeem its receipts. The privately issued money would therefore remain in circulation.

What about a business that had no interest in spending its receipts on locally provided goods and services? Even in this case, there would be better alternatives to redeeming at a discount. For instance, if the discount were 3%, there would be room for the emergence of a local intermediary who offered cash at a more attractive 2% discount to the business, and then sold Macon Money at 1% below par to those who did wish to spend locally. Again, the privately issued money would remain in circulation.

As a result, the local money supply would have grown not just for a brief period, but indefinitely. The discount itself would allow for more money to be injected for any given amount of backing funds. And as long as convertibility was never in doubt, substantially more money could be issued than the funds earmarked to back it.

This simple thought experiment tells us something about policy. Macon Money provided an injection of liquidity that improved the balance sheets of those who managed to secure bonds. This allowed for an increase in aggregate expenditure, and given the slack in local productive capacity, also an increase in production.

It was expansionary monetary policy, but quite different from the kind of policy pursued by the Federal Reserve. The Fed expands the money supply by buying securities, which leads to a change in the composition of the asset side of individual balance sheets. Higher asset prices (and correspondingly lower interest rates) are supposed to stimulate demand through increased borrowing at more attractive rates. But in a balance sheet recession, distressed borrowers are unwilling to take on more debt and the stimulative effects of such a policy are accordingly muted. This is why calls for an alternative approach to monetary policy make analytical sense.

Furthermore, the fact that Macon Money was accepted only locally meant that it could not be used for imports from other locations. The monetary stimulus was therefore not subject to the kinds of demand leakages that would arise from the issue of generalized fiat money.

Finally, the project provided a very clear illustration of the difficulty of abolishing privately issued money. Unless one were to prevent all creditworthy institutions from issuing convertible liabilities, it would be virtually impossible to halt the use of such liabilities as media of exchange. Put differently, we are always going to have a shadow banking system. But what the Macon Money initiative shows is that the creative and judicious use of private money, backed by creditworthy foundations, can revitalize communities currently operating well below their productive potential. Whether this can be done in a scalable way, with some government involvement and oversight to prevent abuse, remains unclear. But surely the idea deserves a closer look?

Update. Another important feature of Macon Money is the fact that it cannot be used to pay down debt unless the creditors are themselves local. This means that even highly indebted households will either spend it, or pay down debt by selling their notes to someone who will. If increasing economic activity is the goal, this is vastly superior to disbursements of cash.

Joseph Cotterill asks (rhetorically) whether Macon Money is the anti-Bitcoin. Exactly right, and very well put.

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  1. YankeeFrank

    I’m not sure if its the “anti-Bitcoin” exactly. In some ways perhaps: bitcoin is globally, rather than locally, traded and spent, and is not tradeable at par with a fiat currency. But bitcoin has allowed markets in products arbitrarily deemed illegal to flourish, and it is exchangeable for fiat currencies, albeit at wildly fluctuating rates. There is also a large bitcoin ecosystem of companies springing up to perform just the sort of currency trading described in the variation of the “Macon-Money” scheme proposed herein.

    This experiment (and bitcoin) are powerful reminders that, if released from the chains of bankster hegemony, the people can and will use fiat money to boost the economy. In fact, they strongly highlight the fact that the Fed and banks generally have become so corrupt and distorted in their incentives and “purpose” that they are destroying instead of supporting the real economy. Loaning money at usurious rates, withholding and punishing those who have had setbacks, not writing off debts that can’t be paid, bankrupting municipalities and citizens with the ubiquitous “tricks and traps”, massive fee-gouging and casino speculation have destroyed any public purpose these institutions ever had.

    If such a simple experiment can work to boost a local economy, these experiments should be happening on a massive scale in every community in the nation. We need to be experimenting like crazy, outside the traditional banking sector, to bring our economy back to life. And we shouldn’t be too worried about potential for abuse — taking precautions to avoid common fraud etc. is important, but so what if there is some abuse? Anglers and shysters are inevitable in any money system. It could not possibly compare with the abuse and corruption we are suffering under the Fed, Treasury and banks.

    Anyone who desires to break the economic, and hence physical and moral, shackles placed on us by the international banking cartel should be pro-bitcoin, pro-Macon-Money, and pro-experimentation with new currency systems, period.

    1. diptherio

      +10, although I do think bit-coin is doomed to eventual failure. But who cares, learning occurs through the continual making of mistakes. Bit-coin may flame out, but some other anonymous e-currency will spring up to take its place, and that currency will make new and better mistakes than bit-coin. That’s progress.

      1. Massinissa

        Ive always been sceptical of Bitcoin, but I have nothing against folks trying new things. Empiricism is the only way to advance society.

        Of course im more than happy to not participate in bitcoin, or rather, to watch it from as far a distance as possible, but its a jolly good experiment and Im glad someones trying it.

    2. Claudius

      My Alternative Currency Manifesto:
      For the truly empowered community (The Shire), a currency should be issued on the basis of goods and services changing hands, i.e., it should be “spent into circulation” by local business and/or individuals who are able to redeem it by providing goods or services that are in everyday demand by local consumers. As such, the alternative currency itself amounts to what we call a “Gift Certificate” (GC) of the issuer; a Gift Certificate that is voluntarily accepted by other provider of goods and services (like an employee or supplier), circulated, then eventually redeemed, not in cash, but “in kind.” Moreover, not just in kind but in kind with kindness.

      What about those evil universal “Dollar” taxes being imposed by our external overlords? Well, we enlightened ones must decouple the Shire’s GCs as a means by which we have to pay universal “”The Dollar” taxes – otherwise our GCs will, ultimately, have to be sold for “”The Dollars” (returning our life essences back to the Federal Reserve of Mordor, FRM) and the GC being reduced to nothing more than a local, limited use currency for a national (“The Dollar“) currency. We cannot let this happen; we need more essence than the FRM.

      No problem, the decoupling of universal taxes can easily be achieved by having – what we have come to learn is called – the “IRS” accept our Gift Certificates as payment for taxes. If they refuse, we could cease paying taxes to the “IRS” altogether (the 16th amendment Hobbits of the Shires will be with us) or amend the 16th Amendment to have chickens, pigs, geese and Gift Certificates accepted in lieu of tax “”The Dollars“” (still, I know that the 16th Amendment Hobbits will frown – no one‘s getting their hard earned chicken!). Alternatively the Shire could declare sovereign independence (but, we are not Texas and we lack the power of The Perry) and avoid universal taxes altogether.

      Okay, so far so good. Nevertheless, goods (e.g. medical grade radioactive materials for the local hospital, oil or dental fillings) and service (e.g. Transport, sewage and clean water) provided from those outside to the Shire have to be paid for. The challenges of redeeming the GCs back into “”The Dollars““” subject to financial penalty (an intermediation fee and buy/sell spread) raises the question of how many times our GCs will mediate between local GC trades and external USD trades – taking our essence with it. No problem, the Shire will take on “The Dollar” reserves to hedge the whole exchange, thingy (and thusly maintain an essence reserve).

      As Shire members we want to “monetize” the value of our own production, just as banks monetize the value of collateral assets when they make a loan (except in this case, it is done by the Shire members themselves based on our own values and criteria), without the “help” or involvement of any adults, government, bank, or ordinary financial institution, and without the need to have any “””Dollars”” to begin with. We want to be liberated from radioactive dental fillings and defense transport covered in sewage, and gains a measure of independence from the supply of official money and the policies and decisions of the FRM.

      The FRM originally defined the “The Dollar” as a specified weight of fine silver, then later on, gold, but those objective definitions were spirited away by demons and sprites that made paper currency “legal tender” that must be accepted in payment of “all debts public and ……private!.” For anything done in private – especially the sharing of essences – must be paid for in human worth; a stable value unit that will be defined in terms of both “kind” and kindness (or group of commodities that are commonly traded). Such definition will then enables the Shire to relate, from day to day and minute to minute, our values and share our essence; when the old “The Dollar” is banished from our kingdom. ;-)

  2. Nell

    The city of Bristol in the UK launched its own local currency in 2012. This currency can be used to pay local taxes and its value is pegged to sterling (there is an exchange cost). It can be used electronically – ie with debit card. The transactions are administered by a Bristol Credit Union.

    1. lakewoebegoner

      The Tauton Pound in the UK as well…..started in 2010 iirc….down the road from bristol.

  3. J Sterling

    I could be mischaracterizing libertarian gold (or mined bits) enthusiasts, in which case apologies, but I get the impression they don’t like fiat money. When I’ve asked what they’d do about it, some say they’d ban it, which I think is a bit of a contradiction of the “liberty” part of libertarianism.

    1. Massinissa

      Libertarians usually carry some weird contradictions sometime.

      One I thought was particularly weird, as an example, was that Ron Paul, instead of outright supporting or denying Gay Marriage, viewed it as a states rights issue and thought states should decide.

      Why would a Libertarian think its alright for a vote to decide whether or not two people can marry? That never made any sense to me.

      Of course, considering Ron Paul doesnt believe in evolution (Look it up in youtube or something, im being serious here), it makes perfect sense that he doesnt view homosexuality as natural, but I still dont understand why a libertarian would think it alright for a state to determine whether or not people have a particular right…

      I mean, how in gods name is it ANY governments business who marries who?

      1. digi_owl

        The thing about marriage is that it is a very old cultural institution, and one if likely to have sprung from the need to deal with male lineage inheritance issues. And so it has both a legal and a cultural presence.

        1. Massinissa

          The way I see it though, if a church doesnt want to give a marriage ceremony to two men, they really dont have to.

          But marriage has been a legal institution for over a hundred years now. The legal institution of marriage shouldnt have anything to do with the religious institution.

          And under current law, even if a specific church thinks its perfectly alright for gays to marry, and there are a good number, the government is still in place to deny that. Its silly.

      2. LifelongLib

        Plural marriage (regardless of the genders involved) would pose vastly greater legal difficulties than either form of monogamous marriage. Gay marriage can use the legal precedents of “traditional” marriage but plural marriage would be unknown territory.

      3. Banger

        RP is a libertarian conservative which means he favors the right of smaller scale communities to legislate or not legislate their moral values. Bothe conservative libertarians and anarchists have in common is that primary power should rest with local authorities not far away ones–just sayin…..

  4. diptherio

    First off, this may be the best local currency I’ve seen yet, on the basis of the name alone. Makin’ money, indeed. My question is, how can a municipality repeat this experiment without the ‘angel investor’ to provide up-front funding? Props to the Knight Foundation for funding Macon, but are there enough Knight Foundation grants to go around the country?

      1. washunate

        Professor, I’m a huge believer in the value of games for both education and social organization (as well as entertainment, of course).

        But I don’t follow what this shows. That’s basically a PowerPoint presentation that someone could assemble 90% of without any specific knowledge of what happened.

        What this experiment did was give the macon money to people – there was no lending or underwriting or any expectation of paying it back, right? What larger conclusion does that reveal about humanity or monetary policy? People will do things they wouldn’t otherwise do in exchange for currency that they can use to obtain things they want. That’s why people go to work instead of playing games all day – which of course is the value of money. That mental construct is how we organize society to encourage productivity, by giving people a means to convert their present labor into future consumption.

        That’s why colleges charge tuition, after all – the people who make higher education work would be a lot less reliable if everything was done on a volunteer basis :)

        At least, that’s the market-based capitalist in me. Perhaps someone else will counter that actually, a communal system of organization would be more effective…

    1. washunate

      That’s a great question. It appears this project ‘worked’ because it was fiscal policy, not monetary policy – the money wasn’t lent to people, it was given away.

      If you put $65,000 and human energy into a project, you better generate some return. I mean, just dumping $65,000 in cash somewhere in Macon and then posting a geocache treasure map online would increase economic activity.

  5. Dan Kervick

    The issuance of the (free) bonds was just a gimmick to get people interested in accumulating some Macon Money. They could have just issued the Macon Money directly instead. But I suppose it wouldn’t have had the same initial game-like aspect.

    Beyond that this is just another local currency scheme. Giving people free Macon Money is no different than giving them free negotiable gift certificates for a collection of local business. It’s hard to know what is learned about monetary systems from the experiment, since the experiment is driven by a benefactor’s decision to give stuff away for free. And this particular currency is dollar-backed, so it is just an appendage to the dollar system.

    In general, a retreat from currencies accepted in many localities and by many business to one accepted in a single locality and a few businesses is a kind of economic devolution and a step backward. The proliferation of localist schemes is a kind of economic decay. It sounds very nice and public-spirited, but it actually represents distrust and chauvinism, and if imitated broadly will only make us all poorer.

    A lot of people seem to be misinterpreting the lessons of the Eurozone. The problem with Europe is not that they have a currency that is accepted across the continent. That’s a benefit. They can buy anything anywhere in Europe without the transaction cost drains of currency exchange. The problem is that the only governments in Europe that can conduct fiscal policy do not have the ability to conduct monetary policy. They live in the kind of system we would have in the US if we had 50 US states and the Fed, but no national government capable of conducting national fiscal policies.

    There is a chronic problem during economic downturns for people to turn to various forms of monetary crankery, and assume that there is something wrong with “the monetary system”. Obviously it might feel that way since none of us have enough money. But the fact that we don’t have enough money isn’t a consequence of the monetary system. The monetary system works fine – the problem is one of overall economic health and the production and distribution of goods and services.

    1. Bridget

      You are correct. The author’s self proclaimed “thought experiment” is just that. There is nothing in the game that supports the conclusions he draws.

    2. Lune


      I think you have a point about this being a devolution, especially if it gets to the point where people are forced to be paid in Macon money and thus can’t spend it on goods outside the approved list of vendors. Sort of like company scrip in the old days.

      But on balance, the forces of globalization, while being great for corporations and the consumer, have been devastating to many communities, including small businesses. It doesn’t have to be, but thanks to our corrupt politicians, it has been. So on balance, a devolution to a prior time where local income was spent locally and served to feed a vibrant local economy may be better than we have now. Yes you may not have been able to get the latest and greatest at the local department store 50 years ago. But is it really worth being able to get a cheap plasma TV from China at Walmart if the end result is your town’s poverty rate goes up?

      Re: your comments on the Eurozone. The countries can’t set either fiscal or monetary policy. Their ability to run budget deficits is limited by the Maastricht treaty. And that’s just the law. In practice it’s even worse. Countries in the worst shape (Greece, Spain, Cyprus) essentially have their entire budget apparatus usurped by the Troika who essentially dictates taxes, spending, deficits, even sale of public assets and bank policy (the Troika demanding Greek asset sales and Cypriot depositor haircuts, for example). That’s the problem.

      Also, I think the benefit you list of eliminating currency transaction costs is overblown for anyone besides large corporations. Even now, outside of vacationing, I doubt most Europeans spend >5% of their income on goods directly purchased from a foreign country. The fact is the vast majority of people and small businesses live and die by their local economies. Heck, in the U.S., I bet < 10% of people's money is spent outside their *state*. So the value to individuals of eliminating transaction costs are minimal. But it was a great boon for large MNCs, which is the sole reason it was done. (After all, you don't need a single currency to have everything else the EMU provides such as pegged exchange rates and agreements on deficit targets).

    3. LifelongLib

      As a (U.S.) sort-of MMT fan, I have problems with our central bank and how the federal government injects money (or doesn’t) into the economy, so I do think our monetary system could work better.

      1. LifelongLib

        That’s on top of the closely related problem of how our federal government acts for the benefit of the wealthy rather than that of average Americans.

      2. Dan Kervick

        But LifelongLib, to me the point is that everything we need the government to do to act in a more progressive way in the economic sphere – changes in the way it spends and what it spends on, changes in the way it taxes and whom it taxes, changes in the laws that regulate the economy and the way those laws are enforced – can all be accomplished within the framework of our existing monetary system. Congress can spend dollars when and where it wants to; it can tax when and whom it wants; it can issue securities or not issue securities; it writes the laws that govern the Fed and can tell the Fed how to behave. None of this requires the creation of new forms of money.

        If the government uses bricks to build prisons and torture chambers, and not to build schools, that is not a problem with the “brick system”. The bricks are fine; it’s the way they are being used that is not fine.

        Americans have lost their freaking balls. All these fantastic pipe dreams of standalone dream worlds and separate economies running on made up dream-bucks, homespun neighborhood chits and Second Life crypto-digits are lazy and childish delusions. Our asses will still be owned by gigantic corporations and will lives will still be run by those corporations working together with politicians in Washington. It’s fight for change where the real power lies or accept serfdom.

        1. GittaM

          What lies behind the localist efforts is a desire to discover some way of cutting the oxygen from the corrupted system of government owned by the giant corporations. ‘Localist’ doesn’t have to narrowly mean keeping things in your little hamlet. It can and should mean broadly keeping the benefits and surpluses of labor with those who have created them. in other words cutting off the giant funnel that is pushing society’s resources up to the tiny minority who live at the top of the pyramid.

          So, imagine a ‘localist’ initiative where people bought their shoe laces from a large national consortium of worker owned stores rather than from Amazon. The closest store to the buyer serves as the ‘warehouse’ and delivers the product. The whole organization benefits. But the surplus that is generated stays out of the hands of the corporate structure.

          1. Dan Kervick

            It can and should mean broadly keeping the benefits and surpluses of labor with those who have created them.

            That’s a great idea, and it already has a name. It’s called “socialism”, and has nothing to do with how geographically local the economy in question is. If people allow themselves to drop out of national and international economies, and to retrench into local enclaves just because that’s the only way of escaping the power of “The Man” or whatever, then The Man has won. The fact that people in Texas can get syrup that is harvested in my state of New Hampshire and people in my state can get beef raised in Texas, and the fact that we can divide up the immense and very complicated kinds of labor we engage in in the modern world, so they can be efficiently concentrated in different communities and distributed around the world, makes us richer.

            You can’t defeat The Man juts buy hiding from him. It’s one, small, integrated, plutocratically governed and privately owned world we live in now. There is no escape from the people that run it, and there is no escape from being ground down by them and subordinated to them. They are even buying up all the <water now! If people want to claw back the value their labor produces from people whose ownership privileges mean they can take much more than they give, then they are going to have to stand and fight for it politically.

            Even if you want nothing more than to run a little squash patch and barter squash for other veggies or for local Farmer-Bucks, the people who own everything are going to be right there in your face, making sure that you can’t get any of the health care they own, or the secure retirement opportunities they own, or the educational services they own, or the land and living quarters they own, unless you dance to their tune.

            Americans have a long history of thinking there is always some new frontier that they can run away to, some land rush or homestead gift, some pioneer outpost, some bucolic Arcadia where the tentacles of capitalism don’t reach, to live life on their own terms. There isn’t. That’s an old, dead world that is more or less all gone. We’re all property now. You can’t “go to ground”. You can’t get “off the grid”. Stop dreaming and start fighting.

        2. Mitch Shapiro

          Dan…I’ve probably agreed with virtually everything you’ve written about MMT (mainly at NEP), but I think you’re missing the value of complementary (and typically more localized) currencies.

          One point is simply that the fight for a significantly more enlightened and truly democratic system of government (particularly at the federal level, where the monetary system is controlled) is an exceedingly difficult one that (to my mind) must be fought and won on multiple fronts nearly simultaneously (e.g., campaign finance, Wall Street/finance, healthcare, agribusiness, corporate “personhood”, control of the Internet, among many others). And each of these is itself complex and extremely challenging to achieve.

          While I support and try to participate in that fight, our victory, especially in the environmentally necessary timeframe is far from clear. So, if there are other steps that can be taken to build a bottoms-up system of exchanging real value than I’m all for it. If you haven’t already, I’d encourage you to read some of Bernard Lietaer’s work (I believe someone else posted a link to his website in this thread). I’d be particularly interested in your response to his point that having multiple, well-designed complementary (not alternative) currencies will increase the resilience of
          our financial and economic system, and also help to address particular areas not well addressed by our current system (e.g., healthcare). As someone who believes the fundamental paradigms of our dominant healthcare sector are fundamentally misguided (not to mention all the control and corruption related to drug companies, etc.), and prefers to rely on what are often called “natural” or “alternative” healthcare providers and approaches, I’m not a big fan of being forced to buy insurance that only pays for services I don’t want, but not those I do.

          A key here is how the currencies are designed and managed and what their purpose is. Bitcoin is one version, which I’d consider a libertarian techie attempt to recreate the gold standard….a bad idea from the start.

          That’s all I have time for now, but I encourage you to address the substance of Lietaer’s arguments and proposals, not simply dismiss proponents of complementary currency as weak, lacking courage and/or stupid.

        3. ChrisPacific

          In response to your “stop dreaming and start fighting” comment, I believe this is a way of fighting – as long as the focus is less on the protectionism/isolation elements and more on how to engage in productive economic activity that results in wealth creation.

          Part of the issue is that The Man has propagandized us into believing that his destructive policy is in fact right and proper and the best thing for both the country and us as individuals. In order to begin addressing the problem, we need people to see through the lie – not just individually but on a mass scale. Examples of ways in which we can engage in economic activity more constructively will help make the plutocratic vision look more and more ridiculous by comparison.

          This doesn’t need to happen locally, but doing it on a small scale and a personal level helps make the point that economics is fundamentally about helping others and being helped in return. Money is just a system we invented to keep score. Our current problems are not, as most people believe, the result of some intrinsic weakness in the fundamental economy (of helping/being helped) that can only be endured. It’s simply that the scoring system has been co-opted and is now producing perverse outcomes. If enough people understand that on a large enough scale, we are most of the way to a solution.

  6. TomDor

    The issue of taxes may be the real issue keeping wildcat currencies out of circulation.
    Was it 1866 or so, that the Federal Government tax of 10% destroyed wildcat currency?

    Tax policy has got to change for the sake of preventing or, to take-toll-on (TAX) the gambling casino we call Wall Street and the speculation in property. The speculation in property (and other needed human commodities) is driving the price to live and conduct business out of reach in the USA, Europe, China etc. — debt interest payments on inflated asset prices that limit consumption (demand) in the real economy.
    If I could conduct business in the USA from Bangladesh….I could live in a castle on a small salary made in US dollars. Why should that be? – property prices have played (do play) a huge role in the cost of living and, since coming of the property bubble… people are in debt and paying a huge interest/debt overhang that is crushing demand elsewhere. Certainly as a result of the bubble build up…rental price has gone up….lease price built-up and the improper taxation upon the built environment(as opposed to just the land value) has gone up beyond the means of business and people to sustain. IE: outgo has exceeded income….

    Taxation is the least understood component or science around. It is the basic lack of understanding that causes such bad legislation to be enacted… Proper taxation can correct the ills many nations face today…completely.
    A subject of such importance yet, so little understanding is harming the nation.

    Yes, I welcome considered criticism for my comment.

    1. Massinissa

      I am intrigued by your criticism, but, do you have any ideas on how to change the system of taxation?

      1. TomDor

        In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers.
        If a man earns his income by producing wealth nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living.
        If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth.
        If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth.
        Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.

        Written around 1925

        Also, as seen in the real estate bubble and it’s aftermath of debt overhang….caused in large part via Financial engineering, fraud and misrepresentation of warranties and risks…. we have truly been given facts that indicate some forms of financial engineering are destructive to standards of living and progress ie: investments were not made in the real economy but outside it —- CDO squared, derivatives and currency trade. Tax the negative financial horseplay to near extinction – those sectors that game the system as opposed to operating within it.

        Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
        It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
        But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
        Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
        Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.

        Money is a commodity, invented to help people by facilitating transactions. It is not wealth in itself. Wealth is natural resources, water, food, land, education, skill, spirit, ingenuity, art.

        banks could have told to refrain from gambling on derivatives, from lending for currency and commodity speculation, and from making takeover loans and other predatory financial practices. Public ownership would have run the banks like savings banks or post office banks rather than gambling schemes fueling the international carry trade (computer-driven interest rate and currency arbitrage) that has no linkage to the production-and-consumption economy.

        Credit is a form of infrastructure, and such public investment is what enabled the United States to undersell foreign economies in the 19th and 20th centuries despite its high wage levels and social spending programs.

        Lay the burden of taxes on those things that are destructive to economic progress.
        Every time people treated their home as a profit potential it did harm to those following – hold a home for appreciation and sell it to the next fellow at a higher price…just puts ya in the same position, you now need to spend more on new digs (asset inflation)…meanwhile the financial institutions got the increased interest stream (investors et al (debt overhang) instead of the built environment being taxed the land should be taxed for services the community brought to the land. We tax the build so…a property lot that has a shack built upon it is taxed less than one with a mansion even though they still receive the same service. This amounts to a tax on upgrading the shack which, arguably needs more services (fire, police etc. than the mansion) The tax to upgrade the house slows the improvement while others who improve around the shack lift the property value (land value) and the shack owner. Upon sale and, without work by the shack owner, the shack owner captures the increase – speculation 101 – where in fact this increase was created by others – thus, ideally, the land should be taxed to the benefit of those who created the value in the land.

        “As Simon Patten, the first economics professor at the nation’s first business school (the Wharton School) explained, public infrastructure investment is a “fourth factor of production.” It takes its return not in the form of profits, but in the degree to which it lowers the economy’s cost of doing business and living. Public investment does not need to generate profits or pay high salaries, bonuses and stock options, or operate via offshore banking centers.

        Credit is seen as necessary; but what of credit derivatives, the financial sector’s arcane “small print”? How intrinsic are financial gambles on collateralized debt obligations (CDOs, “weapons of mass financial destruction” in Warren Buffett’s terminology) – not retail banking or even business banking and insurance, but financial bets on the economy’s zigzagging measures. Without casino capitalism, could industrial capitalism survive? Or had the superstructure become rotten and best left to “free markets” to wipe out in mutually offsetting bankruptcy claims?”
        NC artical about a year ago

          1. LifelongLib

            I think I agree with you in principle, but is there an in-principle way of distinguishing productive investment from speculation? You know it when you see it but how do you put it in law/regulation?

            Also I’ve seen the argument made here that the problem is more basic — that the separation of investment/ownership from labor is itself the problem.

            It’s analogous to the historical situation here in Hawaii, where (often raw) land was leased (not sold) to the people who actually developed it. All the value of the land was essentially provided by the users, yet ownership remained with landowners and reverted to them when the leases expired, essentially expropriating the people who’d leased it.

    2. Andrea

      “Taxation is the least understood component or science around. It is the basic lack of understanding that causes such bad legislation to be enacted… Proper taxation can correct the ills many nations face today…completely.”

      I agree, with change to ‘one of the least understood’.. And I’m perpetually astonished how little interest there is in the topic, not to mention US citizens and others who dismiss it as a necessary evil, something like shitty weather. Even in Switzerland, where we set our own taxes, and for sure the discussions, quarrels and votes are a good thing, the whole mess is just accepted, as long as there are no rapid or dire shocks or changes.

  7. ignim Brites

    Suggests the FED would do better by opening and depositing into an account for each social security number. But I guess primary dealers are not subject to moral hazard and cognitive confusion the way you, ordinary mortal, are.

  8. F. Beard

    “Unless one were to prevent all creditworthy institutions from issuing convertible liabilities, it would be virtually impossible to halt the use of such liabilities as media of exchange.”

    No one is creditworthy, if “creditworthy” is understood to mean access to loans from a government-backed/enforced credit cartel since the purchasing power for the new credit is stolen by dilution from all other deposit and money holders.

  9. F. Beard

    “Macon money was a fiscal intervention (an injection of funds into the locality) accomplished using the device of privately issued money convertible at par.”

    Smells like “fractional reserve banking” to me. And why the presumption that convertibility is needed to give value to a money? It isn’t needed. Common stock is normally not redeemable yet it has value even if it pays no dividends. Why? Because the common stock holders are collectively the owners of the issuing company and its assets.

    What is the problem a private money is supposed to solve? Is it not idle resources due to a lack of demand due to a lack of money? Then let people form a common stock company by giving their real resources (including labor) in exchange for shares in the company. Further, when the company is producing, let it accept back some of those shares in exchange for the goods and/or services it is producing. Voila! A functioning economy with no need for banks or even fiat except to pay taxes.

    But as for handing out new money to the population, the entire US (world?) population sans bank owners (and the uber rich?) deserve restitution in the form of new fiat just given to them for systematic theft by the banking cartel.

    1. pebird

      Owners have claims to income and a share in a potential liquidity event, both of which are redeemable in currency.

      1. F. Beard

        Owners have claims to income … pebird

        Dividends are dumb; the purpose of a common stock company is to CONSOLIDATE capital for economies of scale, not DISSIPATE it.

        … and a share in a potential liquidity event, pebird

        I said “Common stock is normally not redeemable …”

        both of which are redeemable in currency. pebird

        Dividends paid in another currency are generally dumb for a common stock currency (exception: some fiat might be distributed so the owners can pay their individual tax bills). Instead, all profits that are not reinvested in the company (or distributed as fiat to cover individual tax liabilities) should be distributed via stock splits.

  10. Yancey Ward

    I think the author is making more of this experiment than is warranted. There will, in fact, be no permanent increase the local money supply since the businesses and and their owners are liable for federal taxes on the income of MaconDollars, and those taxes must be paid in US dollars. Eventually, enough of these taxes flow out of Macon to reduce the local money supply to what it was before the issue of the town currency. Or, to put it more simply, the MaconDollars will have to be converted by someone into Federal Reserve Notes, and the backing will have to be at par in the long run, or they will just die out. There are no free lunches.

    1. JGordon

      Some kinds of community currency are not taxable, i.e, time banking. If you want to be “above board” about all this, it’s certainly possible to operate in a manner that avoids significant taxation. On the other hand, if you don’t really view the governing political entity as legitimate, then there is no moral or ethical imperative to be “honest” with the regardless, and so whatever one can get away with is the same as what is legitimate in that case.

      1. Yancey Ward

        Tax law, state and federal, does not permit the avoidance of income taxes by receiving in-kind compensation- in this case, MaconMoney, or the things you purchase with it. There was a recent case where someone tried this by claiming that the income he earned was X dollars of face value gold coinage. The IRS of course disagreed, and judged his income to be the market value of the gold coins themselves. Many people every day get tax judgments against them by trying to accept compensation terms of goods or services rather than money wages.

        1. indio007

          Are you referring to the Kahre case on LV Nevada? He won against 200+ charges. Then they found out he declared the market value of the silver coins in order to get credit and proved himself to be a hypocrite.

    2. Rajiv Sethi

      The taxation issue is interesting, but it’s not clear to me that unredeemed Macon Money would be taxable. Credit card payments are taxable only to the extent of the amount recovered from the card issuer, not the price of the transaction. If Macon Money continues to circulate it will in effect be sustaining multilateral barter, the only difference being that each transaction is priced.

      1. Yancey Ward

        I will illustrate it with an example.

        You own a plumbing company in Macon, and you accept MaconMoney in exchange for your services. In fact, over the course of the year, you earn enough MaconMoney to purchase a car from the local dealership that also accepts MaconMoney. So, in the course of the year you have earned at least a $25,000 automobile for being a plumber. The IRS will not care that you didn’t earn Fed notes, they will only care that you earned enough to buy a $25,000 car, and they will send you a tax judgment that you owe them, let’s say, $7,500. So, you, the plumber, must take $7,500 dollars in Fed notes out of the Macon economic sphere, and send it to D.C. The same applies to every business, or individual, who earns income as MaconMoney. The car dealership earns a profit on the car it sold you, and as the end recipient of MaconMoney in my hypothetical, it must convert them into Fed notes in order to pay it’s taxes and to buy a car from the manufacturer to restock the one it sold to you.

        1. Rajiv Sethi

          Taxes are paid on profits not on sales. Most of the 25K will flow to the manufacturer of the car, a much smaller portion will be profits, and an even smaller portion will be taxes. So if you’re worried about leakages a much bigger concern is imports to Macon (like cars).

          The point is that MM allows for production to increase locally if there is slack (see the composition of expenditures in the spreadsheet), it does this more effectively than cash payments, and even more effectively if it can only be redeemed at a discount.

          The Fed makes a profit of several billion a year through interest payments on securities it holds, and it transfers this to the Treasury. This is effectively fiscal policy, but just goes to general revenues and is not targeted in any way. Using this profit to back local currencies of this kind in areas with severely underutilized productive capacity could have much stronger output effects. It’s a special kind of helicopter drop. Not going to happen anytime soon but it’s important to think about what’s wrong with the current monetary policy framework.

          1. Yancey Ward

            I know what the taxes are paid on, but the plumber pays the taxes on the entire $25,000 (it is his income)

      2. Yancey Ward

        And, note, it doesn’t mean MaconMoney leaves the Macon economy. It will continue to circulate, but if it isn’t exchangeable into Fed notes for the purposes of paying taxes, or restocking non-Macon goods, it will eventually whither away. If it is perfectly exchangeable, then the local economy doesn’t experience a permanently raised money supply- the MaconMoney has just displaced the FedNotes in certain in-town transactions, and the Fed Notes exit the Macon economy in balance to satisfy the local economy’s previous demand to hold money.

        1. Rajiv Sethi

          Definitely imports are a big issue and taxes are a special case of this (as you noted). But I think you’re assuming here that there will be no change in the total volume of transactions, no change in the demand for money or its velocity, and no change in the local supply of bank money. By this reasoning credit expansion in a small open economy with its own currency (New Zealand for example) can never have persistent output effects even if there is productive slack.

          1. Yancey Ward

            You are assuming your conclusion. Either the MaconMoney is fully convertible at all times, or it is not.

            What was notable about the experiment was that someone stood ready with the backing of the MaconMoney in the first place. So, there was in fact no free increase in local activity- someone had keep a reserve FedNotes for the redemption. If this backing comes from inside Macon, then there is no increase either the circulating local money supply, nor in the velocity- there is simply displacement. If the backing comes from outside Macon, then this is no different than if the foundation had simply laid the the same amount of Fed notes on the streets of Macon and let the residents pick them up and spend them- the price is paid from outside Macon.

            The alternative was that no one stood ready for final redemption. Let’s suppose the town government decided to create 10 million MaconDollars that local businesses pledged to accept amongst each other and their customers on a 1 for 1 basis on Federal-dollar priced goods and services. In addition, the town government washed it hands of the matter the day after the printing other than to accept the MaconDollar on a one for one basis in the payment of local taxes. Of course, the town government cannot buy everything it needs with MaconDollars- it must always find someone who will exchange them 1 for 1 (or it will be running at a loss), as will the various businesses and residents, so we are again just talking about the displacement of one currency for another, not one in addition to what was present before, or we are talking about a slowly depreciating currency that buys less and less as trust in it decays with regard to Fed-dollars.

            I can’t really say this in a nice way, but these sorts of ideas are an attempt to find the free lunch. Monetary cranks are always looking for the free lunch. If the town of Macon could surreptitiously print perfect Fednotes, the town of Macon of course would gain what would appear to be free wealth from their viewpoint, as any counterfeiter dreams of, but this isn’t free either- it is paid for by non-Macon residents.

          2. Rajiv Sethi

            “If the backing comes from outside Macon, then this is no different than if the foundation had simply laid the the same amount of Fed notes on the streets of Macon and let the residents pick them up and spend them”

            This is where we disagree. Fed notes could have been used to pay down debt, or shipped elsewhere, or used for imports. Regarding free lunches, whenever there is productive slack and policy can increase resource utilization there is a free lunch. The whole point of the Fed’s dual mandate is to make sure that such free lunches are not left on the table, subject to an inflation constraint.

      3. H. Alexander Ivey

        Dear Professor
        “Macon Money continues to circulate it will in effect be sustaining multilateral barter”

        Are you suggesting that money is a form of barter? I don’t believe it is.

  11. docG

    Schemes such as Bitcoin and Macon Money only serve to underline the absurdity of the situation in which we now find ourselves, in which Captialism has been identified as THE central problem, and yet every effort is being made, even by so-called “progressives,” to keep the “free market” system that fuels it afloat.

    Thus, if the “private sector” is failing, then instead of simply allowing it to fail, and lettin the public sector take over, every effort is made to figure out some scheme by which the public sector can continue to maintain (aka “bail out”) the private sector, indefinitely, and beyond all reason. The private sector then becomes a completely superfluous middle man, essentially a fifth wheel, dragging down the economy for no reason other than what amounts to the maintenance of a “hallowed tradition.”

    We keep seeing pleas for some sort of alternative, but the only meaningful alternative I can think of is regarded as strictly beyond the pale, unworthy of consideration. I’m not talking about socialism, necessarily, though that’s certain hovering in the background, but certainly the institution of some sort of centrally planned economy to ensure the equable distribution of resources, both material and human. And as it seems to me, the only “currency” appropriate to such a planned economy would be the equivalent of the old system of rationing that did so much to keep this country afloat during the crisis of the 40’s.

    In the age of high technology it should not be so difficult to figure out a way to convert everyone’s credit card into a ration card, with rations (i.e., resources such as food, housing, fuel, etc.) made available according to, first of all, one’s needs (ala Marx) and secondly one’s contribution to society over and above the minimum requirements (also Marx, I would think). The resources are there. All that’s needed is a rational means of distributing them.

    And sure, there would be the potential for some very serious subversion of such a system and of course the usual corruption could be expected. On the other hand, this may well be the only alternative we have when the old system comes crashing down and the private sector goes belly up.

    1. washunate

      Doc, a different way of looking at it is that we do have a centrally planned economy. Public policy is responsible for how things work in the US.

      It’s just that the policies are designed to transfer wealth upward rather than distributing wealth broadly.

      1. docG

        Well, yeah, there’s a lot of central planning going on that’s true. Or at least attempts are being made along such lines. But the perceived necessity of continually feeding the “free market” tapeworm is draining the center of both money and resources. And if you look closely you’ll see that this tapeworm is precisely the equivalent of the wealth transfer you so accurately perceive. The tapeworm is Capitalism, perceived as the necessity of maintaining the wealth the 1 percent instead of either simply redistributing it, or allowing it to collapse as time after time it threatens to do — sort of like a five year old holding his breath until he gets what he wants.

        1. washunate

          I disagree that anyone in power actually advocates for free markets. I think that is kabuki theater, not genuine advocacy. But otherwise, I do generally agree with you.

          I mean, the Social Security Administration is far more efficient than any private insurance company in the United States. For social insurance programs and infrastucture/public works projects, I heartily agree they should be performed directly by USFG.

      2. Dan Kervick

        The government helps shift wealth upward by looking the other way when the wealth is stolen. But in general, private corporations and finance don’t need any help from government policy or planning to shift wealth upward. The concentration of wealth at the top is the natural result over time of an unregulated free enterprise economy.

        1. washunate

          I strongly disagree.

          This notion that what has been happening in the US is ‘natural’ or in any way related to ‘free enterprise’ is one of the big lies that should not be believed.

          Wage stagnation and the two-tiered justice system are intimately dependent upon the state.

        2. H. Alexander Ivey

          I agree with washunate, wealth transfer is not natural, it is under the strong influence of the government (policies, which can and are changed). In fact, it is the role of a gov’t to set the standards and rules (and enforce them) of a market. No rules or standards, no market. So there is no such thing as a “free market” – a free market is another big lie.

  12. washunate

    “helps explain why conventional monetary policy via asset purchases has recently been so ineffective in stimulating the economy”

    I am very intrigued by that description. Using the central bank to directly pick winners and losers by buying assets I would call the opposite of conventional. Rather, it strikes me as quite radical and dangerous.

    First, this implies asset purchases were effective prior to recently, which strikes me as quite bizarre. The housing boom was a mirage of wealth, not an economy that was actually healthy.

    Second, the reason asset purchases haven’t stimulated the economy is because what’s wrong with the economy isn’t some short-term liquidity freeze – we’re in the midst of the bankruptcy of the major financial players which necessarily follows such an extended period of incompetence and criminal activity. We have fundamentally misallocated resources on a grand scale, from McMansions to missile defense and pornoscanners to prisons, and things won’t get better until we acknowledge the losses, write them down, and reform the system.

    Even Bernanke himself has basically begged Congress and the President to do something because the Fed can’t solve the nation’s problems. Monetary policy is largely irrelevant – legislation and enforcement are what is needed.

  13. Susan the other

    Kind of a convoluted experiment to analyze the willingness of people to use experimental currency and the limited effect of an experiment. The Chicago Plan was revolutionary and brilliant; so is MMT. So is Kucinich’s plan. I don’t see how this research promotes anything except to demonstrate that the system we now have is now antiquated and relatively useless. Except for the rich.

  14. allcoppedout

    I like the idea of everyone having a ration card for basics – a liveable universal credit – without the gimmick of having to seek out the other half of a symbolon. The first snag in the thought experiment concerns how we would then be able to get anyone to do the necessary work and whatever other work and activity that would make individual and collective life better. Economics lacks such Cartesian experiment.

    1. docG

      Well, first of all, we may have no choice. Rationing may be the only realistic alternative after the inevitable collapse of the current financial system. But secondly, I think it could work because most people would prefer more than just the basic necessities, and in order to have access to more one would have to either work more hours, do more demanding work, or demonstrate that one is contributing in a meaningful and significant way to the well being of society.

      Obviously doctors would have access to more resources than, say, bus drivers. And bus drivers who actually drove their buses would have access to more than bus drivers who didn’t. This would of course require the institution of a huge bureaucracy, which many might see as undesirable. As I see it, a gov’t bureaucracy answerable to elected officials is preferable to a corporate bureaucracy answerable only to self-appointed or crony appointed bigwigs.

  15. Nathanael

    We are in an economic bust. There is a shortage of circulating currency among average people.

    Therefore *anything* which adds to the money supply available to average people will be seized on, very quickly. Local currencies will be popular.

    This isn’t complicated.

  16. Andrea

    (Did watch the PowerPoint.) I don’t grasp the so-called experimental nature of the Macon Money thing. What were the alternative outcomes? – Not requesting a hypothesis or anything like that, an experiment can be qualitative and completely open-ended, particularly in social science, Economy is a branch of social anthropology! (Or should be.)

    The ‘experiment’ boils down to a rich donor giving a good sum to ppl in some city/district in an alternative form (other bills but dollars nonetheless), with the games-playing aspect reduced down to almost nothing, which was necessary, otherwise the ‘smart’ or ‘clued in’ would amass all the money. That money could only be spent locally. It was a gift. Fine.

    What does the experiment show?

    Btw, Switz. has an alternative currency which has worked well for 80 some years.
    (Type WIR CURRENCY into Goog.)

  17. rob

    The interesting part of this story, to me ;is the mentioning of the “chicago plan”.This to me says,”the NEED Act” HR 2990 112th congress.Which is interesting.I don’t see how macon money is really related to these ideas.After all, the ending of privately issued money, as in the fed notes,is interesting, and seemingly workable due to the overarching jurisdiction the treasury would control, being the sole source of US Dollars.Federal reserve notes are US dollars because of a special monopoly power granted by conress in the 16th amendment.Macon money, is akin to bars swapping coupons.Not a real monetary experiment.The difference is in the totality of the system.It seems that the chicago plan,or the need act, was a national plan.Which meant ALL US dollars are subject to the new paradigm.This is my problem with “state” banks.They are just operating in a certain area, and just add to the unnecessary confusion.There is no “monopoly”, when any one actor;either knight foundation, or a state, issues something redeemable in the actual monopoly holders creation,they are just in effect a part of the same system.Any currency collector knows and may have notes from the past histroy of this country that were issued by local banks,companies,mints,etc.And historically, these notes weren’t worth their face value,but were redeemable at different rates depending on who was buying, and even the gold was of varying purity, and hence different percentages of value across state borders, and geographical regions.For a fiat currency to work, it needs to be total.and absolute.
    Which is another reason I say bit-coins are a fad, like beanie babies.And i say gold is another artificail construct that has no real value ,in and of itself.Like any other commodity.
    The chicago plan sought to change the system.This is the goal.The real prize.I don’t see any workability unless the Whole creation power of money is addressed.This includes fractional reserve banking, as well as using other agreements as money on a companies balance sheets.That gets far to confusing and unworkable for any law or regulation to actually adress.Whereas in the specific topic of creating US dollars,the treasury can handle the job.And all other aspects, are something else.Where the current systems dovetail into the new paradigm, are seperate issues.

  18. reason

    One thing I don’t understand though – the Macon Money was convertable – so somebody backed it with real money. So how is this “private money”. It is a private injection of (government) fiat money with a special design to prevent leakages.

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