The mystery of float and the strange case of tubes
Town &
Country Planning, December 1999
I don't often get much in the way of feedback
from these columns. No doubt readers cut them out and store
them away in case they need to gather a bit of winter fuel
later in the year. But the last one was clearly an exception
&emdash; especially the bit about turning the London
Underground into a bank.
The idea of providing no-interest loans in a special electronic currency has clearly struck a chord. Especially if it circulates among small and medium-sized business in London, but does not seep out onto the world markets.
The idea of it being based on the value of an underground trip was rather less popular. I asked London Underground how their new £1.8m smartcard system would be denominated, and discovered that even the decision isn't due for a year from now.
What's more, London Underground is covered by a government undertaking that the smartcard will only be allowed to carry 'trips' and nothing else - though the new London mayor will be allowed to change this if they want.
Certainly it seems like a waste of a very expensive piece of electronic infrastructure. If you get a loyalty card from Lufthansa &emdash; it's called a Senator card &emdash; you can collect air miles, make phone calls, hire cards and get cash credit by Visa. Maybe the London Underground smartcard needs to try a little harder.
And that was the main objection from most people who contacted me. They liked the idea of a London currency, generally speaking. But the thought of it being issued by what one described as "a sclerotic 1960s institution" like the Underground seemed a major turn off.
Well, maybe. But then maybe the chance to transform themselves into an alternative financial resource for Londoners might gee them up a bit, spreading credit in 'trip units' to boost the real economy &emdash; rather than the overblown City bubble which so distorts London economics. They may not get their lifts working properly, but at least they could finance a whole new sector of small business.
Maybe we should call this new currency 'tubes', one friend of mine suggested. Imagine for a second asking for the price of something in your local shop: "That's 10 tubes," they'll say &emdash; a difficult thing to articulate if you've got a cold.
But there was one near fatal objection. Every January the Underground has got into the nasty habit of putting their prices up, thus deflating the currency. And that set me thinking about the forgotten history of local currencies.
Let's go back for a moment to the year 1933. The depression is in full swing, the dust bowl is getting dustier, Hitler is in power in Germany, but there are a couple of successful currency experiments under way.
One is in the Austrian town of Worgl, where the mayor &emdash; who rejoices in the name of Michael Unterguggenberger &emdash; has launched a currency backed by his own money. And using the advice of the economist Silvio Gesell, the notes lose value at the rate of one per cent a month.
If you want to hang onto them, you have to buy a stamp each month and stick it on the back. But, since the town accepts these notes in payment of local taxes and fines, it makes sense actually to pay your bills instead. In less than a year, Worgl has its local taxes fully paid up for the first time in living memory, and is able to afford a series of capital projects &emdash; rather like Roosevelt is planning in the USA &emdash; which drag the town out of depression.
In the USA, this is known as 'stamp scrip'. Thanks to a book with that title by the great Yale economist Irving Fisher &emdash; who was almost bankrupted in the Wall Street crash &emdash; about 300 American towns were also issuing their own money. And once again, this was negative interest money. It lost value every month if you didn't spend it.
We'll never know what would have happened, because the Austrian Central Bank closed down the Worgl experiment, and the same month he took office in March 1933, Roosevelt did the same to the stamp scrip currencies. They still have an honourable place in the history of depression America.
There are those today who say that money that loses value &emdash; money that 'rusts', as they say &emdash; is more natural than money that burgeons in interest. It certainly gets spent. So would the new tubes currency, especially at Christmas time. There would be a sudden rush to spend it before the new prices came in, like rushing to spend your last francs before coming back from holiday.
It would also be extremely profitable for the issuers, because people would leave some of the electronic units on their cards unspent. Other cards would be lost. And the Underground would anyway get the benefit of credit between the time the sell the tubes on the cards until they are spent &emdash; a benefit to electronic card issuers known as 'float'.
And speaking of 'float, don't let's forget the tale of the highly unusual wooden currency issued by the small town of Tenino in Washington State in the early 1930s, under the direction of Fisher at the height of his fame. All four banks in the town had crashed, and they issued the wooden coins instead. They needed something to get by.
Unexpectedly, the vast majority of the coins were snapped up by numismatic enthusiasts from around the world, and never made it back to Tenino for redemption. The profits were so great that they were able to re-open one of the banks.
Now that really is what you call float.
David Boyle is an associate of the New Economics Foundation and the author of Funny Money (www.funny-money.co.uk)
