Encouraging Local Spend Through the Creation of Local Money Loops
Let’s face it, most of us don’t have a clue what happens to our money once it leaves our hands, and we have even less idea where it comes from. Ultimately nearly all the money in circulation comes from banks, who are licenced by governments to lend it into existence in the form of interest-bearing loans. (That’s debts to me an you). And if you don’t believe me then just ask the Bank of England who have admitted as much.
There is effectively no limit to how much debt the banking sector is authorised and willing to lend out and, when you factor in the compound interest that banks charge us for the privilege of borrowing that money, there is little chance that it can easily be paid back under current market conditions.
This is because the expansion of debt money grows exponentially over time whilst the expansion of the real economy does not. By real economy we mean the provision of real goods and services that real living, breathing people need. The growth in the debt money supply is only limited by the laws of mathematics and computing power, which is effectively unlimited, whilst the growth of real goods and services is limited by how many calories you and I can burn, the number of hours in a day and the biological fact that we occasionally have to do something other than work.
Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning". (Guardian 18 March 2014)
Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning". (Guardian 18 March 2014)
In the Lancaster and Morecambe City area we are planning our own quiet financial revolution, one clearly identified local purchase at a time. Back in the Noughties the New Economics Foundation published a report on what is commonly known as the local multiplier effect, whereby money spent with businesses that have a strong local commitment tends to stick around in the local economy for long than money spent with ‘out of town’ businesses.
This sounds intuitively correct and there have been several subsequent case studies to back this up.
The NEF went on to propose a model for tracking how much money stayed in the local area using their Local Multiplier system (LM3). Tracking local money can help people see exactly how to make their money count more than once.
For the past five years The Small Green Consultancy, (SGCo) a local ‘think tank’, has been conducting practical research into how to keep more money in the local economy and, in 2014, teamed up with LESS CIC, a local environmental social enterprise, to run a pilot project of SGCo’s local money system. This was named the local Food Loop Game.
Food Loop asks customers to evidence spending with local food and drink businesses in the form of receipts, and that money is then tracked as it makes its way around the local food economy. With monthly reports on its progress. This means that customers and participating businesses get to track what their money is doing long after they have spent it.
For the past five years The Small Green Consultancy, (SGCo) a local ‘think tank’, has been conducting practical research into how to keep more money in the local economy and, in 2014, teamed up with LESS CIC, a local environmental social enterprise, to run a pilot project of SGCo’s local money system. This was named the local Food Loop Game.
Food Loop asks customers to evidence spending with local food and drink businesses in the form of receipts, and that money is then tracked as it makes its way around the local food economy. With monthly reports on its progress. This means that customers and participating businesses get to track what their money is doing long after they have spent it.
This ‘live’ ongoing tracking of the money circulating within the local economy is a unique feature of Food Loop. Another Innovative feature is the decision to turn the whole process into a game, whereby customers become players and the money they spend is converted into points which accumulate over time. This happens the more spending evidence they provide and also each time their money changes hands again locally.
The idea is to create ongoing positive feedback for all participants that will, in turn, encourage and reward further local spending. The longer we can keep our money flowing and changing hands locally the more financial liquidity we have as a community and the less restricted cash-flow becomes a problem.
The more real goods and services we can create and exchange locally the more added values we can create and the less likely it is that we will need to go to the banking sector for additional loans (with interest). This becomes even more the case if we build durability, resilience and increased capacity use (now much a product or service does for us before we have to replace it) into the products and services we create.
The idea is to create ongoing positive feedback for all participants that will, in turn, encourage and reward further local spending. The longer we can keep our money flowing and changing hands locally the more financial liquidity we have as a community and the less restricted cash-flow becomes a problem.
The more real goods and services we can create and exchange locally the more added values we can create and the less likely it is that we will need to go to the banking sector for additional loans (with interest). This becomes even more the case if we build durability, resilience and increased capacity use (now much a product or service does for us before we have to replace it) into the products and services we create.
Eventually we will expand the Money Loop System to other areas of the local economy. If our model takes off then, over time, we should start to see a situation in which there is an ever-increasing amount of local interest-free money in circulation (Technically the same amount of money circling very fast and not leaving the area). This would increasingly lead to a situation in which the growth and sustainable development of our local economy becomes limited not by the amount of cash in circulation, but by the limitations of our creativity and ingenuity to add real values to real goods and services.
The ‘holy grail’ of local financing will be to create a situation in which we are increasingly self-reliant on our own resourcefulness, less reliant on external funding sources and have increased decision making capacity when it comes to seeking out products, services and partners from further afield.
Michael Hallam
7 June 16
Michael Hallam
7 June 16