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)

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.

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.

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

What better way to spend money with our local food and drink businesses that to turn it into a game. That’s what the GOLFE project has done with its Local Food Loop Game. The idea is that customers become players and, by submitting the receipts for their purchases, get these converted into points. And we all know what points mean. You guessed; its prizes!

On Friday Dawn Keyse, of Halton, collected a £10 prize in the recently opened Radish café and deli in New St. Dawn received her prize for completing a challenge set within the Food Loop Game when she managed to quadruple her spending points before anyone else.

The prizes are small and just a bit of fun. The real aim of the game is to build upon the work done by the New Economic Foundation on “the local multiplier effect”. Money spent with locally owned and run businesses is likely to stay in our local economy longer.

Food loop is designed to test this by encouraging local businesses to participate in the process and demonstrate that they are managing to re-spend their customer player’s money with other local suppliers. When they do this those customers playing the game get additional points.

The real aim of the game is to keep our money doing good work in our own local economy for as long as we can. Current estimates put the local re-spend at 50%, which, over time will double the original amount spent.

If we can get that re-spend up to 66% we can triple the amount of cash in our local economy. At 75% re-spend the original amount is quadrupled, which means there is twice as much money moving around the local economy as usual. That’s the big prize that we are all aiming for.

At the time of going to press 28 players have spent £5,528 with 96 local food and drink businesses, and 70% of that money has be re-spent with other local food and drink businesses. This translates as an extra turnover of £3,918. The game will track this money as it is re-spent further.

Over time we expect that positive feedback like this will encourage more local businesses to source and spend locally, wherever possible.

For anyone who is interested in joining the game there is a website and a Facebook Group where you can find out more and register to get involved.
Dawn has pledge to re-spend her prize money on more delicious local food and drink.

...and the money is still circulating.

In a nutshell 24 people have spent £3,800 into the local food economy over the last six months here in the Lancaster and Morecambe area. Thats with over 80 local food businesses.  Of those the most spent with, 30 businesses in all, have demonstrated that they are re-spending that money with othe rlocal suppliers.

That represents over a 60% re-spend, bringing the total up to £6,100. Furthermore, some of those businesses that have received your re-spent oney have gone on to spend it locally again. Every time this happens it creates a further link in the local spending chain.

Over Christmas I will be crunching the fugures to show how much the further busienss 2 business spend has added to this total. And I will be looking out for the first loop. This when a certain amount of money is re-spent with someone already in the spending chain. When that happens 100% of the money is recycled without any loss outside the spending system.

To put this in context our local economy is our spending system with money constantly entering and leaving the system (imported and exported money) all the time. The more we can identify and plug the gaps the longer that money can work for local people and the local economy.

If you want to join in the process just register to take part here on the website. Simples.

"Every time money is re-spent in your local economy, it is like new income for the person who receives it.  The more money is re-spent, the higher the multiplier effect." (1)

Illustration of a positive feedback loop

Yes that is correct. Modern money is loaned into existence as interest-bearing debt. If you own the right to create money in this way you need do nothing other than lend money to people who need money and your future wealth is assured.

Unfortunately for most of us we don't own and run a a bank so we are stuck with creating wealth the old fashioned way. By adding value to real goods and services. As the debt mountain grows our ability to service loans through doing an honest days work diminishes and we all end up feeling the pressure.

The Food Loop Game is designed to start a process that will antidote this negative situation we all find ourselves in. The antidote to lending money into existence as debt is to trade it into existence as we apply our collective skills and talents to add value to real goods and services.

With the Food Loop Game we are trying to encourage the money we have to stay for longer in our local food economy. Simply put, the more work our money does as it circulates around our local food economy the more vibrant that food economy, and the businesses that comprise it, will be.

At the end of the day it is not the money that creates the wealth it is the collective talents of all the people working in the food sector locally that create the food. The cash just facilitates the process. Lets all try to make sure that the Food Loop Project is a success so it can play a constructive part in helping our local food economy to thrive.
Michael H