Zero-balance money supply

[Daniel AMP Carosone <danielce@mullian.ee.mu.OZ.AU>]

[just rejoined after a period of absence, sorry if this has been
covered before, but Russ' post looked like a thread-starter so I
thought I'd jump in.]

Russell Nelson writes:
 > I wonder how well a zero-balance money supply would work (having
 > positive and negative money)?  Positive and negative money is created
 > simultaneously by a single transfer of wealth. 

Some friends of ours tried starting up a regional group of a system
called LETS, which works on this principle.  The group members traded
`spots' for services or items - in this case generally stuff like
gardening/handyman work, computer programming, whatever their skills
were. The spots were tallied in each member's account with a community
`bank'.

The key to the whole thing was that there is no value in the currency
itself, only in the *exchange*. It never really got far enough off the
ground to become self sustaining, due to lack of interest or general
apathy, but was an interesting idea.

Apparently there are a number of communities in the US with this kind
of system established, as well as other kinds of barter economies.

 > I also think it would be impossible to run such a currency
 > anonymously, because a negative balance is essentially a loan, and
 > how could you loan money to someone who could be anyone?  Only if
 > they had established a reputation with their public key...

One of the interesting features of such an alternative economy,
especially when when it operates side-by-side with a traditional one
where debtors could leave the system, is that there is a strong
community incentive to prevent anyone building up either too large a
debt or too great wealth. In both cases such a person becomes a risk
and a burden. But there is never any problem of someone keeping money
out of circulation, or being short of small change.

In the LETS system I mentioned above, everyone's current balance and
trading volume were published in a newsletter. That way, community
members were encouraged to keep their balances, and those of their
trading partners, near zero.

 > Hmmm...  Interesting, then.  You could only effectively work
 > anonymously if you had created a reputation for your anonym.  And that
 > reputation would have to be established in some way *before* anyone
 > would loan you money, otherwise such a loan would end up being a gift.

This is the same situation as now. However, consider that you don't
actually *need* anyone to lend you money -- you can make as much as
you like yourself by contributing to the community, or borrow some
from the community at any time.

 > One way to establish such a reputation would be to write some free
 > software, or answer Usenet questions, or were otherwise seen to be
 > knowledgable and responsible.  I haven't seen anyone try it yet,
 > though.  Does anyone know of such an attempt?

Sure.. lots of people are doing those things you mention.. in fact I'm
sure I've seen you do *all* of them yourself, Russ :)

--
Dan.