University of Plymouth PEARL https://pearl.plymouth.ac.uk 04 University of Plymouth Research Theses 01 Research Theses Main Collection 2019 Complementary Currencies: A Systems Theory Approach to Monetary Macroeconomics Smith, Neil http://hdl.handle.net/10026.1/15121 University of Plymouth All content in PEARL is protected by copyright law. Author manuscripts are made available in accordance with publisher policies. Please cite only the published version using the details provided on the item record or document. In the absence of an open licence (e.g. Creative Commons), permissions for further reuse of content should be sought from the publisher or author. Copyright Statement This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognise that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without the author's prior consent. COMPLEMENTARY CURRENCIES: A SYSTEMS THEORY APPROACH TO MONETARY MACROECONOMICS by NEIL SMITH A thesis submitted to the University of Plymouth in partial fulfilment for the degree of DOCTOR OF PHILOSOPHY Faculty of Business Department of Accounting, Economics & Finance July 2019 Author’s Declaration At no time during the registration for the degree of Doctor of Philosophy has the author been registered for any other University award without prior agreement of the Doctoral College Quality Sub-Committee. Work submitted for this research degree at the University of Plymouth has not formed part of any other degree either at the University of Plymouth or at another establishment. A programme of advanced study was undertaken, which included: • Research Methods — Humanities, Arts, Social Science and Health • Research Methods — Science, Technology, Engineering and Maths • Critical Thinking • AnyLogic Fundamentals (external training course) • Immersive Writing Workshop + Writing Retreat • Writing for Research Publication Publications (or public presentation of creative research outputs): • Submission to the Treasury Select Committee Inquiry into Effectiveness and impact of post-2008 UK monetary policy. London: UK Parliament. (2017) Presentations at conferences: • 'A ‘small-world’ Stock-Flow Consistent (SFC) economics flight simulator in system dynamics with questions of methodology, pedagogy and impact', UK System Dynamics Chapter Annual Conference. London 15th April 2016. • 'Re-visiting the Capitol Hill Baby-Sitting Co-op: a mixed-method model simulation of a ‘small-world’ monetary economy', Plymouth Doctoral Colloquium (UKPDC). 16th-17th June 2016. • 'Macroeconomics for the people: taking money seriously', Positive Money Devon. Exeter 23rd June 2016. • 'Post Keynesian Stock-Flow Consistent Macroeconomics for System Dynamicists', Modelling & Simulation for Social Systems [seminar]. Plymouth University July 11th 2017. • 'Secondary Money Systems for Sustainable Development: Building a Macroeconomic Model', UK Chapter of the System Dynamics Society. Kingston University 7th September 2017. Word count of main body of thesis: 50,087 iii Signed: Dated: 23rd July 2019 iv Abstract Complementary Currencies: A Systems Theory Approach to Monetary Macroeconomics Neil Smith It was commonplace in history for several types of currencies to circulate side- by-side within a country, often by design, and the notion that this may enable improved socioeconomic outcomes has been proposed in narratives across various disciplines. However, orthodox macroeconomic theory presupposes that national economies operate optimally when a single monetary unit is employed: general equilibrium optimisation modelling is applied where coordination is assumed and a single money acts only as numéraire. This thesis adopts a broader Political Economy perspective to develop a general theory macroeconomic model to elucidate the arguments for monetary plurality in a regional context. Cross-disciplinary literature is used to develop a conceptual ordering of themes to inform the modelling. A review of extant economic methodology reveals that its Formalist, Positivist perspective is not well-suited to addressing key issues, thus the research question is ineluctably connected to questions of methodology. An alternative methodology is argued to be more consistent with a necessary Critical Realist perspective and algorithmic reasoning. A modelling framework is developed combining insights from early Mercantilist economists and Classical Behavioural Economics into System Dynamics post-Keynesian Stock-Flow Consistent models. A lexicographic consumption model is developed to enable a core monetary model. This model is augmented with secondary monetary circuits, using three types of complementary currencies: Convertible Local Currency; Mutual Credit Clearing; and Local Government Currency. The models are developed and simulated using stylised facts, demonstrating "Cantillon Effects". The models demonstrate that complementary currencies may be regarded as useful coordinating mechanisms in regions where universal money is lacking. However, the introduction of secondary monies is highly context-dependent: consideration must be given to various institutionally-determined factors. The necessity of appropriate institutional structures justifies a role for government in enabling and promoting complementary currency schemes. v Summary Table of Contents CHAPTER 1 INTRODUCTION ................................................................................................. 1 CHAPTER 2 BACKGROUND LITERATURE .............................................................................. 13 CHAPTER 3 THE METHODOLOGICAL GAP ............................................................................ 49 CHAPTER 4 METHODOLOGY: JUSTIFYING METHOD ............................................................ 79 CHAPTER 5 METHOD & MODELLING ................................................................................ 107 CHAPTER 6 COMPLEMENTARY CURRENCY MODELS.......................................................... 173 CHAPTER 7 CONCLUSIONS ............................................................................................... 233 APPENDIX ....................................................................................................................... 256 REFERENCES .................................................................................................................... 329 vii Detailed Table of Contents AUTHOR’S DECLARATION ................................................................................................... III ABSTRACT ........................................................................................................................... V SUMMARY TABLE OF CONTENTS........................................................................................ VII DETAILED TABLE OF CONTENTS .......................................................................................... IX LIST OF ABBREVIATIONS ................................................................................................... XIII LIST OF ILLUSTRATIONS ..................................................................................................... XV LIST OF TABLES ................................................................................................................. XIX LIST OF TABLES IN APPENDIX ............................................................................................ XXI CHAPTER 1 INTRODUCTION ................................................................................................. 1 1.1 INTRODUCTION ................................................................................................................ 1 1.1.1 "The economic problem" ......................................................................................... 2 1.1.2 "The money problem" ............................................................................................. 5 1.1.3 "The coordination problem" .................................................................................... 7 1.1.4 "The mode of thought problem" ............................................................................. 8 1.2 RESEARCH QUESTION, AIMS AND OBJECTIVES ...................................................................... 10 CHAPTER 2 BACKGROUND LITERATURE .............................................................................. 13 2.1 INTRODUCTION .............................................................................................................. 13 2.2 COMPLEMENTARY CURRENCIES......................................................................................... 13 2.2.1 Motives for and research in CCs ............................................................................ 13 2.2.2 Convertible Local Currencies ................................................................................. 20 2.2.3 Mutual Exchanges ................................................................................................. 21 2.2.4 Local Government Currencies ................................................................................ 24 2.3 MONEY: THEORY & HISTORY ........................................................................................... 25 2.3.1 Heterodox monetary theory .................................................................................. 25 2.3.2 "Monetary cranks" ................................................................................................ 30 2.3.3 The Law-Proudhon-Gesell-Keynes