Alternative Currencies and the Transitional Gains Trap

Introducing Stripperbux™, the revolutionary new truck currency that allows the discerning gentleman to avoid the problem of burlesque club inflation. How does it work? Glad you asked.

Club patrons exchange fiat currency for our inflation-indexed Stripperbux at the door. Rates are based on chained CPI with a base year of 2000 (easy to remember that way). Our customers can then relax and enjoy the show knowing they won't be devaluing the services our lovely ladies provide no matter how quantitative the easing is from the FOMC.

[editor's note: this pitch needs 75% more innuendo. Revise and resubmit]

Golly, sounds marvelous (h/t Eric C.) doesn't it? So marvelous that Stripperbux might well take over as an inflation (or other calamity) hedge in the local community, not all that different from other local currencies. Who wouldn't want to buy a box of Betty Crocker cake mix using a dollar with a picture of a pole dancer printed on it?

I think you already know the answer to that question. If you don't think currency has sentimental value attached to it, suggest to a non-economist friend that the US drop the Federal Reserve Note and adopt the Euro (wear protection). What does this imply for these cutesy local currencies? It suggests to me that for any of them to gain ascendancy, you'd need to see 3 things: (1) demonstrated unreliability of the sovereign currency relative to the substitute, (2) a fiat authority unwilling to exercise the coercive power of the state, and (3) widespread coordination strong enough to overcome aesthetic objections.

There's not much the local issuer can do to affect FOMC decisions or Treasury agents from busting down the door on false utterance or money laundering charges, but there is something to be done about item #3. At least for physical currency (Bitcoin might be able to perform better on 1 over time, and it's distributed nature is a fine hedge against 2), the lever is in the mind. Stripperbux would probably fare poorly against its rival, Freedombux™.

And that's why aesthetics are important when thinking about EE. Yes, vagaries of taste are artifacts of the mind, but that does not make them any less real than the socks on your feet or the plastic in your wallet. De gustibus non est disputandum, but that does not imply de gustibus non est validum.