This week on the Andrew Yang Podcast.
And I had this question: could we possibly network independent businesses in a way where they have the combined network effects of a major chain? Could there be a community anchor instead of a retail anchor? And that set me on a path of questions that set me on a different path than usual.
It is my pleasure to welcome to the podcast founder at Local Fund, serial entrepreneur, one of the biggest advocates for local currencies outside of myself, of course, DW Ferrell. Welcome, DW.
So you and I were connected because of our shared passion for local currencies. People who know me know that I think this is one of the answers. So what is your origin story to become one of the world's foremost pioneers in this space?
Well, local currency predates me, but my career started more toward fintech before we called it that in the early 2000s. And realizing that local currency, the printed form, was being used and adopted was by happenstance. I was at my stepsister's wedding in the Berkshires area of Massachusetts.
Oh, BerkShares. Yeah, that's one of the biggest local currencies. Continue.
Yeah, and you know, staying with some locals, and they explained to me how it works, and that the community banks participate. You can take in $100 in USD and they'll give you 105 in BerkShares. And so that was the real-world experience. Coming to that from a standpoint of wanting to really use financial technology and disrupt what the status quo is, it was something I wanted to learn a lot more about.
So you have this in-person experience at your sister's wedding, BerkShares, which is one of the most widely used or publicized local currency rollouts in the country. What happened then?
Yeah, so around that time I was working with some big companies doing, you know, large e-commerce websites on the tech side, and also realizing the kind of network effects that happen in fintech and in technology generally aren't being leveraged in a way that helps the small business down the street. And so I would go literally to local businesses, ones I cared about, and say, 'Hey, can I help out? Can I help you move to getting online, getting e-commerce set up?' Just to see if there's a way to benefit my community with my skills.
And at the time I was also finishing up as a professor for about seven years, and realizing I didn't want to focus on an academic career, but I wanted to really rethink how we can change economies but use those network effects, use technology. So it was more of a question and a challenge to myself, and I decided I wanted to not work with the big companies anymore. And I had this question: could we possibly network independent businesses in a way where they have the combined network effects of a major chain? Could there be a community anchor instead of a retail anchor? And that set me on a path of questions that we'll talk about more, but certainly had the right questions that set me on a different path than usual.
Well, certainly I think a lot of people love the notion of locally owned small businesses being able to use cutting-edge tools, enjoying more of the value. So if you reflect on, you know, even since 2008, when you first had the BerkShares experience, Walmart comes along and does a number on mainstream retail. And then there's like this Shop Small American Express thing that happens where it's like, oh, you should really try and support your local shop owners. And we all agree with that, we feel good about that. But I feel like the local shop owners are disappearing more and more, especially now, after Walmart came Amazon. And so now if you do have a little mom-and-pop shop, I feel like you're either in a really affluent area or it's just a difficult landscape. And to the extent that there are different things to be done for that local business, which I see as like the lifeblood of a lot of these communities too, it's one reason why I think people are getting saddened by the state of affairs that more and more value is floating up to the cloud. I mean, we don't eat in restaurants as much now. We just hit the button and it gets to us in various ways. We don't see each other in real life.
So there are a bunch of forces, and one thing that you're describing is, hey, small business owner, you're probably bad at e-commerce. Maybe I can help you with that. And then there's another aspect of it too. It's like, hey, small business, you're probably bad at social media. Someone should help you with that. And then it's like, oh, now AI is coming. Hey, small business owner, how do you use that? And let me say that the small business owner doesn't have time for most any of those things, because the small business owner is just trying to make it work. They wake up, they open the store, they deal with staffing issues, they deal with customers, deal with vendors, deal with suppliers. And then after that, when they might get home late at night, being like, 'Hey, you know what you should really do? Bone up on these tools or do these social media posts, because eventually it can pay off for you.' But it's a lot of presence, it's a lot of work, and you either need to be the kind of human being that naturally doubles as a content creator, which is not good for your mental health, or you need to hire a full-fledged human to be like, 'You're going to be my socials person,' or hire an agency, and the agency will give you a fractional human more or less. They'll be like, 'Hey, here's your account manager,' and you're not paying enough for this to be worthwhile. So they're going to give you one fourth or one fifth of their time. But it's still going to be investment on the part of the small business. But if you're a local florist or a local hardware store, maybe no one gives a damn about your socials. [laughter]
Yeah. Well, so Don Tapscott wrote a book in 1999 called Growing Up Digital, and he talks about two groups. One is the digital immigrant that didn't grow up with all this stuff, and then the digital native. It's the lingua franca for anybody who has a birthday after 1995, right? And so seeing that in real life with my own kids, I have five, and also running programs where during COVID we had a county that was willing to pair up small businesses with a program run by the county for at-risk youth and have the youth mentor the small businesses on getting e-commerce set up, getting online, getting the socials, the things that are the native language of a Gen Z or millennial.
And then on the other side, for the small business to mentor the youth on the boring logistics, the business, the stock keeping, all the things that they know how to do, managing their books and the tacit knowledge of handling a checkbook at the time. So it actually was an amazing program, and it's something that we've worked with grant partners to see if we can take that to other communities. But part of it is the knowledge piece, and part of it is realizing technology is not an enemy. Technology is not the solution. It can go both ways, and you can leverage it for — you know, you can leverage nuclear technology for power or for a bomb, right? And so this is similar with youth and what they can bring to their community, being paired with people who are digital immigrants, not having grown up with it as their base for an economy.
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So one of the major solutions that connected us, and that makes perfect sense to me and has for years, is: hey, why isn't there a localized currency that then can be used at these small businesses and has some advantages? And that way, if I'm a consumer, I know the value is staying close to home. If I'm a small business, you're going to buy there. There are all sorts of examples of this, and one I will use that I know of here in New York is that there are various Jewish communities where they do conjoined fundraisers for the schools, where what happens is I give the school — let's say I give the school $1,000 — and then the school gives me $1,000 in currency that I can use at local businesses. And then the local businesses then functionally give a 20% discount on that stuff and then end up paying it to the school. Now, the amount of money actually can be very significant in this milieu, because instead of a thousand it might be 10,000, and if I'm one of the families I'm like, look, I'm going to spend 10,000 on these local businesses anyway, so this really isn't that much to get off my back. And then for the business, it's like I'm guaranteed $10,000 worth of business, so I'm now going to send 2,000 to the school. And then for the school, it's like I'm going to get a lot of money from this effort, and the value stays local.
So I know that these things happen all the time in real life in communities that have them set up. One thing that makes me think that we're in for an uptick in localized currencies is they tend to pop up when things get really hairy or messed up in a particular way. Like in the Great Depression there were all these examples of communities just being like, 'Here, we're going to use this now.' And there's a lot of value creation. We can talk a little bit about the velocity of money. But there's so many benefits — one benefit is that the value will stay local. So I mean that's a win. You also can stimulate transactions where they wouldn't have happened otherwise. It's one reason why — what's funny is in terms of advertisements for localized currencies, I feel like one of the strongest is a book by Edgar Cahn called No More Throwaway People.
And he was RFK Senior's speechwriter, and they were concerned about ways to fight poverty, and what they put forward was time banking as an economic system where everyone's time has value, and then you could trade your time for these time dollars. And so if I shoveled your driveway, I get a time dollar, I give it to you, you babysit my kid, that person gives it to someone else, tutors someone else, gives him a ride, and then we all kind of create this value of our time. To me now, they didn't talk about localized currencies, but that strikes me as adjacent to or touching the localized currency. But it's even more stimulative, because it's like, hey, if I do this for you, you can give me this time dollar or the equivalent of the BerkShares, saying that we're in this together, and it keeps the value close, but it also can stimulate different types of services and interactions in a way that right now would be hard, because if you give me a ride to the airport right now, I guess I could pay you, but it's seen as more of a — I mean, I'll definitely pay you if you're an Uber driver or something, but if you're my friend and you do it, then it's a little weird to be like, 'Here's 20 bucks.' Whereas if you had this exchange system, then it's more natural.
Yeah. Well, you touched on a few things, and they are all related, but I want to break them down a little bit, because part of that is the incentive. You mentioned how the Jewish community uses an incentive that supports the community and then circles back to them, right? So that touches on the local multiplier effect, and some people might be familiar with that term, but it's some math that's getting lost. And so the Institute for Local Self-Reliance had done a study about 15 years ago that dug into what kind of multiple do we actually see versus a major chain or something like that, and they found that roughly 13 or maybe 14% stays local when you are buying from a major chain. If you go to Amazon, it's closer to zero. Not even your tax base benefits much.
And what's the number if you give it to the local shop owner?
Yeah, so flipping that around, you get closer to three or four times more return. So putting it on the same scale, it's about 40 to 55% that recirculates versus 13 or 14%. Dramatic, but that's the first tier of spending. Where we really see it is the other businesses and services that are also supported. When the small business hires a web designer, or hires a gardener, or a sign maker, and the business-to-business is buoyed by that local multiplier effect. And you mentioned another important piece, which is the velocity of money, which is a metric that had been around for roughly 75 years, but in about 2023, 2024 the Federal Reserve bank that was tracking that metric dropped it entirely. And I can tell you why, but essentially we don't have that metric anymore. And so it's math that myself and others in our space, and institutions and foundations that see the value of this localism effect, are actively building around it, even though the math has been dropped by the Fed.
Wow. Yeah, I miss the velocity of money. I thought it was a very important statistic, and I'm glad that you guys are trying to substitute that. So if people don't know what it is, it's money getting spent and respent over and over again in a community, which can, as you say, drive a lot of additional value.
Yeah, and from my standpoint, the main reason is if you look at it from a macroeconomic standpoint, you're going to average all the data points, and you get to a mean that looks like nothing's happening. But the velocity of money really has spikes and valleys, and is very dynamic. And at a regional level we see that there can be high velocity of money, and in other areas it looks like all the money is being extracted from a community. And essentially the Federal Reserve says this looks like it's meaningless data. It's just too spiky, it goes up and down, and you can't regionally compare it so well. It's too messy. And so that's essentially why it got dropped. But it is real. It's just important at a different scale, which is at the regional scale, not at the macro scale.
