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Are Deli Dollars Money?
Summarize the story in the Specter article.
What is money?
Are Deli-Dollars money? Why or why not?
Capitalizing on Yankee Ingenuity Denied Bank Loans, Firm Issue Currency
Michael Spector
A restaurant owner in Massachusetts in 1990 tried multiple times to get a bank loan and was refused. The loan was to save his restaurant after his lease had run out. The financial situation at that time was very bad. There had been a seventy-five percent increase in bankruptcies and record numbers of business failures and unemployment rates. So he decided to create his own form of currency, Deli Dollars. Each note worked like a small loan, it sold for nine dollars and could be used to buy ten dollars worth of food six months after the initial purchase. Many other businesses in the area saw the success of the Deli Dollars and began similar programs. The Self Help Association for a Regional Economy (SHARE) was a driving force behind the movement to use local currency in the area. This economic situation coupled with the lack of business loans being issued has caused a large increase in Berkshire Farm Preserve Notes in Great Barrington, Massachusetts.
Was the restaurant doing badly? Is that why Frank, the owner needed a loan?
The article does not state if the restaurant was doing badly, just that the lease expired and the owner then wanted to move across the street. However, as the owner did not have the money to fund the move himself, it makes me wonder about the health of the business. Was the new lease too high? Was the lease across the street more affordable, a bigger space? The article does not say. Still, the article does say that their community relied heavily on tourists, and that they (the whole community) had experienced a bad summer and winter due to a depression.
There’s not enough information in the article to accurately assess that. Loans don’t have to be a bad thing or a negative sign. Most businesses simply don’t have the liquid capital to invest in endeavors and still maintain overhead.
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LikeDislikeAccording to the article first sentence “It was a popular restaurant”. So from that I concluded that restaurant was not doing badly. He was able to renovate with the deli dollars so I thought he just wanted to expand the business.
I do not believe the restaurant was doing poorly, as it was popular enough to support the Deli Dollar currency. To have that kind of response, the restaurant must have been quite popular. The cost of living in Western Massachusetts is so high, even funding a popular business would be difficult. My guess is despite the popularity of the restaurant, business costs were so high because of the location that he required a loan.
In Great Barrington, Massachusetts, a local busniess owner, Frank Tortoriello needed to get a loan from the bank for his restaurant after his lease ended. In the midst of recession, banks don’t always have the money to spend on small businesses and loans aren’t often given out to just anyone. The community as a whole loved the restaurant and were just as disappointed about the loan problem. So, Frank decided to use his own form of currency to raise money within the community and pay back the community after six months time. It worked essentially like short term loans to Frank and his restaurant so he could renovate. It worked very well and other small businesses in the area did the same thing. Money is an object used to purchase goods or services. There is no place that says that money has to be Euros or American dollars. It can be any form of payment that equals the good or service. Therefore, these “deli-dollars” are money because they work the same as dollars would’ve in this situation.
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LikeDislikeIf the community loved the restaurant, the latter must have been profitable. Why wouldn’t the bank lend Frank any money? Doesn’t make sense to me. Can someone explain?
The bank wouldn’t lend Frank any money because they were going through hard times and were not just giving the money out to random individuals, as Hannah said. Small businesses are the last to get funding. Companies and big businesses will receive the loans before small businesses will. Some reasoning behind that may be: the business isn’t well-established or bad credit.
When you say “they” were going thru hard times, do you mean the bank or Frank’s restaurant?
You say small businesses are the last to get loans, because they aren’t well established or they have bad credit, but Frank’s restaurant was very well established and almost certainly had good credit. So your reasoning about small businesses may be true in general but it doesn’t apply to Frank’s restaurant.
Why then was he denied credit? (Hint: it wasn’t that the bank didn’t have money to lend.)
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LikeDislikeThe bank was worried that due to the local economic climate that Frank would be unable to honor the agreement.
Money is “anything generally accepted in exchange for goods or services”. Additionally, the primary purpose of money is serve as a medium of exchange. Deli-Dollars could be exchanged for food/service at Frank’s place and then later at other places in his community. For these reasons, I think that Deli-Dollars did function as money.
These definitions sound like they came right out of the book. Can you (or anyone) explain what money is in your own words?
Money is something that we receive through work to purchase goods. Money is the means of exchange.
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LikeDislikeThey did come from the book, lol. In my own words: an object/paper/coin/agreed- upon-item that has a known/set value that can be presented to a seller in exchange for goods or services.
This sounds like barter, no?
No, I don’t think so. Barter is trading good/services directly for another good/service (like Hannah and Holly both said). For example, trading an apple for an orange. Or 1 pen for 2 pencils. Money is a medium or go between that has a set/fixed value, and then all other goods are measured against that value (like the dollar). The deli-dollars had a set and specific value; after 6 months they were worth $10 in food/service at that store. All the goods in the store were measured in dollars (not apples, oranges, pens, pencils…). Additionally, the deli-dollars could be given to another person and it would hold the same value, $10.
On another note, what do the negatives next to my responses mean? That they are wrong? That my classmates don’t approve of my answer?
Money is an object to purchase goods or services
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LikeDislikeSo you mean barter,Hannah?
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LikeDislikeMoney is a generally agreed upon medium of exchange within a market.
Holly, your post suggests a couple of questions:
* What exactly does “means of exchange” mean?
* I thought income was what we earned from working.
* What form did your last payment for working take, e.g. cash, paycheck, direct deposit?
Means of exchanging – A way to exchange what you have with what you want.
Physical thing you receive from work. People won’t work without income/money
Last payment was a paycheck
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LikeDislikeYour explanation of “means of exchanging” sounds like barter.. Is that what you mean?
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LikeDislikeThe functions of barter and money are two different things. Barter is the direct exchange of goods for other goods. Money is paper currency which is exchanged for goods or services.
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LikeDislikeBut didn’t you say earlier,that money was an object. If you trade an object for goods,isn’t that barter? If not, why not? Or more precisely, why is money different than a good?
The banks were reluctant to lend money because the tourist based economy was suffering from a lack of patronage. The staggering number of bankruptcies and defaults caused the banks to become more prudent in their lending to protect their own interests. They don’t make money if they don’t lend it, so it’s not like they didn’t want to give out loans. They just weren’t sure it would be honored in good faith because of the hard times.
The Deli dollar was originally more of a loan or promissory note than a currency. It was only redeemable at one institution for one specific good which had no generally accepted value or worth. It became a form of currency only when it established a confidence in the community.
At this point it became a confidence backed currency with a generally accepted worth. It could be exchanged at multiple locations for a common value and given out with a general denomination attached to it. The important distinction here is whether or not the community believed in its value. The perishable commodity by which it was backed wasn’t enough to satisfactorily guarantee the note. People had to be willing to give and receive it with the general understanding that no matter what it would continue to hold a value.
The Deli-Dollars became similar to how cigarettes were used as money in the POW camps. There became an accepted value, which could be exchanged at multiple locations and they were backed by the care packages and Red Cross.
I find it interesting that because the Deli-dollar was a new form of currency it seemed to have relatively little effect on inflation. Ignoring the fact that it would be illegal, if dollars were printed the community would have faced inflation but in this case it seems that it was not that much of a problem.
Frank Tortoriello felt that he had to come up with an option that would not only help his restaurant stay in business, but it would also help his community. The depression took a toll on the whole community and creating Deli Dollars was a form of his own exchange for money. It was like a discount because they would have a purchase a note for $9 and get $1 more in groceries, totaling $10. It was like a bargain, whoever purchased a note felt they were saving money as long as they waited at least 6 months. Notes are considered a form of money and he made a profit in the end, and everyone one benefited from his great idea. Mr. Tortoriello made an exchange that if they purchase the note to help him out, he would give them something in return. A loan is considered money and that is what he received from his customers in a note, yes Deli Dollars is money.
I agree with Nick in the fact that this was a good idea that didn’t hurt the community and it was a way for everyone to work together to keep a local business open.
I agree too: this was a great way to bypass the bank and get the loan! Additionally, it gave the community a way of supporting each other and investing in one another. Brilliant, really.
It wasn’t really around long enough to inflate on its own. And it was too small scale to do anything crazy like inflate the dollar.
What is a loan?
How is a loan different from money?
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LikeDislikeA loan is an agreement of an exchange of money or goods that a lender expects to be repaid in a period of time. The loan can involve interest or not depending on the kind of loan you are getting. I really do not see a difference in a loan or money, unless someone is loaning you some type of machinery for your business, but the value of the machinery stil consists of monery. If something happens to that machinery while it is in your possession and it is considered your fault, you would still have to pay cash for it. Even though you sign a note or agreement to pay the loan back, it still is money regardless. If I lend my brother money and he agrees to pay me back in two weeks, it is considered a loan and it is money.
I have learned that Bitcoins and Deli Dollars have produced their own way of making money. I was amazed that BitCoins have their own franchise of people that trust and don’t mind taking the risk for buying illegal drugs on-line. Deli Dollars also have its community that invested and trusted in them to establish another restaurant. They both had customers that had trust in them.
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LikeDislikeI missed something and can’t find it… what are BitCoins???
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LikeDislikeIt is a type of digital currency. It only exists in cyberspace.
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LikeDislikeI can see loans being the same as money in that they can be purchased and have a recognized value. We see that when investors purchase other home loans, so the borrower would now have to pay the new investor. This also applies to investors purchasing delinquent accounts receivables (a type of loan) at pennies on the dollar.
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LikeDislikeA loan requires a coincidence of wants to be worth anything. Typically a loan is disbursed as money, but it doesn’t have to be.
I agree with Yvette. Loans act just like money. The difference is that loans are normally used to help someone buy or fund something ,like a car or business, that they don’t have enough money for at that time. Loans are then given out with an expectation that the money will be returned after a specified amount of time usually with some interest.
I think a loan was invented for a way of making money, business and banks were seeing that people did not have enough cash to buy items that were of significant value. So they came up with loans, they would slap the loan with a high interest rate, and most of the time make thousands more dollars than they originally had loaned out. This was is a good and steady way of making money, there is constant money flow happening, and your making even more money with the interest they are paying.
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LikeDislikeIf I lend you money in return for your promise to repay,your IOU, can I use your IOU as a medium of exchange? If not, how is a loan the same as money?
Yes, you can use the IOU as a medium of exchange. Investors who purchase delinquent accounts receivables do this, as well as those that purchase mortgages.
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LikeDislikeNo, an IOU is not a medium of exchange. The IOU requires a coincidence of wants to be of value. You can sell it but you can’t buy anything with it directly.
What is a loan?
How is a loan different from money?
– I agree that loans are just like money. If a person doesn’t have the funds to better their company or business they will take out a loan that they will have to repay. Getting a loan means the person or business doesn’t have sufficient funds to purchase something, so they borrow money and they can repay it each month. They realize they don’t have to pay the whole amount upfront and if they had the money to buy it upfront the money would be gone and they wouldn’t need a loan.
But from the lender’s point of view,do you think that a loan (that they make) is just like money in their pocket?
For Frank Tortoriello’s customer, no, It seemed to me like almost a coupon. You get a dollar of if you wait 6 months to use the note. Some coupons have dates on it. Like my coupons from BJ’s, some of them I can use at the beginning of the month and some I cannot use until the middle of the month. For any other lenders yes because most of them get a better return on their money when they charge interest.
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LikeDislikeThe difference between the Deli Dollars and your BJ’s coupons are that while the Deli Dollars may have started as a form of coupon, they turned into money when people started using them as a form of currency in locations outside of the restaurant. They had an accepted value and were a backed currency. BJ’s coupons have no cash value. If you read the fine print of some coupons, it will say they have cash value of 1/10th or 1/100th of a cent and I have heard of instances where people have literally collected thousands of coupons and exchanged them for cash.
I agree Patrick, but I was just using it as an example of how coupons work. Customers always are looking to save a dollar or a discount and both BJ’s and Deli Dollars are helping their customers save money in an agreement they use the coupon or note at a particular time.
Money is a form of payment used to purchase products or services. Deli Dollars are a form of payment to recieve food from the restaurant. Once the idea of the deli dollars became known out of the community, they then became a form of payment for a service. I would consider deli dollars to be money because they are being used as a form of payment.
i think that from the lender’s point of view it is like a form of money in their pocket. I agree with Karen that Deli Dollars became a form of money to these people because it was their way of payment in the community. It may not be seen as that to people outside the community but within thats what they used it for. These Deli Dollars allowed people to receive food when they used these dollars thus it was a form of payment for a good. I don’t think it was like a coupon because coupons are more of a dollar amount off on your purchase of a good not a full payment(loan) for the good. Even though the article said that the Deli Dollar was getting more popular in other small businesses, do you think that this form of payment could work really anywhere?
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LikeDislikeI agree Caitlin, but I was just giving an example of how coupons work and how Deli Dollars customers may see it as a bargain. Remember they buy the note for $9 and can purchase food up to $10 as long as they wait 6 months. They are helping Deli Dollars and are getting something extra in return.
When I was in Afghanistan in 2001, lots of soldiers would buy Afghanis (currency in Afghanistan) at a very high exchange rate ($1 USD to 50,000 Afghanis) hoping that at some point in the future the money would be worth much more. It didn’t happen, as Afghanistan created a new form of currency and all those soldiers lost the money they had invested.
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LikeDislikeThe article gave a summary of the creation of an alternate currency in order to support a local restaurant in Massachusetts. The owner of the business needed a loan, and the bank would not supply one to him, so he simply created his own local currency. The community, wanting to support the business, responded enthusiastically and soon “Deli Dollars” because an accepted form of money in the town. The Deli Dollars, to me, are a form of money. Money is a representation of something of value, that can be exchanged for another good or service. So I think that Deli Dollars are definitely money.
I believe as long as Frank Tortoriello was able to use the notes that the customers purchased to move his restaurant across the street. It is considered money because he would not have been able to move if it was not considered money.