The Centripety of Money
Over at Strong Towns this week, they are talking about the impacts of Amazon on local economies. In his article defending Amazon (calling it the methadone for our big box crack addiction), Chuck Marohn said, “we need to slow down the velocity of our local economies. “ This appears to be in direct contradiction to my own comments regarding increasing the velocity of money in our communities. However, I realize we mean completely different things when we talk about the velocity of the economy, and it’s due to my use of imprecise language.
In my earlier discussion about the velocity of money in our communities, I wasn’t so much talking about the speed at which money changes hands, but the number of times it changes hand within the community before it spills out into another community. I am unaware of a term to describe this force that keeps money within a community, which is why I talked about it as the velocity of money, however a better term is probably the Centripety of Money*.
In physics, a centripetal force is a force that causes an object to follow a curved path, or to circle around a central point. The force a rope exerts on a tether ball as it wraps around a pole is a centripetal force.
The Centripety of Money can be measured by the percent of each dollar that is spent in a community which stays in the community.
For instance, let’s say I need to buy $100 in lumber. I can go to Home Depot where $5 of my $100 might stay in the community through local sales tax and wages to the local employees. The other $95 flows to other communities in the form of profits to Home Depot shareholders, and wages for the truck drivers who transported the wood, mill workers who cut the logs, and the lumberjacks who felled the trees. In this case, the Centripety of Money would be 5%.
Alternatively, I can go to a locally owned lumber yard, such as Ganahl Lumber** for the $100 in lumber. In this case, a little more of the money will stay in the community. Not only would the $5 in local sales tax and employee wages be retained in the community, but the profit would also be retained, which might double the amount kept in the community to $10. There is still a significant portion of the cost that flows out to other communities through the truck drivers and mill workers and lumberjacks, but the Centripety of Money has been improved for the community by shopping at a locally owned store. In this case, the Centripety of Money would be 10%.
Finally, there is a third option, I could go directly to the locally owned lumber mill to buy my lumber directly (not that Anaheim, CA has a local lumber mill, we’re not exactly known as a robust logging and mill town). In this case, the costs are probably less, because at a minimum the truck driver has been cut out of the supply chain. So let’s say I’m only spending $90 instead of $100 on the lumber. In addition, a significant portion of my money is kept within the community, since the mill workers wages remain local. The wages of the mill workers may contribute $20 to the cost of my lumber. So the local sales tax, local employee wages (including the mill workers), and profits would all be retained in the community. Now we’re retaining $30 of my $90 lumber purchase in the community, so the Centripety of Money would be 33%.
In each case, as the local economy plays a greater role in the production and distribution of goods, the Centripety of Money increases. As the Centripety of Money increases, the wealth of the community is retained. Not everything can be produced and purchased locally, but when money is spent on locally produced goods from locally owned store, local prosperity soars.
* I generally dislike authors who make up words to describe a new idea they have. Most of the time, the new word simply obfuscates the idea they’re trying to convey because the word simply has no meaning to other people. Most of the time, the idea can be described using existing words that everyone will understand. Bruce Sterling is notorious for this. However, there are times when a new word is needed to describe a truly new idea, or an existing word is re-purposed and slightly modified to apply to a new context. Hopefully, centripetal is a well enough known word and concept so that it helps illustrate, and not obfuscate, the idea I’m conveying.
** Ganahl Lumber was originally named Ganahl-Grim Lumber Company. The 118-year-old home of Charles Grim, the former president of Ganahl-Grim Lumber Co., is currently for sale in Anaheim. It’s a beautifully restored property for anyone looking for a move-in-ready historic home in Anaheim.
[Note: This is one article in a longer series on local economy, part of a larger look at how local communities can address global issues related to climate change, housing affordability, the local economy, the fiscal solvency of cities, and public health.]
