Read Somalia After State Collapse: Chaos or Improvement? (PDF). Yes, right now. OK, whenever. But read it. It’s eye-opening.
The authors make a good case that — one of our favorite YouTube videos notwithstanding – if you could somehow infect the rest of Africa with a Somali-style social order, Africans would benefit by a number of measures. (But sadly, not by all. And is having cellphone service that delivers you-can-hear-a-pin-drop-on-the-other-end worth a higher infant mortality rate?) Yes, I know: doing better with no national government than most Africans do with one — that’s not exactly a high bar to clear. But this doesn’t mean Somalia has no lessons for us all.
Particularly fascinating is Somalia’s functioning national paper money system sans national government – yes, with no treasury, no central bank, no mint. How is that possible?
It turns out, after the collapse of the national government, nobody printed new money for a while, so the value of notes was stable. People kept using them. Why not? They worked. Habits die hard.
Then the inevitable counterfeiters weighed in, bringing the inevitable inflation. But Somalis refused notes with higher denominations than they’d seen in government times – those had to be not only counterfeit but certainly hugely profitable for counterfeiters. Bad enough that those guys are inflating our currency, right? Why make them richer? This capped counterfeiter profit.
Between the inflationary pressure of counterfeiting and that high-denomination cap, the Somali shilling inflated to the point where the value of the notes barely exceeded costs – payroll, production inputs, equipment maintenance, transport and insurance – for the counterfeiters. Yes, believe it: as a “counterfeiter” in today’s Somalia, you’re actually providing a useful product (a credible-looking token of stored value for exchange) at a fair profit. You’re re-supplying the market for new ones as the old ones get too torn as you quarrel over them in the market. Or bullet-riddled and blood-drenched after you scramble out of the way of the “militia” you were selling drugs to, just before they opened fire on a rival gang. Or into the stew pot accidentally, when they fall out of your shirt pocket as you leaned over to inhale the aroma. Or soft enough from repeated use that their toilet-paper value finally exceeds any other possible value, at least in certain awkward moments when one is caught unprepared.
It gets better: unlike with gold, demand and supply of Somali shilling notes will tend to balance as the economy grows. Little or no inflation. Also little or no deflation (which can also be bad) since the “counterfeiters” will see deflation as an opportunity for more profit (in real terms), will crank up the printing presses to try to steal a march on their rivals, and — will reflate the currency in the process. Years from now, public health experts and WHO epidemiologists will thank the Invisible Hand for reducing transmission of certain diseases, by invisibly but continuously handing Somalis their emergency toilet paper.
The resistance to higher-denomination notes was not total, however: Somalis will use U.S. dollars for higher-value transactions, since Somali shillings for any big-ticket item form quite a stack, and USD has been reasonably solid over the last two decades. But let’s not ask what Somalis do to earn those dollars, shall we? (If “earning” is quite the word I’m looking for.)
The paper’s discussion of clan-based legal and insurance systems is also very interesting. And it’s full of fun facts to know and tell. For example, did you know that committing murder in Somalia, a heavy rap anywhere, will set you back 100 camels if you killed a man, but only 50 if you killed a woman? That if one of their freelance judges (see Xeer) renders a decision commonly viewed as bad or corrupt, his market rankings go into the toilet and he’ll soon be out of work if he doesn’t clean up his act? As for the clan-based insurance guilds – whoa, don’t tell Wall Street about this, they’ll go in and spoil it all, with fancy rocket-science financial instuments with fancy names like Black Hawk Down and Put This in Your Khat Pipe and Smoke It.
I’d like to verify all this stuff, since the source is decidedly Libertarian-partisan. However, if its Google Scholar citation index can be relied on, it has been taken pretty seriously in some quarters. If it’s all just crap, well, they sure fooled Fecomancy.