New Money Is King

Even though Magnetic Communities seek to both attract and retain new money, attracting new money must remain the top priority. New money is king because communities cannot retain what they do not have. All communities lose money over time to such things as utility bills, vacations, new car purchases, state/Federal taxes, etc. New money not only replaces money that leaks out of every economy; it is also the source of economic growth and prosperity. If outside revenue is flowing into the local economy faster than it is flowing out, the economy is growing and its citizens are poised to prosper. On the other hand, if money is flowing out faster than it is flowing in, the local economy declines in both vitality and size.

Not all money is created equal. For example, a paycheck earned by a local manufacturing employee is much more valuable than an identical paycheck earned by a local government employee. The manufacturing employee produces a product that is sold outside the local economy; the government employee provides a service to local residents. Because manufactured products are sold and paid for with money from outside the local economy, new money flows back to the plant and to employees as wages. On the other hand, government employees are paid from tax revenues collected from local residents, which does not produce any new money for the local economy.

New money for a business or an individual is not necessarily new money for the community. For example, when a local machine shop gets paid by a local client for a completed job, the machine shop has new money, but because the client is a local business, new money does not flow into the local economy. This also holds true for individuals who live and work locally. An individual’s paycheck from a local company represents new money to the individual but not to the community. In both cases money is retained and circulated locally but no outside revenue is generated. To generate new money, the machine shop must have customers outside the local economy and the individual must get paid by a business located outside the community.

A second example may be helpful. In a family of four, where the husband and wife both work, they are both generating new money for the family. If the children receive an allowance for completing chores around the house, they receive a portion of the newly generated money for their work. The allowance is new money to the children but the family as a whole has no additional money to spend. On the other hand, if the parents do not believe in paying allowances for work around the house and the children still want their own money to spend, they may choose to baby sit the neighbor’s children. In this case, not only have the children generated new money for themselves, but they have generated new money for the family, improving everyone’s financial position and overall prosperity. The same principle holds true for communities.

Just because new money is king is no reason to focus exclusively on attracting outside revenue. Many communities with traditional economic development and tourism programs fall into this trap. They declare success when a new plant or restaurant is announced. A Magnetic Community declares success when a new plant hires local workers and contracts with local businesses for services, or when the new restaurant sources its food supplies and workers locally.

Most businesses in a community are consumer based and include businesses like retail stores, plumbers, lawn care services, restaurants, banks, lawyers, doctors, etc. These businesses do not generally attract new money but rather retain and circulate money already in the local economy. This spending benefits from the multiplier effect (see Multiplier Effect under Economics of Prosperity) and potentially impacts prosperity even more than new money. When all is said and done, a community cannot circulate money or multiply the economic benefits of money it does not have; money has to be attracted before it can be retained!