A sophisticated type of community currency was developed in America during The Great Depression called stamp scrip. Could it be one answer to our current economic crisis?
After decades spent deregulating their financial sectors along laissez-faire lines, last year Western governments woke up to what is now known as the global financial crisis. Triggered by dodgy ‘sub-prime’ mortgage lending in the US, this disaster spread globally as news emerged that many banks had taken on these loans in the form of bundled ‘derivative’ investments.
As shockwaves rolled around the world economy and conditions grew shakier, many countries were forced by the prospect of imminent bank collapses to guarantee customer deposits. In America, vast and unprecedented corporate bailouts took place, prompted by concerns that any other course of action might send the world economy over the edge.
Months later, the long-term ramifications of these spectacular events are still hard to predict. Will the current global recession deepen and turn into a depression? If so, how long might it last? Although Australia has been shielded from its worst effects by the tail end of a mining boom, unemployment is rising and confidence is shaky.
Increased saving as a hedge against uncertain times, and belt-tightening in response to tougher economic conditions are both curbing consumer spending, resulting in the downsizing of industries and increased layoffs, creating a kind of negative cycle. Is there any light on the horizon?
What is money?
The mysterious thing that we call ‘money’ fulfils two primary roles – as a store of value and a medium of exchange. In the ancient world, credit notes were issued to the depositors of commodities such as grains and gold, and these paper slips slowly evolved into banknotes. Modern-day money was backed by gold until 1971, when American president Richard Nixon disconnected the US dollar, traditionally the world’s reference currency, from what was known as the gold standard.
Ultimately, much of the value of a currency boils down to the level of confidence it enjoys among its users. This is particularly important for the ubiquitous paper currencies of today that, unlike gold, rely heavily on national economic performance data to retain their relative value.
As a result, anything can be used as money among a community of people culturally conditioned or sufficiently open-minded to use it. In one unusual case, Yap Islanders in the South Pacific keep circular rocks for ceremonial exchanges that come in a range of sizes up to four metres in diameter.
The Great Depression
Over six days in 1929, the US stock market on Wall Street crashed following a speculative boom, triggering the decade-long Great Depression whose effects were felt in many parts of the world. By the early 1930s, much of America’s money supply had dried up, leaving some rural communities with next to nothing. Locals witnessed the absurdity of having the means of production at their disposal, and watching life grind to a halt due to a lack of a suitable exchange medium.
In an enterprising fashion, many towns devised their own unique currencies. Rabbit tails were used in Olney (Texas), while Pismo Beach (California) traded with sea shells stamped with a special marking. In Petaluma (also in California), the local timber company issued engraved wooden disks.
However, it was a more sophisticated and well-designed type of community currency known as ‘stamp scrip’ that attracted the most interest, and was most frequently replicated.
A new economic paradigm
In an interest-based financial system, there is an obvious incentive to hoard, and this becomes more marked during economic downturns. An intriguing ‘out of the box’ solution to this challenge was devised by the Argentinean-German economist Silvio Gesell (1862-1930.)
He realised that a storage charge known as demurrage could equally be applied to a currency as a type of hoarding fee and incentive to spend. Historical times where such a model was followed, such as Europe during the Middle Ages, enjoyed a high level of prosperity as money was quickly converted into tangible assets. Gesell decided to name his demurrage-based currency ‘Free Money’.
This concept was put to the test in 1923, when Germany was facing economic turmoil and out-of-control inflation. In the small town of Schwanenkirchen, the owner of a coal mine made a bold attempt to avoid closure by persuading his workers to accept most of their wages in a scrip currency known as the ‘Wara’. This was backed by coal, and could be used to purchase food and other necessities. To remain valid, every month a note required a stamp equal to 2% of its value.
The gamble paid off, launching what became known as the Freiwirtschaft (‘Free Economy’ movement), and later the adoption of the Wara by more than 2000 German companies. This proved to be its undoing. In 1931, the central bank grew nervous and successfully pressured the German government to make the Wara illegal. A similar pattern of central bank interference was later repeated elsewhere with unfortunate results.
One year later, the mayor of an Austrian town named Wörgl responded to difficult economic conditions with a similar scrip note system that required a 1% monthly stamp. This proved to be a dramatic success, with each scrip Schilling circulating 12-14 times faster than the national currency. When 200 other Austrian towns expressed an interest in replicating Wörgl’s experiment, the central bank panicked and shut it down after 18 months.
Unemployment and extremism
In 1933, American president Theodore Roosevelt unveiled a number of large-scale work creation projects known as the New Deal. In the same speech, he announced a ban on emergency local currencies, despite advice from two economic experts that stamp scrip had the capacity to quickly pull the US out of the Depression.
The high unemployment levels of the early 1930’s caused a great deal of suffering, and this was compounded by the suppression of effective local economic solutions including stamp scrip. Government welfare safety nets that we take for granted today did not exist, and families were destitute. In Europe, many people looking for a saviour were driven into the arms of communist and fascist parties, setting the scene for Hitler’s final rise to power.
Although Roosevelt’s giant initiatives did make a dent in unemployment levels, America only really lifted itself out of the Depression when it shifted its economy to prepare for World War II – another large-scale and centralised form of work creation.
Stamp scrip in the modern world
In recent months, the International Monetary Fund has been urging countries to keep their economies ticking over with stimulus packages. Australia has made a multi-billion dollar allocation for infrastructure spending that is reminiscent of the New Deal. Could scrip fulfil the same function?
Complementary currencies have traditionally flourished during difficult economic times and gone quiet in periods of prosperity. With all things being equal, most people would prefer to use the familiar national currency and avoid paying monthly stamp fees. It is only when the national currency becomes sufficiently scarce that a shared agreement can be reached to use a stamp scrip alternative. Bringing it into the 21st century might involve introducing an electronic currency, with fee payments deducted automatically.
Some may believe that the modern shift towards globalisation would relegate scrip to a type of fringe economy on the edges of the ‘real’ one. Large chains and multiples play a far larger role now, but with their branches scattered around the country and supply chains stretching around the world, they are fundamentally at odds with the metabolism of the local economy. A scrip alternative may need to bypass them.
Encouragingly, the world already has a range of note-based complementary currencies, such as the Ithaca Hour (US), Totnes Pound (UK) and Salt Spring Island Dollar (Canada.) With the global spread of the Transition Towns model, many other places are planning currencies of their own. These are nearly always legal to issue, so long as they do not resemble the national currency.
Usually started by idealists and visionaries, they have often been quickly adopted by the wider community. However, none of these appears to be running along stamp scrip lines. Note-based local currencies are easy for businesses to use, unlike a ‘mutual credit’ system such as LETS (Local Exchange Trading Systems) that involves chits, positive/negative computer balances, and credit limits.
In Australia’s outback towns suffering from the combined effects of the drought and the financial crisis, scrip might offer a solution. While community currencies have the drawback of not being accepted beyond their place of issue, they do serve as an important motivator to spend locally, helping to plug the leakages of money and population from rural districts towards distant urban centres.
Tying into the bigger picture
Economic abundance is a worthwhile goal, but what does it do to the environment? Every item purchased has some kind of associated environmental impact, and will to some degree exacerbate climate change. The recent economic downturn has been accompanied by a downturn in global carbon emissions, and a recovery would push them back up again.
A few factors might support increased local economic activity in our current predicament:
- Buying from locally-owned businesses will probably result in a small drop in emissions due to their shorter average supply chains.
- A rapid across-the-board shift towards a post-carbon economy, as a response to both climate change and peak oil.
- Removing carbon from the atmosphere faster than it is produced. Despite this being unlikely within the next few years, options include biochar, soil carbon sequestration, or hemp or bamboo used for construction.
As economic factors have grown in prominence on the world stage since the Great Depression, central banks will probably be keener than ever to assert their monopoly rights. Despite such a challenge, scrip can still be seen as a possible solution to our present difficulties.
Bernard Lietaer – The Future of Money (Century, 2001)