A BRIEF HISTORY OF LOCAL CURRENCIES
"It seems axiomatic that whenever a government fails to provide an
adequate supply of currency or coin to maintain commercial trade, the
people will step in to provide their own to fill the vacuum."
-- Ralph A. Mitchell and Neil Shafer
Scrip of The Great Depression
The Great Depression of the 1930's was a very important chapter in history. It provided a great many important lessons for civilization, many of which are yet to be fully grasped. Much has been written about the nature and
causes of the Depression, which need not be repeated here, but for those for whom the event is too remote in time to have much meaning, we will attempt a brief summary.
The Great Depression was world-wide in scope, but it was particularly severe
and long-lasting in the United States(34). It was characterized by several
concurrent financial and economic symptoms, which the U. S. Department of
Commerce listed as follows:
1) an unemployed population estimated at over 12 million,
2) a serious agricultural situation resulting from excessive production,
ruinous (low) prices, and large debts,
3) a financial and credit system in grave danger of collapse,
4) a large internal debt,
5) almost insurmountable barriers to foreign trade,
6) a perplexing foreign debt situation,
7) an unbalanced federal budget,
8) disorganized state and municipal finances,
9) increasing disorder and an almost complete lack of confidence on the
part of the people.(35)
Most importantly, however, was the fact that there was little money in the
hands of the people, and given their uncertainty about their prospects of
getting more of it, people tended to hoard what little money they did have.
Hoarding slowed the velocity of circulation, which further reduced the volume
of business being transacted. Serious human needs went unmet -- until people
began to organize.
Besides learning how to "make do, or do without," people began to establish
mutual support structures, like workers' cooperatives, many of which would
recycle and repair donated or broken items. People learned to share what
they had, and to by-pass the market and financial systems. Most of these
measures were considered stop-gaps to be utilized until things "got back to
normal," but in some of them there seemed to be the promise of more permanent
improvements. One of these "stop-gaps," which was intended to address the
problem of the dearth of currency in circulation, was the issuance of
History is full of examples of successful local initiatives aimed at
providing exchange media, but the Great Depression of the 1930's saw this
done on an unprecedented scale. There were literally hundreds of scrip
issues that were put into circulation by a variety of agencies, including
state governments, municipalities, school districts, clearing house
associations, manufacturers, merchants, chambers of commerce, business
associations, local relief committees, cooperatives, and even individuals.
These issues went by different names, depending on who issued them and the
circumstances of their issuance. Common scrip types were certificates of
indebtedness, tax anticipation notes, payroll warrants, trade scrip, clearing
house certificates, credit vouchers, moratorium certificates, and merchandise
Caslow Recovery Certificates
Among these scrip issues there were many failures, but there were also many
impressive successes. There is much to be learned from both the failures and
the successes. One interesting case was the issuance, beginning in 1933, of
"Recovery Certificates" by a Chicago newspaperman named Caslow. Figures 8.1
and 8.2 show the front and reverse sides, respectively, of a Caslow Recovery
As can be seen from Figure 8.2, these notes were of a variety known as "stamp
scrip," and were supposed to be "self-liquidating." The inscription on the
face of the notes describes the basic terms of their circulation. A 2-cent
stamp was supposed to be affixed on the back and signed by the buyer each
time the note was passed on in a transaction. When all the stamp spaces had
been filled, a one dollar note would have changed hands 54 times and
facilitated $54 worth of business. The 54 stamps which had been sold and
affixed would have provided $1.08 in official money, one dollar of which
would presumably be used to redeem the note, and the remaining eight cents
going to cover the expense of operating the plan.
While Caslow managed to gain wide acceptance of his scrip idea, it does not
seem to have worked out quite as planned. Mitchell and Shafer relate the
story as follows:
"At first a small amount, it was manageable and fully accepted by a
number of merchants. At one time over 500 stores were participating.
Through his newspaper, "The Caslow Weekly," Caslow was able to form a
large organization of self-styled "scrippers." The plan kept growing,
and clubs, local clearing houses, etc., sprang up to take care of the
scrip. The bulk of the scrip placed into circulation came through
Caslow's using it to pay his workers. As for himself, he demanded cash
for advertisements in his newspaper. As the scrip idea spread, as much
as $30,000 might be issued in a single week. The plan failed, largely
because there were too many field workers promoting the scrip plan and
simply too much scrip. Around $1,000,000 was issued, and very little
redeemed. After about two years, Caslow suspended publication of his
newspaper and closed up shop."
The obvious question which this story raises is, "What went wrong with Caslow
scrip?" Why did a currency which enjoyed such widespread and strong support
turn sour? Mitchell and Shafer do not provide enough of the details about
its issuance or redemption to fully answer the question. They do, however,
offer the opinion that there was "too much scrip." But was it simply a
matter of too much scrip? I think this may be too simplistic an explanation.
It begs the question, "too much in relation to what?"
Examination of the inscription on the face of the scrip makes several things
1. Caslow was the "sole distributor."
2. Stamps were "procurable from Distributor (Caslow) or contracted agents."
3. There is no mention of how the funds obtained from the sale of stamps were
to be administered. It must, therefore, be presumed they simply went into
the general fund of Caslow's business.
The eventual redemption of the scrip, therefore, seems to have depended
entirely upon the integrity of Caslow and the solvency of his business.
We also note that the "Original disbursement hereof is limited to Relief,
Employment on Public Works, Public Purposes, and administration thereof."
This is rather vague and seems to be somewhat at variance with Mitchell and
Shafer's report that "the bulk of the scrip placed into circulation came
through Caslow's using it to pay his workers."
The self-liquidating feature works only if the note changes hands enough
times to generate sufficient stamp revenue to allow the scrip to be redeemed
for cash. Far more important are the conditions under which scrip is first
placed in circulation and the commitment of the original issuer himself to
accept it in trade.
I think the key to the failure of Caslow's scrip might be found in his
refusal to accept it in payment for his own services (advertising). One of
the fundamental rules of currency issuance is that the issuer be willing to
redeem his/her own currency at face value (par), and that s/he be able to
generate enough value in goods and/or services to redeem the issue at the
rate of about 1% per day, which is equivalent to being able to redeem the
entire issue in about 3 months time. More will be said about this question
Larkin Merchandise Bonds
Another example, which was fairly typical of Depression scrip was one offered
in 1933 by Larkin and Company of Buffalo, New York. Larkin was a large
company with diverse operations including wholesale merchandising, a chain of
retail stores and a chain of gasoline stations. When President Roosevelt
declared his famous "bank holiday," the Larkin company issued $36,000 worth
of "merchandise bonds" which it used to pay its employees.
As shown in Figures 8.3 and 8.4, these "bonds" consisted of certificates
which bore the image of the company's founder and a guarantee that they would
be accepted in payment for services or merchandise at any Larkin outlet in
the U.S. The "bonds" were endorsed on reverse side and spent into
circulation by the company. They were subsequently accepted by many Larkin
customers and even other businesses. As the dearth of official currency
eased, Larkin gradually retired the bonds. Company accountants estimated
however, that while the bonds circulated, the original $36,000 issue had
turned over enough times to allow the sale of $250,000 worth of merchandise,
providing a significant boost to its business.(37)
Scrip was generally accepted and used to do business within a limited local
area. The farther it got from home, however, the more uncertainty there was
about its origin and the less confidence people would have in it. For this
reason scrip tended to remain within the local economy and had the effect of
stimulating local development and community self-reliance. This limited
range of acceptance might seem at first to be a disadvantage of scrip, but,
from the standpoint of the local economy, it is a great advantage. Toward
the end of the Depression, however, as official government and central bank
currencies became more widely available, scrip disappeared.
Silvio Gesell and Stamp Scrip
Some of the most notable examples of successful scrip issues were instigated
by Silvio Gesell, a successful German businessman who lived much of his life
in South America, and who, at one point between the first and second World
Wars, served briefly in the German government. Gesell, in his once famous
book, The Natural Economic Order,(38) explained his views on the nature of
money and how it functions in the economy, and outlined his ideas on how it
should be reformed. He originated the plan for issuing a currency known as
"stamp scrip." Later, the great American economist, Irving Fisher, became a
proponent of scrip and wrote a book about it. His book, entitled Stamp
Scrip, described some of the subsequent scrip experiments and outlined his
recommendations for proper issuance of scrip.(39) His is one of the few
handbooks available on the subject.
Depression-era Stamp Scrip in Germany and Austria
Among the most successful and famous applications of Gesell's stamp scrip
idea were the ones which took place in the small Bavarian town of
Schwanenkirchen and the Austrian town of Woergl.(40) Gesell's scrip was to
consist of pieces of paper of uniform size (about 8 inches by 3.5 inches) to
be issued by a voluntary association of factories, merchants, a bank and any
others. It would be issued in denominations of convenient amounts and be
used in payment of wages and for trade. The shops who were members of the
association would, of course, get all the trade. This would provide an
incentive for other businesses to join, and business generally would improve.
Gesell's scrip was designed to have 52 spaces on the reverse side, one for
each week of the year, and the scrip was to have the value of its stated
denomination only for one week. In order for the scrip to maintain its face
value, a stamp, costing two percent of the face value of the note, had to be
affixed on the back, in the space allocated to that week. The stamps could
be bought at the bank representing the association. This stamp device was
supposed to keep the scrip from being hoarded, as people would try to spend
it prior to the day the stamp had to be affixed and thus avoid the cost of
Gesell had many friends in Germany and his ideas were widely discussed but
there was initially no attempt to implement them. At the time, shortly after
the end of the first World War, there was currency inflation in Germany of
astronomical proportions which caused severe hardships for the people. This
inflation, like all inflations, was the result of improper and excessive
issuance of official currency. It was part of a deliberate government policy
to surreptitiously eliminate its debts by printing more money. This policy
was probably a large factor in the eventual collapse of the German
government, and helped set the stage for Hitler's rise to power, as he was
one who exposed it.
With the coming of the Depression, the nature of the problem shifted. Money
was then in short supply. Gesell's friend, Hans Timm, formed an association
for the purpose of implementing the scrip idea. Timm actually had printed
such stamp scrip which he called Wara, a name derived by combining two words
- "Ware," the German word for goods, and "Wahrung," the German word for
currency. Timm's association was called the "Wara Exchange Association."
Wara became fairly well known in Germany but it was never widely used.
The village of Schwanenkirchen had a population of about 500 and its only
industry was a coal mine which had been closed for two years because of the
depression. The village had barely existed by means of the government dole
and almost everyone was in debt. Deflation throughout Germany led to
bankruptcies, suicides and overcrowded jails. The coal mine owner had heard
about Wara stamp scrip and decided to try it. He got a loan of official
currency (Reichsmarks) and with it bought Wara stamp scrip from the Wara
Exchange Association.(42) Then, according to a report in The New Republic
for August 10, 1932:(43)
"Herr Hebecker assembled his workers. He told them that he had succeeded
in getting a loan of 40,000 Reichsmarks, that he wished to resume
operations but that he wanted to pay wages not in Marks but in Wara. The
miners agreed to the proposal when they learned that the village store
would accept Wara in exchange for goods.
Continuing the account in Fisher's words:(44)
When, after two years of complete stagnation, the workers for the first
time brought home their pay envelopes, no one was interested in hoarding
a cent of it; all the money went to the stores to pay off debts or for
the purchase of necessities. The shopkeepers, too, were happy. Although
at first they had felt a little hesitant about Wara, they had no choice,
as no one had any other kind of money. The shopkeepers then forced it on
the wholesalers, the wholesalers forced it on the manufacturers, who in
turn tried to pass it on to those who carried their notes, or they
exchanged it at Herr Hebecker's mine for coal.
No one who received Wara wished to hold it; the workers, storekeepers,
wholesalers and manufacturers all strove to get rid of it as quickly as
possible, for any person who held it was obliged to pay the 2 cent stamp
tax. So Wara kept circulating, a large part of it returning to the coal
mine, where it provided work, profits and better conditions for the
entire community. Indeed, one could not have recognized Schwanenkirchen
a few months after work had resumed at the mine. The village was on a
prosperity basis, workers and merchants were free from debts and a new
spirit of freedom and life pervaded the town."
"The news of the town's prosperity in the midst of depression-ridden
Germany spread quickly. From all over the country reporters came to see
and write about the 'Miracle of Schwanenkirchen'. Even in the United
States one read about it in the financial sections of most big papers.
But no explanation was given as to the real cause of the miracle - that
non-hoardable money was being tried out and that it was working
Acceptance of Wara subsequently spread to various parts of Germany. About
two thousand shops and one or two entire communities recovered by means of
it. Finally, in November 1931, the German Government passed an emergency law
ending the circulation of Wara. The "miracle" of Schwanenkirchen then ended
and the town went back on the dole.
Another place where Wara succeeded was in the Austrian town of Woergl which,
by 1932, was in dire straits. In this town of about four thousand people,
many factories had closed and almost everyone in town had lost their jobs. A
large amount of local taxes were unpaid. The mayor of the town had heard
about Wara and decided to try it. In this case, the Wara were issued by the
town, in conjunction with a number of merchants and the local savings bank.
The town paid its employees half in Wara and half in official currency.
Initially, some of the local merchants refused to accept Wara, but when they
saw the trade going to the other shops, they too had to climb on the
bandwagon. The Wara issue was a great success. Professor Fisher describes
the situation this way:(45)
"After the scrip was issued not only were current taxes paid (as well as
other debts owing to the town), but many arrears of taxes were collected.
During the first month alone 4,542 schillings were thus received in
arrears. Accordingly, the city not only met its own obligations but, in
the second half of 1932, executed new public works to the value of
100,000 schillings. Seven streets aggregating four miles were rebuilt and
asphalted; twelve roads were improved; the sewer system was extended over
two more streets; trees were planted and forests improved."
Unfortunately, this successful experiment was also ended under pressure
exerted upon the Austrian government by the central bank. Figures 8.5 and
8.6, respectively, show the face and reverse sides of one of the Woergl
To my knowledge, there is no current law which would prevent such initiatives
as local scrip from being implemented today in the United States. The
application of local exchange media could provide results every bit as
dramatic as those obtained in Schwanenkirchen and Woergl.
Many of the scrip issues of the Depression era were defective in some way,
and they should not be directly emulated, but the thing to be learned from
this chapter in the history of money, is that it is possible for effective
media of exchange to be issued at the local level and that the centralized
control of money and finance need not limit the ability of a local economy to
preserve its own health.
Some scrip issues, of course, are more credible than others. The power,
productive capacity and faithfulness of the issuer are factors which affect
the credibility and market acceptance of a local scrip issue. The soundness
and continued acceptability of a scrip issue are dependent upon its basis of
issue, the amount issued, and the means by which issuance is regulated.
Scrip issued by municipal and state governments will have a high level of
credibility if it can be used to pay taxes and fees, and is accepted at par
with federal money. Such scrip is said to have a "tax foundation." Scrip
issued by corporations, based on their own productive capacity, will have
credibility to the extent that there is a demand for their products and their
current assets are sufficient to "cover" the amount of scrip issued. Scrip
issued by retailers in payment for their inventories of goods will have
credibility because the goods are already there in the shops waiting to be
bought. This is known as the "goods foundation" or "shop foundation" of
scrip. Scrip issued by individuals is theoretically possible but its
acceptability will depend upon the backing provided, usually in the form of
Economic depressions are typified by a scarcity of ordinary money. Indeed,
most depressions are caused by restriction of the money supply by the
monetary authorities. The subsequent felt lack of adequate payment media
causes people to become fearful and to hoard what money there is. This
hoarding slows its rate of circulation which further reduces the volume of
business being conducted. Thus, the depression deepens until money becomes
plentiful again. Replenishment of the supply of official (debt) money
requires not only an increased willingness of the banks to lend, but also a
willingness of individuals and businesses to borrow. Their recent experience
of monetary stringency during a depression, however, makes them loathe to
incur new indebtedness.
The prescription for addressing this dilemma, put forth by Lord Keynes, was
for government to intervene by borrowing money and spending it into
circulation. It was said that the temporary deficit thus incurred could be
made up later by surplus revenues once the depression was over. The
experience of 60 years has made it clear that the Keynesian prescription is
flawed, that "later" never comes. As we have already explained, deficits
become chronic because of the very nature of the debt-money system.
The original intent of using scrip was to provide a temporary supplement to
scarce official currency. But the permanent use of a locally issued and
controlled exchange medium, such as scrip, has clear advantages for
insulating local economies from the distorting effects of global finance and
The above text is copyright:
Copyright © 1994 Thomas H. Greco, Jr.
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