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Local currencies are pretty much my favorite thing right now, in no small part because they constitute a real and tested solution to many of our most pressing economic problems. Of equal importance, though, at least as far as the American political discourse is concerned, the appeal of local currency lies in a strange ideological blend between traditionally left-wing imperatives toward social equity and traditionally right-wing imperatives toward free markets. This is a rare convergence these days, and the fact that it occurs over such a useful idea is good news for everyone.  As communities around the world feel increasing pressure from lack of cash, credit, and jobs, this once fringe concept is looking more and more viable every day.

(cross posted at goodluck/badluck)

Local currency is exactly what it sounds like-- printed money that can only be spent in a specific region. This region can be a group of stores, a neighbhorhood, a village, a city, a county, anything-- just as long as the currency is exchangeable for other currencies, is taxable, and isn't issued by a national bank. Otherwise (and please correct me if I'm wrong, economists-- I'm new at all this money stuff ;-) ), all it takes to create one is for business owners to agree to accept the currency as payment for goods and services. A few days ago we talked about BerkShares, a successful local currency from Berkshire County, MA. Here's how it works:

One day, you decide to go out for a nice dinner. You go to the bank to purchase BerkShares to spend at a local restaurant. You go in with 95 federal dollars and exchange them for 100 BerkShares. You go to dinner, and the total cost comes to $100. The restaurant accepts BerkShares in full, so you pay entirely in BerkShares. Therefore, you've spent 95 federal dollars and received a $100 meal - a five percent discount for you. The owner of the restaurant now has 100 BerkShares. They decide that they need to deposit them for federal dollars and return them to the bank. When they bring them to the bank, the banker deposits the 100 BerkShares you spent on dinner and gives the restaurant $95 federal dollars, the same 95 dollars that you had originally exchanged for BerkShares. The end result? You receive a five percent discount because of the initial exchange, but the same $95 you originally traded for BerkShares all goes to the business where you spent those BerkShares. (BerkShares website)

So they're more or less high-functioning coupons, with the disappearing 5% amounting to a discount offered in exchange for spending money at local businesses.But according to Judith D. Schwartz, these simple coupons have wide ranging implications:

...bank-issued currency tends to flow toward the money centers for investment. If you shop at a chain store, the profit gets whisked out of town and into the corporate coffers and then, often, to the speculative market. A local currency stays in the community, encouraging local business and trade, adding value to local products and services, and supporting the local infrastructure. (YES! magazine)

As we speak, local currency movements are gaining strength in Greensboro, North Carolina and Ojai, California, and the fact that local currencies got a positive mention in a magazine as mainstream as Time is indicative of the idea's increasing presence in the national discourse. Most interesting of all, the idea comes accompanied by a parallel economic history-- one that emphasizes collaboration over competition, self-determination over subjugation, and recognizes that the notion of self-interest extends beyond the individual.

One event in this hidden history, now known as "The Wörgl Experiment", was begun in 1932 by the mayor of a Bavarian town called Wörgl. Faced with a local economy wrecked by the global depression, an unemployment rate of almost 34%, and federal cashflows for public works projects too sluggish to fix either, Michael Unterguggenberger, Burgomaster of Wörgl-- aforementioned mayor and possessor of probably the greatest name/title combination of all time-- decided to try something different.

Drawing heavily on Silvio Gessel's proto-Libertarian idea of Freiwirtschaft, Unterguggenberger ordered the printing of a temporary relief currency pegged to the schilling that could only be used locally and lost 1% of its value every month.  This built-in depreciation encouraged immediate spending, thus greatly accelerating the speed with which the money recirculated through the community while ensuring that it also stayed there. As the rest of the country sunk deeper and deeper into depression and unemployment, Wörgl prospered. A French writer named M. Claude Bourdet visited the town in 1933, and was unreserved in his praise for the project:

I arrived at Wörgl in August 1933, after exactly a year's experiment. It must be frankly admitted that we stand here before a miracle. The roads, once in a scandalous condition, resemble autostrades. The parish hall, cheery and smart looking, is entirely reconditioned and has the appearance of a lovely toy. A new bridge in reinforced concrete proudly bears the legend : "Constructed in 1933, with free money". One sees everywhere up-to-date lamp standards. Gesell, the little saint of the village, has himself benefited by the socialist burgomaster's loyalty to his principles : he has now a niche allotted to him. The workers engaged on the numerous relief works are all fanatical partizans of "melting money". I went shopping : "relief money" was everywhere accepted, just as if it were legal tender. Prices have not risen.

Unterguggenberger agreed, citing an impressive list of successes for a town with about 4,500 people:

...The reconditioning of the road leading to the railway station - its widening, cabling, including also the construction of sidewalks and the making and erection of 11 lamp standards with globe lighting; the covering in of the Wörgl brook at its issue from the Mullnertal; the construction of the reinforced concrete bridge across the Wildschonauerstrasse; the demolition of the inn in the new Strassenstrasse and its rebuilding in another road; the widening of a portion of the Wildschonauerstrasse and its extension; the concreting and construction of the water reservoir at the hamlet of Winkl; the construction of forest paths several thousand metres long altogether and the provision of about 300 seats in this connection; the repair and gravelling of farm roads, - all these works have already been carried out this year. The opening up of the hitherto inaccessible Aubach gorge by the construction of a new path, with the help of blasting operations and of the building of several bridges, is in progress and half completed.

The experiment-- brought to an official close on September 1, 1933 due to what Unterguggenberger called "the repeated orders of the supervisory authorities" (read: pressure from German banks)-- was by all accounts a resounding success.

Every situation demands a fresh intelligence, and while America in the early 21st century certainly isn't Wörgl in the early 20th, given our lack of jobs, our crumbling infrastructure, the eradication of local businesses by big-box retailers, and the wholesale transfer of taxpayer dollars to a moribund financial services industry, it's worth noting that other people in history have found themselves in similar situations. And not only did they manage to find a solution, they managed to build a stronger community in the process.

Originally posted to overturned turtle on Thu Jul 16, 2009 at 03:51 AM PDT.

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Comment Preferences

    •  Pittsboro Plenty, Pittsboro, NC (2+ / 0-)
      Recommended by:
      overturned turtle, Kimball Cross

      Here's the story of the Plenty.

      Having a locally owned bank that will exchange our local currency is at the heart of our Plenty revitalization efforts. I believe that once merchants can simply take their Plenties to the bank, all fear of the currency will melt away.

      And what about when the bank has all the PLENTYs? That’s easy. They will be vacuumed up by Piedmont Biofuels and distributed back into the community as a portion of people’s pay. Which will cause people to spend them at the merchants that take Plenties, and on and on it shall go.

      BJ, who has a much larger brain than mine, has pointed out the irony of a biodiesel company as a backstop for Plenties. U.S. dollars, after all, tend to be pegged to petroleum.

      The board of The Abundance Foundation stepped up to be the new organization’s fiscal sponsor, and some tax deductible donations rolled in. With some startup money, and the help of the Abundance umbrella, we are hoping to hire Melissa Frey-the visionary founder of Chatham Marketplace to spearhead the new PLENTY effort.

      "It's the planet, stupid."

      by FishOutofWater on Thu Jul 16, 2009 at 05:49:37 AM PDT

      [ Parent ]

  •  California (3+ / 0-)

    Do the IOUs that the State of California issued amount to a local currency?

    The conventional thinking is that because they are debt instruments, they are securities being traded in the aftermarket or being saved for the day that the State of California can appropriate funds to cover them.

    But Californians could negotiate with local businesses to make them effectively a local currency or exchangeable with a local currency.

  •  Not to mention the fact that (2+ / 0-)
    Recommended by:
    overturned turtle, Kimball Cross

    numismatists everywhere just love take specimens of new or different currencies out of circulation, thus essentially just giving money to the minters.

    I'd actually considered trying to do something like this for use among a very large organization I belonged to, using silver coin blanks of differing denominations, although I suppose that would have failed, as it pegs the value of the coin in peoples' minds to the value of silver.

    This idea suggests a fiat currency that can be unlinked from conditions outside the area of use.

    Those who labour in the earth are the chosen people of God. - Thomas Jefferson

    by Ezekial 23 20 on Thu Jul 16, 2009 at 04:31:45 AM PDT

  •  Wasn't the failure of local currencies.,,, (4+ / 0-)

    the reason behind our national currency? It didn't work during the 19th century when numerous fly by night banks issued their own and it certainly won't work in any large scale sense any better today when bankers are viewed as slightly less reputable than used car salesmen.

    That's America, buddy! So wake up -- to your only logical choice: Me. George Tirebiter

    by irate on Thu Jul 16, 2009 at 04:32:46 AM PDT

    •  a fair point (1+ / 0-)
      Recommended by:
      irate

      i think a successful modern update would depend upon a new breed of local banks, and a deep shift in the way they think about doing business.

    •  In the 1820's and 1830's local banks issued (1+ / 0-)
      Recommended by:
      overturned turtle

      their own "notes" which were traded through the country. Employers often paid their employees in out of town banknotes instead of the "hard money" currency (gold and silver coins) issued by the Federal Government. Local merchants often discounted some of the face value of out-of-town notes. Thereby the workers were cheated out of part of their pay. The two situations are not comparable.

      i can't watch [Obama] speak on tv for more than 5 minutes or else what he's saying starts to make sense to me. It's very scary.

      by Kimball Cross on Thu Jul 16, 2009 at 05:33:51 AM PDT

      [ Parent ]

  •  Anyone who's intrigued by this idea (3+ / 0-)

    should read Jane Jacobs' Cities and the Wealth of Nations. And then approach every economist in the room and demand to know why they won't talk about this book, even to point out that its logic might be flawed.

    "The great lie of democracy, its essential paradox, is that democracy is first to be sacrificed when its security is at risk." --Ian McDonald

    by Geenius at Wrok on Thu Jul 16, 2009 at 04:50:28 AM PDT

  •  I know we're not supposed to talk about Nazis... (3+ / 0-)
    Recommended by:
    raboof, Kimball Cross, MyBrainWorks

    The experiment-- brought to an official close on September 1, 1933 due to what Unterguggenberger called "the repeated orders of the supervisory authorities" (read: pressure from German banks)--

    But Hitler WAS in power on the above date and had been for many months. Totalitarianism may have had something to do with it.

  •  I assume that for the currency to work, Wör (0+ / 0-)

    must have a complete complement of local resources - i.e., those needed to fix the buildings, pave the roads, feed and clothe the residents, etc.  Because their "dollars" would have been useless elsewhere, right? (isn't that the whole point of local currencies?).

    I suspect that with three quarters of a century of globalization, etc, that we'd be hard pressed today to find any town of 4,500 (or even 10 times that size), that is similarly adequately self-sufficient . . .

    •  Not really (2+ / 0-)
      Recommended by:
      overturned turtle, Kimball Cross

      These currencies are exchangeable for their national equivalent so, for example, a trader may be paid 600 local dollars for a television but would exchange the equivalent of the wholesale price into US$ to bring it into the community. The whole point is to generate loyalty to local traders and the local economy.

      That is the difference with the California voucher scheme. They are not backed nor are directly exchangeable for US dollars. The whole point of issuing them was that the state did not have the money in the bank nor was able to borrow to pay its employees and for the services it was mandated to provide.

      "Israel was born out of Jewish terrorism." Sir Gerald Kaufman, British MP and son of Holocaust survivor.

      by Lib Dem FoP on Thu Jul 16, 2009 at 06:41:57 AM PDT

      [ Parent ]

      •  Well, if you can simply exchange the (0+ / 0-)

        local currency for national currency and send it out of the community, that would seem to thwart the entire purpose of generating local economic activity.

        But I suppose that I am missing something.

        •  OK (0+ / 0-)

          My example was a bit simplistic. In practice the store would have already purchased the TV wholesale but the local dollars will in turn be used by that store to purchase the services it needs - say a local electrician installing the new digital antennas they sell. He or she will in turn use those dollars to pay for meals at the local diner who will use them to buy their food from local producers.

          The whole point is a boost for the local economy by ensuring locals get the benefit of trading that ordinarily goes on.

          "Israel was born out of Jewish terrorism." Sir Gerald Kaufman, British MP and son of Holocaust survivor.

          by Lib Dem FoP on Thu Jul 16, 2009 at 07:11:24 AM PDT

          [ Parent ]

          •  Actually, I think the TV example was (0+ / 0-)

            quite relevant in that is illustrates what was not said about the prosperity of Wörgl, namely the during the walk-through when all the the signs of properity that were observed (graveled paths, concreted building, etc), all of these were plausibly things that could have been accomplished using local resources.

            There notedly was no mention of big screen plasma TVs, Wiis, SUVs, etc (or whatever the equivalent was back then . . . .).  Basically, if a community wants things that it really has no ability to produce on its own, then the whole local currency idea becomes a little constricting.

            I'm not saying that there aren't real and measurable benefits, I'm just wary that the concept might have been a little bit oversold in the diary . . .

            •  Er no (2+ / 0-)
              Recommended by:
              overturned turtle, Kimball Cross

              Even in my example you will note I wrote that the store has to pay the wholesale price in US$. Clearly the profit from the transaction is generated locally. Purchasers would use their currently with a local store because of loyalty, better service and maybe a saving on shipping or travel costs compared to going to a "big box" store in a more distant city.

              "Israel was born out of Jewish terrorism." Sir Gerald Kaufman, British MP and son of Holocaust survivor.

              by Lib Dem FoP on Thu Jul 16, 2009 at 08:53:23 AM PDT

              [ Parent ]

  •  It isn't easy to guess what the Nazis did (1+ / 0-)
    Recommended by:
    overturned turtle

    about Worgl's "relief money" when they came in. After all, it was a creation of the traitorous SPD, the "November criminals."

    Gesell, the little saint of the village, has himself benefited by the socialist burgomaster's loyalty to his principles : he has now a niche allotted to him.

    i can't watch [Obama] speak on tv for more than 5 minutes or else what he's saying starts to make sense to me. It's very scary.

    by Kimball Cross on Thu Jul 16, 2009 at 05:29:48 AM PDT

  •  Depreciation (0+ / 0-)

    Drawing heavily on Silvio Gessel's proto-Libertarian idea of Freiwirtschaft, Unterguggenberger ordered the printing of a temporary relief currency pegged to the schilling that could only be used locally and lost 1% of its value every month.

    Isn't this just the same as inflation?  Under circumstances of high inflation people spend money more quickly, but that's not necessarily a good thing.  The economy fell apart in Zimbabwe.

    I'm not sure how the local currency ended up providing public goods like roads, bridges and lamps in Worgl.  How does that work?

  •  Britain (1+ / 0-)
    Recommended by:
    overturned turtle

    Notably successful local currency schemes exist in Lewes, Sussex  (the home of Tom Paine) and Totnes, Devon.

    These schemes however are the equivalent of buying a store's gift voucher but one which can be used in a number of locations. They do not in themselves add to the economy of the area.

    Other models are also promoted by LETS (Local Exchange and Trading Schemes) organisations which do generate added "production". These formalize barter systems so that, for example, somebody might agree to do minor work about somebody's home in exchange for produce from their garden. Under a LETS, this becomes indirect through the trading of, say, an hour's pluming for two hours baby sitting and that for somebody working on a car and so on until the service is exchanged for the produce.

    "Israel was born out of Jewish terrorism." Sir Gerald Kaufman, British MP and son of Holocaust survivor.

    by Lib Dem FoP on Thu Jul 16, 2009 at 06:29:29 AM PDT

  •  Latest attempts (2+ / 0-)
    Recommended by:
    overturned turtle, Kimball Cross
    - internet gold certificates from private firms - was shut down by Secret Service (counterfeiting) and IRS (tax evasion). Any idea you have has to get past this pair of agencies and they are the same zombies now as during the Bush Admin.

    I voted with my feet. Good Bye and Good Luck America!!

    by shann on Thu Jul 16, 2009 at 07:13:25 AM PDT

  •  Now THERE is a great turn of phrase-- (2+ / 0-)
    Recommended by:
    overturned turtle, Kimball Cross

    Michael Unterguggenberger, Burgomaster of Wörgl-- aforementioned mayor and possessor of probably the greatest name/title combination of all time.

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