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.