In 1932, while the world struggled through the Great Depression, a small Austrian town tried an economic experiment. To stimulate the local economy, leadership in Wörgl created a local currency, or scrip, known in German as freigeld (literally, “free money”).
Based on the thinking of Silvio Gesell, an early 20th century social activist and economist, the new currency was novel in that it depreciated monthly, which increased the pace of its circulation. Rapid currency circulation goosed the economy, putting residents back to work. Advocates of local alternative currency systems explain that what’s really happening with this sort of currency “velocity” is real reinvestment in the local community.
The “Miracle of Wörgl” seemed to be serving that community well and was interchangeable with official state currency, but the Austrian National Bank, concerned over a perceived threat to its money-printing monopoly, shut down the experiment after just 13 months.
Nearly 80 years later, as economic malaise lingers, the Wörgl saga is inspiring local currency supporters—ranging from members of the environmental movement to libertarian-leaning politicians like Ron Paul—to revisit the idea as a way to mitigate financial tsunami cycles and create a more independent economic model.
The first question might be, is that legal? It is—with a few caveats. Creating and using a local currency—sometimes called complementary currency, in that it “complements,” but doesn’t replace, a national currency—will not unleash the dogs of the U.S. government, as long as it isn’t coin, isn’t referred to as “legal tender” and doesn’t look like U.S. currency. Well before the Wörgl experiment, local currencies were common, and there are hundreds of more recent examples, from Canada’s Vancouver Island to San Luis Obispo, California, and Totnes, U.K. In a less formal way, barters take place all the time, albeit not transferable via a common “coin” of the realm.
In 1991 a group in Ithaca, New York, created a currency, the Ithaca Hour. Its name was intended to convey the idea that currency is both a means of exchange and a representation of someone’s time spent laboring. At that time, $10 was the average hourly wage in the county, so an Hour was worth $10 U.S. With more than 100,000 bills circulating, Ithaca Hours continue offering an alternative medium of exchange used by 900 businesses and health care providers.
In the Berkshires of Massachusetts, another local currency project took off in 2006 with the support of the E. F. Schumacher Society, a kind of alternative economic think tank. Named for a British economist who advocated decentralization, the society studies how local currencies work. More than 2.5 million BerkShares have been issued, with about 150,000 now circulating. Accepted at 385 area businesses, BerkShares are colorfully illustrated with historic Berkshire figures and other artwork by regional artists, further emphasizing localness. Offered through 13 branches of five local banks, 100 BerkShares are equivalent to $100 U.S., but can be purchased with $95 U.S. Thus, users receive a 5 percent discount at local businesses that accept the currency.
The alternative Massachusetts currency has received more attention from communities nationwide since the current economic downturn, according to Sarah Hearn of BerkShares. “Increasingly, communities are looking to find citizen-based solutions to economic instability, and rightly identify local currencies, like BerkShares, as elegant tools for growing more sustainable local economies,” notes Hearn.
Commitment to keeping dollars local may be enough of a driver to create a community currency. Even small shifts in market share to local businesses can create economic activity and employment gains, studies have shown. One analysis found buying from local merchants rather than chain businesses results in three times as much money staying in the community.
In Ojai, California, a working group has been established to brainstorm ways to increase area economic opportunities, and potentially create a local currency. Further north, the college town of Davis also is studying developing an alternative currency, Davis Dollars, and Eureka trades Humboldt Community Currency (CC). The Humboldt Community Currency Exchange Project suggests that participating goods and services providers accept payment half in CC and half in U.S. currency. One Humboldt CC equals one U.S. dollar.
Pre-contact, the Hawaiian Islands operated largely under a subsistence economy, with elements of a barter system. As the plantation era took hold, currency became necessary. In the latter half of the 19th century—before annexation and statehood—Kamehameha III presided over the creation of the Hawaiian dala. Like the American dollar, the dala was made up of 100 units, called keneta. Unlike the American dollar, the dala was relatively short-lived: in 1903, five years after annexation, the United States Congress “demonetized” it, and most of the coins were destroyed.
As recently as 2007, there was talk of reestablishing a new version of the dala to serve as local currency. The idea gained initial attention and interest from state Sen. Sam Slom and the organization Small Business Hawaii—at the time, Slom told the Honolulu Star-Bulletin that he would have to “make sure it is something that’s viable,” but that it could provide an “alternative…[to] the high costs for people doing business here.”
Today, any existing dalas are collector’s items, not currency. Similarly, Maui Trade Dollars—silver dollar-sized coins first distributed in the early ’90s to benefit the Chamber of Commerce—were mostly purchased as keepsakes, though they technically held value at some establishments.
But that doesn’t mean some form of real local money couldn’t work in Hawaii. Legal and practical hurdles aside, with our isolation and strong—if muddled and conflicting—emphasis on local culture, it’s not hard to imagine a voluntary “Aloha scrip,” perhaps even one that is unique island to island, catching on.
Could it be viable in a major metropolitan area? In Los Angeles, the Green Business Networking group is exploring the feasibility of a complementary currency for the greater L.A. region.
“I’m motivated to work with money and business exchange to drive sustainability,” explains cofounder and certified financial planner Gregory Wendt, who is also director of sustainable investing for Enright Premier Wealth Advisors, Inc., an investment advisory firm based in Southern California. “We need to change the way we work with money.”
Though the idea is still in the very early stages, Wendt envisions a regional currency that would find its initial footing in the green business community. While it’s too early to know how the currency would be backed or how actual mechanics might function, Wendt anticipates the currency taking shape through evolving discussions and a series of community gatherings that identify and address issues.
Hollis Doherty, a student of the Wörgl experiment, shares Wendt’s enthusiasm for establishing a local currency. After stumbling across the Austrian story, Doherty was “galvanized about the idea of creating a local currency,” so much so that the L.A. resident traveled to Austria and the Unterguggenberger Institute. Named for the Wörgl mayor who implemented the 1932 currency plan for his town, the think tank promotes the idea of alternative mechanisms for exchange.
Now an associate with the Unterguggenberger Institute, Doherty finds the idea of re-imagining money to be a transformative topic, with the potential for huge social impact.
“My focus is on a currency that includes more people in the economy, one that is more abundant for more people, and favors exchange over hoarding by the few,” Doherty says. “The Institute would say there is no perfect system, but they do say it’s healthier if more than one medium of exchange is available.”
Ultimately, the hope is that an alternative currency would act as a buffer for the area it serves—be it Austria, L.A. or Maui—in the event of a future, perhaps even more catastrophic, economic downturn.
Speaking about the Los Angeles model but addressing the concept as a whole, Wendt says establishing a local currency would have to be a “regional effort…driven by locally owned businesses and local farms committed to sustainable business practices.
“What’s most important,” he adds, “is that this be a catalyst for change.”
A version of this article appeared in the December/January 2009 issue of Whole Life Times. Revised and reprinted with permission through www.featurewell.com