As you may know from reading my other blog, I’m a proponent of the concept of complementary currencies — currencies that are circulated alongside national monies, which operate under different mechanisms, like demurrage, and thus incentivize different behaviors.
I was reviewing my copy of A History of Interest Rates (which covers history all the way back to Sumer) after reading a very very old article by Bernard Lietaer and noticed something very peculiar; there is not one mention of alternative money systems which have existed throughout the world during different time periods (and indeed, continue to exist today). I will recreate the article here with as many links as I can.
Starting all the way back in Egypt, we find the biblical story of Joseph. Joseph interpreted a dream of Pharoah’s and save Egypt from “seven lean years” by stockpiling food. Of course, this seems like a rather mundane thing to have “invented”…and indeed, Joseph didn’t actually “invent” anything. He didn’t even discover it. What he did was incentivize the use of stockpiling by making it the basis for Egyptian money.
Egypt, of course, used gold rings and Greek coins for international trade, but domestically they used something very different, ostarca — which were receipts for grain storage at the temple — which circulated as money. The key feature of this type of money was that there was a negative time charge for holding your grain at the temple (the storage loss to vermins, the guard fee, etc). This demurrage fee caused the money to have a very high velocity, as its value would erode with time.
This type of money was used in Egypt for over a thousand years (coinciding with the time of the Pyramids and other impressive architectural feats), until forcibly supplanted by the use of Roman currency (and the fall of Egyptian civilization).
The Middle Ages
Few people realize that the great economic and spiritual enlightenment that happened after the Dark Ages in Europe also coincided with the beginning of the use of the Brakteaten money system. Local lords issued silver plaques which were called in every six months or so, taxed (physically, which made the coins thinner, and thus reduced their value) and returned to the users. The demurrage fee was around 2-3% per month for the entire period of about 1150-1300AD. Again just as in Egypt, this prevented hoarding by the people, and increased the velocity of the money, creating ample investment demand.
What did lords invest in? Since this was a time of globalization, cities were looking to attract Christian immigrants from around Europe. What better way than massive (and impressive) cathedrals as celebration of their spirituality? The Brakteaten money system facilitated this kind of long-term investment. What even coincided with the downfall of this architectural era? The king’s monopoly on money.
In 1930, Herr Hebecker, the owner of a bankrupt coal mine in Schwanenkirchen, Bavaria, (out of desperation) decided to pay his workers in coal instead of Reichsmark. The scrip he issued, called Wara, was redeemable in coal from the mine. The interesting feature of this currency is that the bill was only valid upon the issuance of a “current month” stamp applied to the back of the note. Again, this demurrage fee prevented hoarding, and incentivized a high money turnover rate. Workers paid for food and services with Wara. This scrip was so popular, the Freiwirtschaff (free economy) movement spread all across Germany by 1931. At its height, over 2000 corporations and a number of commodities backed Wara. However in 1931, the German Central Bank prohibited the use of Wara…and Germany fell into deep depression.
Possibly the most famous story about the use of alternative currencies comes from Worgl, Austria. In 1931, mayor Herr Unterguggenberger, a socialist, decided that he needed to act in the face of a grave economic situation. Worgl faced 35% unemployment, and the only people left work worked for the state train and post. He convinced the town hall to issue 14,000 Austrian shillings’ worth of “stamp scrip,” which were covered by exactly the same amount of ordinary shillings deposited in a local bank.
After two years of use, Worgl became the first Austrian city to achieve full employment. Water distribution was generalized throughout, all of the town was repaved, most houses were repaired and repainted, taxes were being paid early, and forests around the city were replanted. Of course, this was due to the individual initiatives embarked upon by the city’s residents — everyone was looking for ways to rid themselves of money! On average, the velocity of Worgl stamp scrip was fourteen times higher than conventional Austrian shillings. That means each dollar created an extra 14 jobs on average.
Of course, news of the “Miracle of Worgl” spread, and the Central Bank became involved, and in 1933 prohibited the use of “Certified Compensation Bills”. An appeal to the Supreme Court was made, which upheld the ban. Worgl returned to 30%+ unemployment within a year.
1930’s North America
Emergency currencies have a very illustrious history in the US, appearing just about every time there was a severe downturn. The best-documented of which, of course, was the Great Depression.
None other than economist Irving Fischer was behind the movement to institute stamp scrip. Popular that the time were the ubiquitous “wooden nickels“. There was also a movement to issue this stamp script officially nationwide: Senator Bankhead of Alabama presented a bill to the Senate February 18, 1933, and Representative Petenhill of Indiana presented a bill to the House of Representatives on February 22, 1933.
I hope you found this brief history interesting =]. Currencies that offer different mechanism can indeed be a powerful tool to counteract the cyclicality of the macroeconomy. They have also proven themselves to make the economic network more robust.