Records of people setting up systems to enable exchanges to take
place without the use of official currency go back a long way. In 1696, for example, a
Quaker, John Bellers, proposed that unemployed workers be paid in labour notes for goods
they had produced with materials supplied by the system's central office. The office was
to recover its notes by selling the goods either to the workers themselves or to others
who had received notes from the workers in payment for food or rent.
The idea was tried out in Bristol and failed. It was revived almost 140 years later by the
philanthropist Robert Owen who was no more successful than Bellers: his National Equitable
Labour Exchange opened in 1832 and closed less than two years' later. The Bank of Exchange
set up in 1848 by the French socialist Pierre-Joseph Proudhon ,
best known for his view that property is theft, was an equally unsuccessful variation on
Bellers’ idea.
Many experiments with local currencies were carried out in the 1930s in response to severe shortages of national currencies.. Two of the most interesting arose from the writings of Silvio Gesell, which led to the establishment of the Freiwirtschaft (Free Economy) movement in Germany and the launch of its currency the Wära, a combination of the words Ware (commodity) and Währung (a currency unit which preserves its value). Notes were issued for 0.5, 1, 2 and 5 Wära, each Wära being worth exactly a Reichsmark and could be exchanged for one in emergencies since the entire proceeds from the sale of Wära notes were lodged in a redemption fund.
The key difference between the Wära and the Reichsmark lay in the fact that the former were costly to hoard since anyone holding some at the end of a month had to buy special stamps costing 2% of each note's face value to re-validate them for use during the following month. Naturally, this meant that anyone who received Wära tried their best to spend them before they needed to be stamped again and the new currency began to circulate rapidly among Freiwirtschaft enthusiasts throughout Germany. The 2% monthly levy was used for promotional purposes.
Nobody in authority took much notice of the Freiwirtschaft currency until 1931 when the purchaser of a defunct coal mine at Schwanenkirchen, a village with a population of five hundred in Bavaria, was able to re-open it by paying the miners in Wära which he had arranged they could spend in the village shops. In their turn, the shopkeepers forced their wholesalers to accept Wära and the wholesalers passed them back to their suppliers, who spent most of the notes they received on buying Schwanenkirken coal since there were few other ways in which Wära could be used. According to an account published in August 1932 in an American magazine, New Republic 6, the effects on the village were dramatic: "One would not have recognised Schwanenkirchen a few months after work had been resumed at the mine. The village was on a prosperity basis, workers and merchants were free from debts and a new spirit of life and freedom pervaded the town....Reporters came from all over Germany to write about the 'Miracle'" . The article pointed out that if Reichsmarks had been used in place of Wära, they would have been hoarded because of the uncertain times and the venture would have failed. Moreover, even if they had not been hoarded they would have dispersed all over Germany and there would have been little likelihood of their returning to Schwanenkirchen and increasing demand at the mine.
Although only 20,000 Wära were ever issued, some 2.5 million people handled them in 1930-31 as a result of their high velocity of circulation. Their success in Schwanenkirchen terrified the German government which feared they would cause inflation and after an unsuccessful court action on the grounds that Wära infringed the state's sole right to issue money, it passed emergency legislation in November 1931 to bring their use to an end. The mine in Schwanenkircken closed and its workers were plunged back into unemployment.
However, not far over the border in the Austrian Tyrol, another enthusiastic supporter of Gesell's ideas had been following events closely. He was Michael Unterguggenberger, the mayor of Wörgl, where local tax payments were seriously in arrears and the official treasury was in crisis because 1,500 of the town's 4,300 inhabitants were out of work. The type of auxiliary currency used in Schwanenkirchen - technically known as Stamp Scrip - seemed the answer and, after negotiating a loan from the local Raiffeisen (credit union) savings bank, the mayor printed notes with a face value of 32,000 Schillings in denominations of 1, 5 and 10. Only a third of these were ever put into circulation. In August 1932, the scrip was used to pay half the wages of the council staff including the mayor himself and, because the businesspeople of the town knew it could be used to pay local taxes they reluctantly accepted it in payment for goods, the fear of losing sales to competitors bringing stragglers into line. As the scrip, like the Wära, had to be stamped each month to maintain its validity. it was passed quickly from hand to hand, generating a rapid increase in trade. It was, in fact, spent in preference to national currency and in its first year, according to a 1952 German account of the experiment, each local note changed hands 463 times on average whereas a typical national note was involved in only 213 transactions. Quite soon only the railway station and the post office would not accept the local money.
The traders took no risk in accepting Wörgl scrip as it was completely backed by the national currency loan which the mayor had obtained from the savings bank and left on deposit there. This enabled anyone holding scrip to swap it at any time for 98% of its face value in national currency. Very few people appear to have made the exchange because at 2% it cost more to do so than to pay the 1% monthly re-validation fee, but any local money which was returned to the bank or paid to the council in taxation was immediately re-launched into circulation in the town.
Just as in Schwanenkirchen, the effects of the 'auxiliary money' were impressive. In the first month, 4,542 Schillings were paid off in tax arrears, allowing a new public works programme employing fifty men to begin, their wages paid entirely in scrip. In the second half of 1932 Wörgl spent 100,000 Schillings rebuilding and asphalting four miles of streets and extending the sewerage system, the entire cost being covered out of overdue tax receipts. The savings bank benefited too and deposits exceeded withdrawals for the first time for many months. In January 1933, the town began to build a ski jump and a reservoir. Both were completed without incurring any debt.
Other towns started planning to copy the scheme and although the Austrian Government had not been hostile to the Wörgl experiment, the Central Bank felt it had to prevent similar systems from becoming widespread for fear it would lose control over the amount of currency in circulation nationally and hence be unable to prevent inflation. It instituted legal proceedings against Wörgl council and on 1st September 1933, the scheme was stopped, exactly 13 months after it had begun.
Several hundred communities in the United States ranging from villages to the state of Iowa and cities such as St. Paul, Minnesota, either issued their own scrip or seriously considered doing so during the 1930s. The pioneer was Hawarden a town of 3,000 people in Iowa, in October 1932 but the promoter, Charles Zylstra, departed from the Wörgl/Wära model and did not set up a redemption fund to guarantee the issue. Instead, he proposed that every person who received a scrip note with the face value of a dollar should stick a special 3-cent stamp on it before passing it on and that after it had been used for 36 transactions and had collected $1.08-worth of stamps it could be redeemed for a US dollar.
Unfortunately, there was no way apart from public honesty to ensure that a stamp was applied after every transaction. Moreover, although the scrip itself was dated in an effort to prevent hoarding, the absence of dates on which stamps had to be applied meant that there was no incentive to pass the money along as quickly as possible. In fact, as the scrip was used to pay part of the wages of men engaged on unemployment-relief projects, the whole scheme amounted to little more than an optional tax to meet the cost of the work which was paid by those using the local money.
Despite its problems, Zylstra's system was adopted in several towns with mixed results. Eventually, however, it was replaced by closer approximations to the Wörgl scheme as that became better known, notably through the efforts of a professor of economics at Yale University, Irving Fisher, who even published a manual on how to set up and run a stamp scrip system in 1933. Fisher described at length a type of scrip proposed for the city of Reading, Berkshire County, Pennsylvania, in which the note had fifty-two squares on the back, each printed with the date of consecutive Wednesdays in the year after its issue. Special two-cent stamps were stuck in these squares by whoever held the note on Tuesday night before they could be used the following day and by the end of the year, a sum of $1.04 would have built up to allow the note to be redeemed at par and leaving 4 cents to cover expenses. According to newspaper reports of the time, scrip of this type was widely adopted.
By 1933, more than 300 communities had introduced some form of barter system, scrip or local currency to try to overcome the nation-wide currency shortage. Tenino in Washington State even used wooden money - it printed 25c, 50c and $1 tokens on spruce wood after the local bank collapsed, freezing everyone's assets. $6,500-worth of timber coins were put into circulation but when the day came for them to be redeemed in US currency, only $30-worth was presented - coin collectors and tourists had taken the rest, leaving the town council with enough cash to buy the bank and open it again.
"Scrip permitted if soundly backed" was the headline in The New York Times on 10th January, 1933, but it was too good to last. Three months later, on March 4th 1933, President Roosevelt forbade any further issues, although existing schemes were allowed time to wind themselves up. It was not that the government had any objections to scrip being issued to create jobs but it had been advised by Professor Russell Sprague of Harvard that the US monetary system was being democratised out of its hands.