Rethinking Money
Page 18
Meeting villagers in their new home, an emergency shelter, after the Yogyakarta Earthquake of 2006 (Stephen DeMeulenaere, second from left). The cooperative currency implementation project continued, although many villagers lost their homes in the earthquake. Photo credit: Stephen DeMeulenaere.
The following idea was originated by the Social Trade Organization (STRO), to which Stephen DeMeulenaere was one of the contributors,15 and provides the framework for a local currency that would help manage community resources more effectively during the reconsolidation phase and sustain the community once volunteers and aid organizations have left. Called the BONUS, it is a local voucher, an emergency cooperative currency designed to maximize the efficacy and productivity of relief funds by encouraging money to remain in the local economy, whose revitalization is essential for recovery. Ordinarily, with typical disaster relief programs, funds flow from donors to the local NGOs and eventually into the hands of individuals and businesses. Goods and services, however, are inevitably purchased from nonlocal sources, reversing the flow of money back out of the community. Eventually, almost all of the money leaves the area, abandoning the local NGOs to search for longer-term funding.
The BONUS strategy attempts to counteract this cycle by introducing a local voucher currency that can be used only within the community. In this system, national money is used for resources that absolutely must be purchased from outside suppliers, and everything else is purchased in the local currency. Each voucher credit is backed by a unit of national money, which allows the exchange of local currency back into national currency at any time, thus increasing the acceptance of and confidence in this currency as a valid medium of exchange. Ideally, the money would be used in the form of extremely low or zero percent interest loans payable in local currency, further increasing the acceptance of voucher money by individuals and businesses.
The effect of the BONUS program is, in essence, very similar to the effects of the saber, only in this instance instead of a learning multiplier, there is a “reconstruction multiplier,” dramatically increasing the positive impact that donors or implementing organizations have in a disaster relief situation.
Besides increasing employment, economic activity, and local access to goods and services, emergency currencies also have the potential to reduce the amount of fraud, which is endemic in cases of crisis and common in many disaster relief situations. For example, the Government Accountability Office (GAO) estimates that 16 percent of FEMA’s assistance for housing and emergency provisions in the Katrina aftermath was misspent, leading to a total loss of between $600 million and $1.4 billion to fraud. One man in Texas actually used FEMA money to buy a diamond ring worth over $3,700.16 By issuing local voucher currency, the likelihood of money being spent fraudulently is significantly reduced, as goods and services can be purchased only from known vendors within the local economy.
Although the BONUS system does not explicitly endorse a demurrage for its currencies, it is suggested that any emergency relief currency carry a small demurrage fee to promote its continuing circulation, as well as to counteract the hoarding mentality that is all too common in the aftermath of large-scale disasters.
Stephen DeMeulenaere comments, “This blueprint was used very successfully by the French agency Triangle, using my design for a simplified revolving microfinance circle in Aceh, Sumatra, in Indonesia following the 2004 tsunami. And emergency currencies were used in the recent Haiti disaster.”17
Perhaps Edgar Cahn, founder of TimeBanking, puts it best. Reflecting on the power of cooperative currencies to create community, no matter if they’re organized by a business, NGO, or government, he commented, “Rebuilding community takes creating organic networks of trust, reciprocity, and engagement. Sustaining that is vital. A way to bring energy and vitality to that effort would be for a gathering to ask, ‘What kind of memories would I like my child to have about growing up in this neighborhood? What are the stories we would like them to tell their children and friends about something memorable they did growing up in that particular place?’ Suppose they could say, ‘We had a TimeBank or cooperative currency that helped veterans’ families and made sure that no third-grader went on to fourth grade without being at a third-grade reading level and having a buddy or mentor as they passed to fourth grade.’ Suppose it was a tree-planting campaign as a way of reducing the carbon footprint. Why not have a brainstorming session to create place-based memories?
“Set up a TimeBank Rotating Loan Club wherever anyone who has a cause, a dream, a vision of what they would like to change or what they would like to see happen could get a time commitment of 90 days to make that happen. Like Rotating Loan Clubs, everyone would have a chance to do that: I’ll help with your cause for 90 days if you will help with mine. Imagine the possibilities.”18
PART THREE
RETHINKING MONEY
In the process of rethinking money, mistakes and accidents have occurred, some by design, some by happenstance. Whatever the causes, there have been some dire consequences. Individuals who have questioned the orthodoxy of modern-day money have, for the most part, been marginalized and ridiculed. Extraordinary successes that generated unprecedented prosperity, such as the local currencies that sprang up in Europe during the austere years between the two world wars, were dismantled. In more recent history, cooperative currencies have failed due to ignorance of the participants themselves, as they lack awareness of the hidden dynamics of money.
So what can be learned from the past so that we are not obliged to keep repeating our mistakes in the future? And what would a truly cooperative society, which has not existed since the dawning of the Modern Age, look like? In the following chapters, we will explore this available future that stands in such stark contrast to our world today.
Success, in the words of Winston Churchill, “consists of going from failure to failure without loss of enthusiasm.” The greatest barriers to success so far have been the fear of failure and the failure to learn from mistakes.
Chapter Ten
TRUTH AND CONSEQUENCES
Lessons Learned
In dreams begin responsibility.1
WILLIAM BUTLER YEATS,
20th-century Irish poet and playwright
It was hard to contain the emotions that were surprisingly welling up inside while I was standing on the bridge in the small Tyrolean village of Wörgl. The bridge was so different from how it had been described in various books and articles. It seemed in real life more diminutive, plainer, and definitely shorter, yet its impact was unexpectedly overwhelming. Back in the dreary days of the 1930s Great Depression, this nondescript yet iconic overpass symbolized the dreams of full employment and a decent standard of living for all. Scholars, government officials, and thousands of others traveled to this Austrian community to personally witness and learn from the miracle of Wörgl. Today, the town has little significance, noted mostly for its railway junction connecting the line from Innsbruck to Munich with the inner-Austrian line to Salzburg. A small museum run by volunteers bears homage to Wörgl’s short-lived chapter in monetary history.
Here, the black-and-white photos of Wörgl’s long-departed citizens going about their daily lives seem strikingly ordinary, given the backdrop of this extraordinary moment in time. To appreciate the full panorama of what happened in German-speaking Europe in the years between the two world wars, besides the earlier example of the WIR, a look at Wörgl and the Wära provide some important insights.
Mostly forgotten today is that the large number of cooperative currencies arose in the aftermath of the German hyperinflation of the 1920s, when the Reichsmark, the German currency at the time, became worthless. Similarly, there was an explosion of local currencies in both Western Europe and North America following the economic crash of 1929 and, more recently, in Argentina, following the collapse of its national currency in 2001. And now, at present, there is a resurgence of cooperative currencies and other innovations as the shadow of recession looms, but the dire consequ
ences and tough lessons from these experiences seem to have lapsed from memory.
Back in the day when Michael Untergugenberger was elected mayor of Wörgl, in 1931, some 30 percent of the workforce was unemployed, leaving 200 families absolutely penniless. The mayor-with-the-long-name, as the renowned U.S. economist Irving Fisher from Yale would call him, was familiar with Silvio Gesell’s work. A German economist and merchant, Gesell’s conceptual framework for demurrage and for other theories made him, some argue, the grandfather of modern-day cooperative currencies. His monetary designs are often referred to as freigelt, or “free money” in English.
The mayor decided to put Gesell’s ideas to the test, as there was much to be done around the town and many willing and able-bodied folks looking for work. The rub was, however, that there were only 40,000 Austrian shillings remaining in the bank, just enough to pay the salaries of a couple of dozen people for one month, far short of what was needed.
Instead of spending his entire budget, which would have been gone in a matter of weeks, the mayor decided to put the money on deposit with a local savings bank and issue labor certificates. The deposit served as a backing or guarantee for the town’s own cooperative currency, which became known as simply the Wörgl. Untergugenberger’s idea was to get the town back to work and the economy moving again. So he designed the Wörgl currency to function solely as a medium of exchange. To that end, a demurrage charge was applied through a stamp affixed each month at 1 percent of face value. Like all other demurrage charges, this relief tax acted as an incentive to keep the currency in circulation. Everybody who was paid with the Wörgl made sure he or she spent it quickly before the stamp’s date expired.
Interestingly enough, only the railway station and the post office refused to accept the local money, most likely because they were part of the national government. When people ran out of places to spend their local currency, they would pay their taxes early, resulting in a huge increase in the town’s revenues. Over the 13-month life span of the Wörgl, the town council not only carried out all the intended works projects but also went on to build new houses, a reservoir, a ski jump, and the famous bridge. The people also used their cooperative currency to replant forests, planning ahead to generate revenues from felling mature trees for timber.
Alex von Muralt, who made an in-depth investigation of the Wörgl at that time, reported the mayor’s delighted comments that “taxes were eagerly paid,” sometimes even in advance. Von Muralt concluded, “This eagerness to pay taxes may be, in my opinion, simply owing to the fact that the businessman who finds, at the close of the month, that he holds a considerable amount in relief money [Wörgl], can dispose of it with the greatest ease and without loss by meeting his parish [local tax] obligations. A change of attitude has manifestly taken place. If formerly the paying of taxes was deferred to the last, now it occupies first place.”2
People in line to cash in their Wörgls.
Wörgl soon became the only town in Austria with full employment. As pointed out in Chapter 5, local currencies are exchanged more frequently than conventional money because the latter is used for savings as well as exchanges. It is estimated that the Wörgl stamp scrip circulated in transactions from 12 to 14 times more frequently than the national currency,3 a major factor in the town’s recovery.
According to Irving Fisher, “Free money may turn out to be the best regulator of the velocity of circulation of money, which is the most confusing element in the stabilization of the price level. Applied correctly it could in fact haul us out of the crisis in a few weeks. … I am a humble servant of the merchant Gesell.” 4
Word of the success of this cooperative currency spread like wildfire. French Prime Minister Edouard Dalladier even made a special visit to see for himself the miracle of Wörgl. Soon more than 200 other towns and villages in Austria wanted to use this system as well.
It was at that point that the Austrian Central Bank panicked and decided to assert its monopoly rights by making it a criminal offense to issue Wörgls. The town of Wörgl, almost overnight, returned to 30 percent unemployment.
THE GERMAN WÄRA SYSTEM
By 1923, the monetary situation in neighboring Germany was wretched. Prior to World War I (1913), one U.S. dollar was worth 4.2 German marks.5 By the time inflation peaked in November 1923, the exchange rate for one dollar was 4.2 trillion marks. A postage stamp cost billions, a loaf of bread required a wheelbarrow full of money, and 92,844,720 trillion German marks were in circulation.6 Daily wage negotiations preceded work. Salaries were paid twice per day and were spent within the hour.
Based on Gesell’s teachings, an organization was formed in Germany in 1929 to “fight stagnation of the market and unemployment.”7 Called the Wära Tauschgesellschaft (the Wära Trading Company),8 it issued demurrage-charged wära bills. The term wära is a combination of the German words ware (“goods”) and währung (“currency”). Wära, demurrage-charged scrips, were circulated for a period of one year, at the end of which they could be traded for new ones.
The wära, like the Wörgl, drew international attention when it was used by a local entrepreneur to help save the coal mine in the small town of Schwanenkirchen. Like many other businesses in Germany during this severe economic downturn, the mine had filed for bankruptcy and was shut down. Max Hebecker, the former production engineer, had a chance to purchase the mine for 8,000 Reichsmark, far below its estimated value. As Hebecker had no access to a bank loan, however, he decided to apply the concept of the wära. He gathered the workers and explained that the coal mine could be reopened and they could work again if they were willing to be paid in wära. This currency would be backed by the coal they were extracting, rather than national currency. A predictably lively exchange between the miners, villagers, and local shopkeepers followed. In the end, all agreed to accept payment in the new wära currency.
The wära stamp scrip not only saved the coal mine and the town but also began to circulate nationally. Soon, over 2,000 corporations throughout Germany began accepting and paying each other with this local money. A growing number of banks even opened wära accounts.
Here again, the Reichsbank, Germany’s central bank, felt threatened by the wära’s enormous success and by other local currencies in circulation during the 1920s. With the enlisted help of the government, these cooperative currencies were declared illegal in October 1931 through the “Brünningsche Notverordnungen.” 9
RISE OF THE NAZI PARTY
The repression of cooperative currencies, together with other anti-inflationary decisions by the Reichsbank, led to a sharp decline in the German money supply.10 As a result, the Schwanenkirchen mine and hundreds of other businesses were forced to shut down, and unemployment soared again. As helping themselves on a local level became increasingly more difficult for people, advocates of centralized solutions gained appeal. In the beer halls of Bavaria, an obscure Austrian immigrant began drawing audiences to his fiery speeches that promised a return to jobs and glory. His name was Adolf Hitler.
What was Hitler’s formula for political success? No one knew better than Hjalmar Schacht, chairman of the Reichsbank and considered the leading German central banker of his generation.11 According to Schacht, the Nazi Party’s popularity was primarily fueled by “poverty and unemployment.”12
The statistics invite conjecture: Between 1924 and 1930, the period when cooperative currencies were in their greatest use in Germany, unemployment hovered around 1 million people. During that same period, the percentage of seats held by the National Socialist (Nazi) Party declined from 6.6 percent to 2.6 percent. In contrast, as the cooperative currencies were outlawed and unemployment shot up by almost 500 percent in just three years,13 the percentage of seats obtained by the Nazi Party climbed first to 18.3 percent in 1930, then to 43.9 percent by the end of 1933, enough to bring Hitler to power.14
THE UNITED STATES
During the Great Depression of the 1930s, the success of the Wörgl experiment caught the attention of U.S. p
olicy makers struggling with unprecedented unemployment in their country. Key conversations ensued between Irving Fisher, the Yale economics professor; Professor Russell Sprague from Harvard; and Dean Acheson, undersecretary of the Treasury. All three became convinced that the Wörgl model offered a way out of the Depression. Economist Fisher stated for the record, “The correct application of stamp scrip would solve the Depression crisis in the United States in three weeks!”15
The idea of stamp scrip was, therefore, recommended to President Roosevelt. As reported by Fisher, though Roosevelt was himself impressed, the final decision on whether to officially endorse cooperative currencies was left to advisors, who instead favored a series of new centralized programs for which political credit could be more easily claimed. These new programs included the expansion of the Reconstruction Finance Corporation and large-scale work-creation projects managed by the federal government, all part of what would become popularly known as the New Deal. Roosevelt announced by executive decree that he would prohibit emergency currencies, the code name given for cooperative currencies. This decree applied to any and all such currencies then in existence and any that might be proposed.16 The United States thus chose not to take advantage of such monetary innovations to address the economic crisis of the 1930s.
Contrary to popular belief, the centralized initiatives taken by the Roosevelt administration did not actually pull the United States out of the Great Depression. Certainly, the centralized initiatives and programs enacted did assist in providing valuable employment to many hardworking people. But most economic historians today agree that for the United States, as well as for Germany and Austria, it was the economic shift in preparation for, and eventual participation in, World War II that ended the Great Depression. Roosevelt himself admitted that much when he stated, “It was Dr. Win-the-War, not Dr. New Deal that ended the Depression!”17