Wooden Money? A Depression-Era Experiment Returns

Image via Wikimedia Commons.

Economic downturns are vicious cycles. Brought on by an external shock, the widespread shortage of disposable income within a community can become self-perpetuating. Consumers aren't buying, so sellers can't keep up production, people lose jobs, and now consumers are buying even less.

And yet the number of hours in the day we have to produce stuff for each other, or do useful work for each other, hasn't changed. So what if there were a way to short-circuit that vicious cycle of lost spending power? Centuries of booms and busts haven’t taught us a foolproof answer to this dilemma. But one response that has been attempted throughout history—including, famously, during the Great Depression—may be due for a resurgence: local currency, or scrip.

CNN reports on the revival of a Depression-era experiment in the tiny town of Tenino, Washington:

In Tenino—a community of less than 2,000 people halfway between Seattle and Portland—residents who can demonstrate an economic hardship caused by the pandemic can receive up to $300 a month in wooden dollars, subsidized by a City Hall grant program.

The bills are made of wood veneer and are each worth $25. They can be used to purchase necessities and services from licensed or certified providers, as specified in the guidelines by Tenino's City Hall.

…. Many stores and restaurants in Tenino now accept this alternative currency, which they can exchange for US Dollars at City Hall.

“We basically treat the wood money just like cash,” Chris Hamilton, the store manager at Tenino Market Fresh, told CNN. People have used the wooden bills to purchase groceries and home repair items at his shop.

“With so many people having financial troubles right now and not being able to work, it definitely helps,” he added.

“The nice thing is it keeps the business in town,” Hamilton said. “The currency is only good in Tenino, so it helps promote the small town and keep business local. It's a two-fold win for people.”

Tenino has a long history with this: it did the same thing during the Great Depression. In 1931, the small logging town’s only bank closed, and local businessmen decided to print their own currency to allow local commerce to continue. The experiment was short-lived, but the same newspaper printer used 90 years ago to print wooden dollars is being used today.

To be fair, Tenino’s present-day experiment is extremely limited in scope, and because it's means-tested and available only to low-income residents, it functions more like a local alternative to food stamps or TANF than like a general-purpose currency intended to circulate indefinitely within the town. But not all such programs are intended to be so limited.

BerkShares. Image via Twitter

Longer-lived local currencies are often seen today primarily as a buy-local program designed to combat the rise of chain businesses and keep money circulating within a local economy. A well-known example is BerkShares, a currency used only in the Berkshire mountains region of western Massachusetts. BerkShares (B$) are pegged to the dollar at an exchange rate of 100 B$ to $95, but can be spent like dollars at face value at over 400 local merchants, providing an effective 5 percent discount and an incentive to shop local. According to the Center for New Economics, there are over 140,000 B$ circulating at any one time.

Local currencies, structured differently, can also do something more radical. A hyper-local currency known as stamp scrip is designed to rapidly inflate and thus provide an incentive to spend quickly—and to spend locally. In a financial crisis, stamp scrip is meant to be a jump start for a local economy that, because of the limited scope, doesn't have the risks associated with federal tinkering with the macro economy.

Stamp scrip is described in an article by the Cleveland Fed as money that people must pay a fee to hold:

What made stamp scrip unique among scrip schemes was a series of boxes on the reverse side of the note. Stamp scrip took two basic forms—dated and undated (often called “transaction stamp scrip”). Typically, 52 boxes appeared on the back of dated stamp scrip, one for each week of the year. In order to spend the dated scrip, the stamps on the back had to be current. Each week, a two-cent stamp needed to be purchased from the issuer and affixed over the corresponding week’s box on the back of the scrip. Over the coming week, the scrip could be spent freely within the community. Whoever was caught holding the scrip at week’s end was required to attach a new stamp before spending the scrip. In this scheme, money became a hot potato, with individuals passing it quickly to avoid having to pay for the next stamp.

….

Stamp scrip was issued by municipalities, civic organizations, business organizations, and individuals. Municipalities issued stamp scrip as a source of revenue. The Great Depression caused an erosion in taxpayer income, an increase in taxpayer delinquency rates, and even tax strikes in some communities. All of these took their toll on municipal revenues. Municipalities could make up the shortfall by making purchases and paying workers with stamp scrip. Civic organizations issued scrip to promote employment and various civic projects.

Because you have such a powerful incentive to spend stamp scrip in a hurry, rather than save it, it can stimulate a good deal of short-term economic activity. Because that activity is local, the boost is felt quickly close to home, and the kind of activity people will invest in is that which directly affects their community in a positive way.

In Wörgl, Austria, stamp scrip introduced in 1932, while a third of the population was unemployed, circulated through the local economy 14 times faster than the national schilling. The result was that the city was able to fund public works projects including, per one account, “repaving the roads, streetlighting, extending water distribution across the whole town, and planting trees along the streets.” Wörgl residents also used scrip to replant forests. The Wörgl experiment drew worldwide attention, including that of John Maynard Keynes—it is, in some ways, a micro version of the kind of deficit spending Keynes would prescribe for national economies mired in depression.

If you really want to dig deep, political scientist Loren Gatch at the University of Central Oklahoma has written a more extensive review of the use of scrip in the United States during the Great Depression. It emphasizes that scrip was not something that arose in a coordinated fashion from a consistent economic theory or analysis, but rather a hodgepodge of “eclectic responses to specific economic problems created by the Depression.” I would suggest that the eclectic aspect is not a weakness but a strength: perhaps even the point. It is chaotic but smart.

This isn't a panacea for what ails the macro economy. Or necessarily even locally: it’s more of a temporary stopgap measure. Virtually no local economies even come close to the ability to be self-sufficient, and to the extent that all towns are reliant on trade with the outside, a scrip scheme cannot make an economically unproductive place wealthy.

What it is is a way to facilitate the local transactions that lead to us working together at the local level to meet local needs, despite what's going on in the macro economy. And when we do that, we find there's a lot of good work we can do.

Tenino’s revival of its own Depression-era experiment is in this spirit, as the CNN story makes clear:

The Latin phrase engraved on the bills is meant to translate as “we've got this handled,” Fournier explained.

“That's how we feel we have to do things around here, no one is coming to help. We have to step up and do it on our own.”

“You have to pull yourself up by the bootstraps,” Fournier said. “If we can inspire other communities to do that, we're all going to be better off.”

Cover image via Wikimedia Commons.

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