The Future of Money | Part Two – Chapter 5 | Bernard Lietaer (1999)

Reproduced from:

The Future of Money © Bernard Lietaer March 1999

The Future of Money:

How New Currencies Create Wealth, Work and a Wiser World

(Book #2 – US Version)

June 1999

Copyright by Bernard A. Lietaer

  • The Information Age has already spawned new kinds of currencies: frequent flyer miles are evolving toward a “corporate scrip” ( a private currency issued by a corporation) for the traveling elite; a giant corporation you never heard of is issuing its own “Netmarket Cash” for Internet commerce; even Alan Greenspan, Chairman of the Federal Reserve, foresees “new private currency markets in the 21st century.”
  • 2,600 local communities in the world, including over a hundred in the US, are now issuing their own currency, independently from the national money system. Some communities, like in Ithaca, New York, issue paper currency; others in Canada, Australia, the UK or France issue complementary electronic money.

PART TWO: Choosing Your Future of Money

“Sure, money’s all wrong, and the devil decreed it;
It doesn’t belong
to the people who need it.”
Piet Hein, Danish physicist

“Money is a mode of organizing our life in the material world;
money is an invention, a mental device, very necessary, very ingenious,
but, in the end, a product of the mind.”
Jacob Needleman1

“Money to be money […] does not have to be legal tender. It can be what one might call ‘common
tender’, i.e. commonly accepted in payment of debt without coercion through legal means.”
Richard Timberlake

In Part One we became mindful of the old money story; in Part Two we will explore some new ones. We saw that the conventional national money system enforces a competitive ethos in all aspects of economic life. In contrast, other money systems have now been implemented which have proven compatible with cooperative values. They enable us to attain socially desirable aims with less regulation, taxation and bureaucracy than has ever been thinkable. However, to seize that opportunity we need to become aware of the implications of different money systems, and of the pragmatic options available.

In Chapter 1, I illustrated through the Time Compacting Machine how the transition from the Industrial Age to the Information Age will be one of rapid change entailing a whole range of adjustment problems for everybody in society. The core idea of Part Two is simple: the possibilities offered by money innovations to tackle some of the key problems in this transition are extensive, and have remained so far mostly untapped.

This does not mean that we should expect the national currencies to disappear, replaced with another kind of money. Instead, what is already happening is that other parallel currency systems are developing to complement the existing system, to fulfill roles that the national currencies do not, cannot, were never designed to play.

A Note for Economists

This book was written for the general public, not for economists. However, as the solutions presented here affect economic processes, input by economists are relevant, and a few of the sidebars will be dedicated to providing answers to potential objections.


Neo-classical economics defines three different types of quantities of money:

M1 = Money issued by Central Banks, also called “High Powered Money” (see Primer for more details)

M2 = M1 + checking accounts and short-term deposits (up to 1 year)

M3 = M2 + savings accounts and longer-term deposits (up to 4 years)

Let us now define M4 as M3 + Complementary Currencies whose emergence is described in this book. These complementary currencies involved in M4 include two types of non-conventional currencies:

  • commercial complementary currencies, such as barter-currencies used by barter companies, frequent flyer miles, frequent purchasing bonuses, and other types of loyalty currencies;
  • socially motivated complementary currencies including all those described in the next chapters (LETS, Time Dollars, etc.)

The non-conventional currencies whose quantity is captured by M4 have now become increasingly important in the economic system. They clearly facilitate transactions that otherwise would not occur. The commercial complementary currencies involve both substantial volumes and significant corporations all over the world; while the socially inspired systems, although less important from a volume viewpoint, are significant in terms of resolving problems such unemployment, community creation and other functions.

M1, M2 and M3 measure quantities of money originating from different sources, but deal all with the same currency. In contrast, M4 deals with different types of currencies, including currencies whose unit of account is different than the national currency (e.g. Miles, or Hours). The emergence of M4 poses therefore many questions that have yet to be formally evaluated such as their impact on the economy, on unemployment, or on inflation. While this books deals with some of the issues qualitatively, a formal quantitative expression still needs to be formulated. Topics for some interesting thesis work?


One objection to complementary currencies is that their introduction may be economically less efficient than a single national currency.

This objection is valid from a purely theoretical economic viewpoint. However, in practice, some 80% of complementary currencies use the national currency as a reference (e.g. “Green Pounds” in the UK, “green dollars” in Australia, etc.). In those cases, the efficiency of the price formation process in not affected at all. Most of the other ones tend to use the hour as a unit, which particularly in the services domain doesn’t create a problem either.

However, conceptually the possibility nevertheless exists that new units would be introduced in the exchanges (eg. Miles for the airline industry). In those cases, price efficiency could indeed be affected. However, it should be noted that the economy is only a subpart of society, and human society a small part of the global ecosystem. Not the other way around. In any system, the implications of the optimization of a subpart should take into account its impact on the larger system. If your stomach were to optimize its throughput regardless of the impact on the rest of your body, it may kill you. Not a good outcome for yourself or – for that matter – your stomach in the long run.

It is unquestionable that social, political or ecological breakdowns have dramatic economic implications. In the inverse direction, I will show that specific money systems induce symptoms like community breakdown and financial short-sightedness. That is why a whole systems approach will be used here to integrate such social and ecological “side-effects” of money systems. In short, transdisciplinary trade-offs between pure economic optimality and other priorities need to be considered. There are ample historical precedents for this approach, including in the monetary field. For instance, on the basis of economic efficiency alone, one could argue that we should have been using all along only one single global currency, instead of the 170 different national currencies currently in operation. However, we have been using all these different national currencies because the priority of creating a privileged geographical area for exchanges that build national consciousness was deemed more important than the pure economic efficiency of a single global currency.

The monetary innovations described in Part Two illustrate a similar give and take. They therefore should be evaluated as early prototypes of social tools that facilitate a trade-off between their broader benefits and pure economic efficiency.


A traditional economic hypothesis which this book challenges is that “money is value neutral”, i.e. that money is simply a passive medium of exchange which does not affect the transaction or the relationships among the users of a currency. Under such an assumption, a currency simply facilitates an exchange, but does not otherwise modify the transaction. In contrast, the claim here is that the characteristics of a currency (such as how it is issued, its perceived scarcity, and whether it bears interest or not) does affect the nature of the exchange and ultimately the nature of the relationship between the people which use it. My arguments in favor of this view do not come from economic theory, but from two other sources of evidence: empirical observation and psychological theory.

Empirically, users of some types of the complementary currencies claim that they experience such a difference, they even claim that they go through the trouble of dealing with two currencies specifically for that reason. A short sampling of such testimonials is provided in chapters 5 and 6.

The psychological theory argument is one that all marketing specialist will amply support: humans are not primarily rational beings, but rather more complex emotional beings. The traditional hypothesis of a totally rational “economic man” dates back to Adam Smith, a century before the discovery of the unconscious by Freud and Jung. I propose that this simplistic model should be completed with a more comprehensive map of human emotional motivations. The empirical evidence that this is justified includes the “irrational” boom and bust financial manias which have been periodically plaguing our Modern economic systems for more than two centuries, as well as historical evidence on how different monetary systems have been shaping other societies. However, presenting such evidence on the emotional dimension of money requires more space than can be allocated here, and is therefore fully presented elsewhere.3

Why not a Radical Money Reform?

Given the problems of the conventional currency system, why not simply replace it? Why propose only “complementary currencies” which are designed to function in parallel with conventional money, leaving intact the prevailing bank-debt system?

The short answer is that in every generation of economists, there have been unsuccessful proposals for replacing the official money system with “better” ones. The lock-in between the political, legal, banking and institutionalized monetary system has proven invariably too tight to break, even when the proposals came from the most influential economist of his time (such as Keynes’ proposal for his bancor) or when they were supported by substantial popular movements (such as Gesells’ Freiwirtschaft (‘Free Economy”) movement between the two wars).

Just a reminder: the objective here is not to design a theoretically perfect system, but more modestly to identify potentially useful monetary tools that have a fighting chance to be implemented.

Chapter by Chapter Outline

Throughout Part Two we will play a game: let us define an objective and design a new currency that will promote it.

For instance, if we want to reduce joblessness without inflation we will see that well over a thousand communities — particularly in Australia, New Zealand, Canada, Brazil, and Northern Europe — have already started using their own complementary currency with significant results (Chapter 5: Work-Enabling Currencies).

Similarly, a growing number of grass-root initiatives are tackling the sense of loss of community occurring worldwide by introducing cooperation-inducing community currencies. (Chapter 6: Community Currencies).

Various practical issues involved in setting up such currency systems are analyzed, such as their legality, their tax implications, and their impact on inflation from a Central Bank regulatory perspective. (Chapter 7)

If we want to reconcile the conflict between ecological sustainability and economic growth, a new kind of global currency could muster the massive resources of the multinational corporations to get us there. (Chapter 8: A Global Reference Currency – Making Money Sustainable)

This multiplication of different currencies for different purposes does not have to create chaos. In fact, all the pieces of the new money puzzle can fit nicely together if we just look at the broader context (Chapter 9: A Broader View).

The whole even constitutes a coherent skeleton around which Sustainable Abundance can be built. (Chapter 10: Sustainable Abundance).

Chapter 5: Work-Enabling Currencies

“Change occurs when there is a confluence of both changing
values and economic necessity, not before.”
John Naisbitt4

“The lack of money is the source of all evil”
Bernard Shaw

“Life and livelihood ought not to be separated but to flow from the same source, which is spirit.
Spirit means life, and both life and livelihood are about living in depth,
living with a meaning, purpose, joy,
and a sense of contributing to the greater community.”
Matthew Fox

“People who say it cannot be done
Should not interrupt those who are doing it”
Jack Canfield and Mark Victor Hansen5

The Time Compacting Machine “money question” being addressed here is “how can we provide work to billions in an era of jobless growth?” (Chapter 1)

This topic will be tackled by exploring the following five core ideas:

  • The nature of unemployment has changed over the past decades, and this process will accelerate as the Information Age takes further hold.
  • The traditional ways to handle unemployment are increasingly going to fail.
  • In areas with high unemployment, people have already demonstrated that living conditions can be significantly improved by creating their own complementary currencies instead of just relying on welfare. Surprisingly, it is not the first time that such solutions have been successfully implemented in the Modern world. During the 1930’s many thousands of such initiatives were operational in the US, Canada, Western Europe and other areas affected by the Depression.
  • Complementary currencies could become a key tool to buffer a region from the shocks caused by failures and crises in the official money system.
  • Finally, this approach is a win/win for both locally owned businesses and society at large.

An Important Distinction

There is definitely enough work for everybody on the planet, but there are clearly not enough jobs.

A “job” is what people do primarily to obtain money, “simply to make a living.” “Employment” will be used as a synonym jobs in this context. “Work” in contrast is performed primarily for its own sake, for the pleasure derived from the giving, or the passion expressed in the activity itself (see sidebar).

Jobs vs. Work

  • The word “Job” is recent; it dates only from the Industrial Revolution. It was initially defined as a “pile of things to be done,” or even more precisely “something done for hire, with a view for monetary profit.”6
  • “Work,” in contrast, is a very old word. Its first appearance in English dates from the Aelfric Homilies (11th century): : “That work was begun under God’s will.”7 It still has that connotation when referring to a “work of Love,” a “work of Art,” a “work of Mercy.” In English the word “work” and “worship” have the same root. Some languages, such as Hebrew, still use the same word for work and worship today.

Many signs point to the idea that a “job” for everybody, which became prevalent only during the Industrial Age, may be dying with that Age.

A lucky minority has jobs which are also their work. Successful artists always combined the two. Similarly, the real geniuses in any field – whether it is in business or healing, the military, education, academics or politics – always “followed their bliss,” as Joseph Campbell put it so eloquently. However, these cases are still the exception rather than the rule.

Would you continue doing what you are doing if you had all the money you will ever need? If the answer is yes, you are among the fortunate ones whose work and job coincide. How many people do you know who would continue their job, if they didn’t need the money?

Anything that may help people enjoy what they are doing should be welcome. As a Chinese proverb goes:

If a person has joy in what he does
There will be harmony in the work
If there is harmony in the work
There will be order in the nation
If there is order in the nation
There will be peace in the world.

The Connection to Public Health

The evidence is that jobs without meaning can make you sick and even kill you. The prestigious Canadian Institute for Advanced Research reached the startling conclusion that “medical services have little if any effect on national health levels.” Instead, what most influences health is a work situation where people are in control of their lives. The difference in life expectancy between rich and poor is explained primarily by the amount of control they have over their lives.. “Something is killing the great lower classes of the modern world, grinding them down before their time. The statistics show it’s also killing the middle classes, who live longer than the poor but not as long as the rich.”8

The Money Connection

The problem with work is finding someone who will pay you dollars for it, i.e. make it a paid job as well. The scarcity in jobs is, therefore, a money scarcity, as economists have known since Keynes. But does money have to remain scarce? Why not create your own money in sufficiency to complement the scarce national currency, and thereby enable more work to be paid? Sounds crazy? Too simple?

It is nevertheless what many communities in various parts of the world have already done. I will show later that the results of such money innovations prove that this process is effective in practice, why it does not create inflation, and which prototypes are the best candidates for generalization.

But at this point, let us first establish the nature of the job problem, and how it has changed over the past decade – irrevocably.

Unemployed? Who? Me?

Today’s Job Problem

Information Age Unemployment in the Making

  • A robot is being tested to perform hip replacement surgery.
  • The first novel written in its entirety by a computer program – a torrid romance rated no better or worse than the average – was published in New York in 1993.
  • The latest performance by the Washington Opera Company of Don Carlos had only the conductor, two pianists and a synthesizer in the pit.
  • In 1993, Sears eliminated 50,000 jobs from its merchandising division, reducing its work-force by 14%. That same year sales went up a nice 10%. This was before the emerging trend toward electronic home shopping even started.
  • The electronic home shopping cyber-malls are expected to take over 20% of the two trillion-dollar-a-year retail market by 2007 (the largest of the service sectors, where all the new jobs are supposed to come from).
  • The frontal attack against government bureaucracies closes off another area in which jobs were created in the past.
  • For instance, the future of diplomatic services for the the British Government may include replacing some ambassadorial functions with “virtual posts” run by computer.9

Conventional wisdom states that unemployment is mostly a blue-collar problem, and only a temporary one at that. But these assumption are now hopelessly out of date, even in activities which have long been considered immune to technological obsolescence or corporate layoffs (see sidebar):10

As far as the “temporary” nature of unemployment is concerned, it is often implicitly assumed that – as in previous business cycles – the economy will pick up and the demand for labor will follow.

Theory predicts that “frictional” unemployment is indeed to be expected. It is part of the market allocation system that some people will be in-between jobs, even in a booming economy.

However, millions of people around the world are starting to wonder.

How can one explain that the “frictional” unemployment level is slowly creeping up decade after decade? This is even more alarming if one takes into account that people’s ability to move around and the efficiency of our information systems to match jobs with people has increased over the same time period.

For instance, the US average unemployment

for the decade of the 1950s stood at 4.5%
in the 1960s it crept up to 4.8%
in the 1970s it reached 6.2%
in the 1980s it stepped further to 7.3%.

For the 1990s, the official statistics of American unemployment appear to be reversing this trend. They show a return to the level of the 1950s. However, the “dirty secret” of this exception is a substantial deterioration of American working conditions and pay, reflecting the scramble for jobs worldwide. US wages peaked in 1973 and have been declining ever since, compounded by the fact that Americans work longer hours than they did two decades ago. “Bill Clinton has created ten million jobs – and two of them are mine” was one complaint heard in worker’s circles during Clinton’s 1996 re-election campaign. Predictably, there is a lot of dispute about whether the US became competitive with the Third World by forcing Third World standards of living on its workers. Even Fortune Magazine has been wondering why “nearly half of all the new full-time jobs created in the 1980’s paid less than $13,000 a year, which is below the poverty level for a family of four.” Also, education levels don’t necessarily help anymore. As reported by the Wall Street Journal, one college graduate out of three is now obliged to take a job which doesn’t require a college degree.11

In Western Europe, the unemployment rate has been stubbornly stuck at a very uncomfortable 10% level for almost a decade. At the end of 1998, in Germany the official number is 10.8%, in Italy 12.3%, in France 11.5%, in Belgium 12.2.1%, and in Spain a mind-boggling 18.2%.

John Grimes Cartoon

The main difference between America and Europe is that in America, people end up accepting employment below their competence and training. Is a college graduate flipping hamburgers to be interpreted as a sign of a healthy economy and the high-tech society of the future? One graduate of the class of 1996 summarized his friends’ experience of the ‘real working world’ as follows: “Half of us are ridiculously overworked, and the other half are seriously under- employed. It seems like a choice between workaholism or depression, and nothing in between. And this is supposed to be a good year for the economy!”

Even in Japan, where employment by the same company is practically considered a birthright, unemployment keeps inching up.

What is going on?

The Age of Downsizing

Most of us have been trained to believe that we learn a profession, are hired by a company to perform a job in that profession, and – if we do all the right things – we will move up through the ranks until retirement. But this whole idea has already become as obsolete as the dodo.

For the past three decades businesses have invested billions of dollars in information-processing equipment. The rate of growth of such investments has been higher than any technology in history. For instance, the share of Information Technology investments in US firms has jumped from 7% of total investments in 1970 to 40% in 1996. Add the billions of dollars spent on software, and the amount spent on Information Technology, annually, now exceeds investments in all other production equipment combined.12

To understand the true scale of this, one needs to multiply this extraordinary increase in dollar investments by the even more remarkable drop in unit cost. Computer processing costs have continued to drop by 30% per year for the past two decades, and all experts agree this will continue for at least another decade or two.

Initially repetitive tasks were computerized in one area after another of the corporation. However, all computer applications were really being built around the existing organizational structure and management procedures. One day someone thought to reverse the process by asking the simple question: “how should we organize ourselves to best take advantage of the available information technologies?”13

Re-engineering was born. So were “strategic layoffs.”

In all fairness, such layoffs were not the intent of the original re-engineering inventors. One of the earlier pioneers was Thomas Davenport, research VP at CSC Index (the ‘home’ of Reengineering).

In an article in Fast Company, Davenport reported that: “Re-engineering did not start out as a code word for mindless corporate bloodletting. It wasn’t supposed to be the last gasp of Industrial Age management. I know because I was there at the beginning. I was one of the creators…. But the fact is, once out of the bottle, the re-engineering genie quickly turned ugly.”14

And like all genies, it cannot be put back into the bottle.

Large corporations worldwide have been shedding people at a rate of between one and two million people per year. And this is happening for the first time at all levels in the corporation. When Kodak reduced its number of management layers from thirteen to four, a lot of people who never thought it could happen to them found themselves out of a job. Of course, a lot of new jobs are being created outside these corporations, but they usually do not measure up in terms of income level or security that people were used to and had grown to expect.

Oswald Huber
“Cost Cutting Inc.”

What is important to realize is that these “strategic layoffs” are of a totally different nature from the normal cyclical layoffs of yesteryear. It was considered normal for example that factory workers would be let go whenever inventories of finished goods piled up as the business cycle moved into low gear. They would also be hired back as soon as these inventories were absorbed and the good days of the cycle returned. But with strategic layoffs, there is no reason to expect that the business cycle will reverse the trend. What is going is gone forever. Growth without increased employment is not a forecast; it is an established fact. William Greider’s statistic is worth repeating: the world’s 500 largest corporations make and sell seven times more goods and services than 20 years ago, but have managed simultaneously to reduce their overall work-force.

Even the people who remain or are hired in these corporations face a very different process from previous times. The old criteria for hiring used to be the matching of job specifications to the classical three E’s: Experience, Endorsements and Education.

Today everything is different at the pace-setting corporations such as CNN, Intel or Microsoft: “Nobody has a job. Even if someone is hired for a job, we forget about that as soon as he or she is in.

The work is being done mostly in project teams which may often include outsiders. People have assignments, ‘own’ a problem or an opportunity, but not a job.”15

In addition to straightforward layoffs, the need for additional flexibility has pushed corporations to redefine their own boundaries by:

  • Outsourcing: Xerox machines are being installed by Ryder truck drivers; Commodore computers are being repaired by the Fedex personnel which used to only deliver the parts.
  • Delocalization: One of the largest US insurance companies, Metropolitan Life, is billing from Ireland; British Airways is handling its accounting in Bangladesh; California software companies are debugging from India.
  • Temping: probably the most significant of all these new trends from a society viewpoint. The single largest employer in the US is now Manpower, whose business is to place temporary personnel in corporate jobs.

If you believe that all this is happening only in ‘“greedy private businesses,” think again. Even the military – historically a rather eager employer of able bodies – is embracing the new way of thinking. The 1997 strategic review of America’s defense capabilities concluded that as many as 50,000 active-duty troops should be cut, especially in the army, to help pay for weapons such as computerized artillery systems and electronic detectors of biological weapons. The Quadrennial Defense Review, analyzing what will be needed from now to 2010, has focused on cutting “infrastructure costs” (now 40% of total Defense Department appropriations). This covers everything not directly related to its “core competence” of fighting wars: from the military bases’ cafeteria managers to schoolteachers, day-care centers to accountants. You guessed it: they are now “privatizing” and “outsourcing” these functions.

None of this should be seen as a short-term fad. A UK survey funded by the Department of Education and Employment and published by Business Strategies, a consultant company with close links to the Treasury, concludes that no new full-time employment is to be expected in Britain during the next ten years.16 While an optimistic forecast is supplied for self-employment and part time jobs totaling 1.5 million over that time period, none is expected to come from what was once considered ‘normal’ full-time jobs.

Nor should any of this be considered as a purely Anglo-Saxon trend. A survey of 4720 organizations in fourteen European countries performed by the Cranfield School of Management on behalf of the European Commission reports a staggering increase in part-time or fixed-term (up to 3 months) employment even just in the past year. The largest increase was in the Netherlands, where 70% of the corporations increased their use of part timers. More than 50% of the German, Italian, Finnish and Swedish corporations are now doing the same. The rest of Europe has registered an increase in “only” 30% to 50% of the corporations.17

Dr. William Bridges, an expert on employment trends, asks the question: “What is the percentage of jobs which are performed by temporary labor?” Most people’s estimates fall in the range between 2% and 20%.

His answer: “In fact, it is 100%; 85% of us still happen to be in denial.”18

Economic Consequences

The International Metalworkers Federation in Geneva forecasts that “within 30 years, as little as 2 percent of the world’s current labor force will be needed to produce all the goods necessary for total demand.” The interesting question is, of course, what will the other 98% do?

Some may argue: So what, jobs are disappearing? It has all happened before:

  • in 1800 over 80% of the US population was occupied in farming;
  • by 1900 this was down to 48%;
  • by 1950 to 11%,
  • and now to an insignificant 2.9%.

And that 2.9% not only feeds the entire nation better than the 80% ever did, but it feeds a good deal of the rest of the world as well! All these people who moved out of farming found jobs in the cities in industry, the trades, and services.

This is, of course, true.

However, there is a structural difference when we are dealing with an Information Revolution instead of an Industrial Revolution. A farmer became a stagecoach maker, and the stagecoach maker could learn how to make automobiles.

Every time he would change jobs he also would earn more money than before. But what is a no-longer-needed information handler to do, flip hamburgers? (Sidebar).

Paul Krugman vs. Wiliam Greider and Robert Reich

In a series of witty essays19 Paul Krugman has sent a broadside to the best-selling books20 of a famous journalist (William Greider) and a Secretary of Labor of the Clinton Administration (Robert Reich). He attacks what he calls “emotionally satisfying myths” relating to a potential job crisis due to technology changes. Krugman’s punches fall in two categories:

  • He attacks the “lump of labor fallacy” i.e. the idea that there is only a limited quantity of jobs in the world, and therefore as productivity rises the number of jobs available automatically is reduced. He counters with the argument that while productivity gains in one sector may indeed provoke job losses in that sector, it stimulates even more job creation in other parts of the economy. And he provides the classical example of productivity increases and job losses in the manufacturing sector over the past thirty years being more than compensated by new jobs in the service sector.
  • Much of the debate about the relationships between globalisation, trade, technology and jobs are really irrelevant because “if you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: It will be what Greenspan wants it to be, plus or minus a random error reflecting the fact that he is not quite God.”21 This is so, because Greenspan can take all the impacts of changes in trade or technology into account, and adapt his monetary policy accordingly.


I fully agree with both these points. But I remain nevertheless concerned about the issue of jobs because of the following two questions:

  • Losing jobs in one sector while creating jobs in another sector may be OK from an overall statistical viewpoint, but it is not quite that simple for the individuals involved. If such change occurs over a generation, it was realistic and even quite consistent with the American dream that the child of a steelworker becomes an electronic engineer or a lawyer. But how realistic is it to hope that the laid-off steelworker himself will have the financial resources or acumen to recycle to the high-tech jobs which the new economy is creating? As the speed of change accelerates, the number of people caught between the old and the new growth sectors will predictably rise. What should these people do?
  • Why has roughly a third of humanity (most of it in the so-called Third World) been under- or unemployed for as long as we have data about it? An estimated 700 million people worldwide have been unemployed for decades. Krugman’s answer may be that this is not Greenspan’s concern. Nevertheless the Federal Reserve decisions directly affect millions of jobs around the world because of the dollar’s global role. When Paul Volcker decided to stamp out inflation in the US in the 1980’s he sent all of Latin America in a tailspin. In other words, I claim that the issue on global employment is not an economic management problem but an institutional predicament.

I also allege that the approach recommended later in this chapter could alleviate that issue by giving a role for currencies complementary to the national currencies that Greenspan and his colleagues manage. Furthermore, if such currencies are well designed they can help rather than hinder the aim of lower inflation on the national currencies (as will be shown in Chapter 7).

This time we may well remain stuck between a rock and a hard place. Because – while it makes sense for each corporation to improve its competitiveness by downsizing – this time all the pieces just don’t add up. When Henry Ford decided to make a car that was so cheap that his factory workers could buy it, he put in motion a virtuous cycle between more cars, more workers, more cars, more workers.

Oswald Huber Cartoon
“Career Advisory Services”

Jobless growth may very well turn this virtuous cycle into a vicious one, operating in the other direction. Every time people are laid off, or are forced to reduce their income, they are going to drop out of the market for at least some of these great new widgets that the corporations keep producing. Even if each corporation is better off at each step, the total market pie is shrinking, so cumulatively we may suddenly find everyone worse off, even the corporation itself.

The fact that this is a global game further complicates the picture. Plants that are being built in the Third World use technologies which are just as effective as those applied in the First World. And a decade of “structural adjustment” policies implemented by the International Monetary Fund have stripped away many of their skimpy social safety nets as well.

Keynes’ Foresight

John Maynard Keynes, in his Essay on Persuasion22, predicted over sixty years ago with remarkable foresight that a time would come when the production problem would be solved, but that the transition was likely to be a painful one:

“If the economic problem [the struggle for subsistence] is solved, mankind will be deprived of its traditional purpose. […] Thus for the first time since his creation man will be faced by his real, his permanent problem […] There is no country and no people, I think, who can look forward to the age of leisure and abundance without a dread. It is a fearful problem for the ordinary person, with no special talents to occupy himself, especially if he no longer has roots to the soil or in custom or in the beloved conventions of a traditional society.”

The writing is on the wall: we are in this predicament now.

From as far back in history as anyone can trace, people have been identifying with their jobs.. We still describe ourselves as stone cutters, professors, bankers, computer experts. In fact, many of our most common family names are derived from various jobs and professions: Smith, Fletcher (arrow maker), Potter or similar titles in living or dead languages. It goes back all the way to the stone age. In the earliest Sumerian tablets, the writer identifies himself as “So-and-so, the Scribe.”

If Keynes is right, we will for the first time in history be forced to reinvent ourselves, to find other ways to identify who we are. We won’t any longer be able to identify ourselves with these “production labels.” In other words, we will be forced to seek other identities, other reasons that give a purpose to our lives. Keynes concluded that “no country can look forward ..without a dread” to this unprecedented historic shift.

Nor was Keynes the only one to foresee such problems. Norbert Wiener, the originator of cybernetics, was also one of the very first to warn us of the social implications of computers: “Let us remember that the automatic machine [i.e. computer driven production equipment] …is the precise economic equivalent of slave labor. Any labor which competes with slave labor must accept economic conditions of slave labor. It is perfectly clear that this will produce an unemployment situation in comparison with which the present recession and even the depression of the thirties will seem a pleasant joke.”23

But are there not already some telltale signs of what that may look like?

Socio-Political Consequences

Within the existing framework, we can have a fairly good idea of what is going to happen. We just have to look around us: it is already happening. I call it the “vicious circle of unemployment.”

It involves a six step feedback loop as follows (see Figure 5.1)

  1. Unemployment creates a feeling of economic exclusion;
  2. Part of those touched express it through violence;
  3. Most ordinary people react to the violence with fear
  4. Community breaks down , society becomes unstable, political polarization increases
  5. Fewer investments take place, fewer things are bought
  6. The investment climate deteriorates. More unemployment is created

And the whole process starts all over again from the beginning.

Figure 5.1: Vicious Circle of Unemployment within existing framework

Let us visit this vicious circle step by step.

Economic Exclusion

“From the standpoint of the market, the ever-swelling ranks of the [unemployed] face a fate worse than colonialism: economic irrelevance… We don’t need what they have and they can’t buy what we sell.” This is how Nathan Gardels, editor of New Perspectives Quarterly, summarizes the linkage between unemployment and economic exclusion. It translates into the increasing realization by those concerned that there is no room for them in this society, that they don’t belong here.

When this happens to an individual, he or she usually becomes depressed (is it a coincidence that the National Institute of Mental Health in the US has declared depression a national epidemic?).

When this happens to a group (as is typically the case for the younger generation where unemployment is always higher than in the population at large), it is normally expressed as anger. Such anger accumulates until it explodes into a violent rage lashing back randomly at society at large, or at some specific scapegoats.


Niccolo Machiavelli (1469-1527) thought that: “It is necessary and useful that the laws of a republic give to the masses a legal way to express their anger. When this isn’t available, extraordinary outlets manifest. And there is no doubt that such events produce more harm than anything else.”24 Indeed, violence is usually the expression of frustration and impotence.

In a suburb of Lyon, France, a police car runs over and kills a teenager. Such a regrettable accident would normally make the news only in the local papers. But this was Vaux-en-Velain, a depressed working-class neighborhood where unemployment among the young is particularly high. Hundreds of young people took to the streets, clashed first with the police, then with the CRS (the special riot troops). The fighting lasted three days, and caused over $120 million in property damage.

The one point the residents and the government officials agreed upon was that the root cause of all the mayhem was the high unemployment levels of the youth.

The French sociologist, Loic Wacquant, made a systematic study of urban rioting in the developed world. The majority of urban rioters – independently of the country involved – have a common profile: they are formerly working-class youth which has given up on finding a job in the brave new world of the Information Age.

Fear by the Majority

The next step is an easy guess. How do most people react to random acts of violence against property and people? Fear is the answer.

Fear of what will depend on the interpretation given to the events, and this will vary in turn with the location, age, origin, social background, nationality of the observer.

It ranges from fear of all young people, fear of punks, fear of all immigrants, fear of Blacks in America, fear of Arabs in France, fear of Turks in Germany, to fear of ………. (please fill in the blanks for your area).

Political Polarization

Fear is to politics what the ocean is to an island. It draws the boundaries of the constituency, who you want to exclude and who you want to attract.

This is why politicians everywhere tend to blame another country whenever possible when there are particularly tough situations to deal with. Nobody can vote for them there. But unemployment and violence usually results in a need to focus blame to situations closer to home.

For example, one cannot distinguish whether the campaign slogan “These immigrants are the cause of your job problems” comes from a Pat Buchanan in the US, Zhirinofsky in Russia, Gianfranco Fini in Italy, or Jean Marie Le Pen in France. All have started a political movement just recently, and already attract between 10 and 20% of the voters. Finally, as unemployment and violence increases, these more extremist parties should be expected to grow

On election night 1994 in Italy, the neo-fascist leader Gianfranco Fini was greeted by young people (mostly unemployed) with chants of “Duce! Duce!” while his party won an unexpected 13.5% of the national votes. Commentators were amazed as to why young people – too young to have known Mussolini or experience nostalgia for his time – somehow spontaneously reinvented the same values and slogans used by their grandparents. It is, in fact, predictable.

As more extremist parties play a bigger role in our political systems, it gets harder and harder to “hold the center.” Positions become more polarized across the political spectrum, and maintaining a consensus becomes almost impossible. This can be fertile ground for extreme nationalism, all the way to “ethnic cleansing” such as what happened in Yugoslavia in the 1990s after the IMF imposed economic restructuring, or in Indonesia with killings of various minorities after the collapse of the Rupiah in 1998-99. Furthermore, these problems can even spread when populations flee the mayhem to take refuge in neighboring countries, and create new unemployment problems there..

Imagine what all that does to an investment climate.

Feedback to increased unemployment

Everybody takes a defensive position, reduces investments, and therefore the employment opportunities drop further.

This increasing unemployment will make us go through the entire loop once again: it is a vicious circle which – once started – is particularly difficult to break.

Case Studies

There are many historic and contemporary examples of this process. Entire countries have gone through it with devastating results. We could take several examples in Latin America, where political instability caused not only foreigners to take their money out of the country, but the citizens themselves would not invest in their own country (e.g.: Peru, Bolivia or Argentina in the 1970’s).

The unemployment levels skyrocketed, and massive internal migrations occurred to the larger cities in hopes of finding jobs – which weren’t there either. Their descendants are still there in the barrios, barriadas, villas, favelas, and other shanty-towns. An even more telling tale is how many African- Americans congregated in the slums of the largest cities of the Northern United States in less than two generations25.

The creation of the African-American urban underclass

Before World War II, more than 90% of all blacks in America lived south of the Mason-Dixon line, and had jobs in agriculture. The pivotal event which would change that forever took place on October 2, 1944, when 3,000 people crowded into a cotton field near Clarksdale, Mississippi. It was the first demonstration of the mechanical cotton picker. It was a marvelous sight: one single machine would do the job of 50 people. It also meant that for the first time since the blacks were brought over as slaves to work in the Southern agricultural estates, their hands and labor would not be needed.

For the first time, they became economically irrelevant. “One of the largest and most rapid mass internal movements of people in history started.”26 Between 1950 and 1970, over five million black men, women and children migrated from the South to the larger industrial towns in the North in search of jobs. It didn’t quite work out the way they hoped, because that is exactly when automation

hit the manufacturing industries in turn. “It is as if racism, having put the Negro in his economic place, stepped aside to watch technology destroy that place.”27 The unskilled black workers of the inner cities were indeed the first to be let go.

Over time, the black community split up into two distinct economic classes. A significant number managed to take advantage of the loosening grip of race discrimination and become middle-class mainstream Americans. But millions went down the spiral: from economic exclusion to violence and fear, from extremist political positions to burned neighborhoods where nobody wants to invest.

These neighborhoods spawn what is now called the underclass – a permanent unemployed part of the population who live at the margin of society, where the only remaining choices are ei her to become a welfare recipient or make a living in the underground economy of drugs and crime.

It is more striking because it occurred in the most economically advanced country in the world, during a period of high economic growth. It could very well become the blueprint of what happens with First World workers when technology makes significant portions of the population obsolete. The main difference is that the Information Age would make that process geographically universal (as opposed to a South – North shift, in the case of the black Americans), possibly without a racial bias. This time we are all potential victims.

This picture may appear too grim. After all, racism was an exacerbating element. But this case study remains a stark illustration of what normally happens within this framework when large groups of people become economically irrelevant, at least if we remain within the framework of the existing money system.

Traditional Solutions

It should not come as a surprise that the solutions most commonly presented for today’s unemployment problem fall into different camps, depending on from where the recommendation comes in the political spectrum. The old political divide between Right and Left still provides the easiest classification of the traditional solutions.

George Lakoff has proposed a coherent explanation of the internal dynamics and logic of both the Right and the Left, in US parlance of the Conservatives and the Liberals.28 He shows that American politics is in fact an extrapolation to the public domain of two opposing images of an “ideal family.” They have in common to see the nation as a “big family,” with the government as parent. But their definition of what makes a “good family” is quite different. Here follows a brief summary of the two types of family underlying the two main political belief structures and worldviews.

The Conservative worldview based on the ideal of a “Strict Father” model The Liberal worldview based on the ideal of a “Nurturing Parent” model.

“It posits a traditional nuclear family, with the father having primary responsibility for supporting and protecting the family as well as the authority to set overall policy, to set strict rules for the behavior of children, and to enforce the rules. The mother has the day-to-day responsibility for the care of the house, raising the children, and upholding the father’s authority. Love and nurturance are, of course, a vital part of family life but can never outweigh parental authority which is itself an expression of love and nurturance – tough love. Self-discipline, self-reliance, and respect for legitimate authority are the crucial things children must learn. Children must respect and obey their parents; by doing so they build ‘character,’ that is, self-discipline and self-reliance.

Once children are mature, they are on their own and must depend on their acquired self-discipline to survive. Parents are not to meddle in their lives.”

Pursuit of self-interest is seen as a way of using self- discipline to achieve self-reliance. It is therefore natural to see the function of government as requiring citizens to be self-disciplined and self-reliant. And that – once a citizen has become an ‘adult’ – government should ‘not meddle’ in their lives.

“Love, empathy, and nurturance are primary, and children become responsible, self-disciplined and self-reliant through being cared for, respected, and caring for others, both in their family and in their community. The obedience of children comes out of their love and respect for their parents and their community, not out of the fear of punishment. Good communication is essential. Questioning children is seen as positive, since children need to learn why their parents do what they do…What children need to learn most is empathy for others, the capacity for nurturance, and the maintenance of social ties, which cannot be done without the strength, self-discipline, and self-reliance that comes from being cared for.

When children are respected, nurtured, and communicated with from birth, they gradually enter into a lifetime relationship of mutual respect, communication and caring with their parents.”29

Under this model, it is natural to see the government step in to help people in need. Hence the variety of social programs designed to meet all kinds of specific problems.

When applying these two political viewpoints to the unemployment problem, the following policies predictably emerge.

Solutions from the Political Right

The Conservatives posit that employment is not something the government should get involved in , and that over time free markets will take care of this rather messy problem. They did so in the past, and will do it again.

When Milton Friedman was asked whether the Information Age might not outdate this approach, he answered – only half jokingly – that we can always create jobs by psychoanalyzing each other to deal with the breakdown.

In practice, the Conservatives will tend to deny the existence of any structural employment problem. When faced with the social tensions which result indirectly from unemployment, they will often deal with the symptoms in the sequence in which they manifest. This amounts to clipping the branches while the roots remain intact. For instance, one slogan on the Right is that jobs are gone because immigrants take them from you, therefore let us crack down on immigration. Another solution recommended by the Right is tougher laws on crime. As a consequence, prison building has become one of the biggest growth industries in the US.

Learning from the past on the Right?

Blaming a minority for the structural issues of the majority has a very long history. The biblical Jews had a ritual for it: choosing a black goat or sheep, “loading it with all the sins of Israel,” and then sacrificing or abandoning it to die in the wilderness. There have been times when their descendants – and many other minorities – could wish that the modern world had adopted such collective safety valves. Do we need to remember the extremes into which civilized nations can slide, once they get going on that path, when only one generation ago Germany looked for a scapegoat for its problems?

Building more prisons may well be seen in retrospect as the most expensive welfare system in history: paying $20,000 per person per year to keep someone in prison forever is unlikely to prove to be the most cost-effective method of tackling the vicious circle of unemployment.

The most likely outcome of this scenario is what has already happened in many Third World countries. Instead of indefinitely putting more people in prison, what ends up happening is that those who can afford it lock themselves up in “golden ghettos,” or other gated communities. Whatever the level of luxury or comfort that these golden ghettos can provide, it still boils down to a self-imposed prison system. In parallel, the majority of society – those who cannot afford the golden ghettos – is left to fend for itself in a gang-infested urban jungle. Is that really an acceptable evolution for a democratic society?

Solutions by the Political Left

A typical analysis of the unemployment problem by the Left is that of Jeremy Rifkin30. His solution to build “social capital” has three main components:

  • reducing the workweek from 40-hours to 35- or 30-hours (a strategy which France is testing).
  • taxing the new high-tech production technologies
  • using the proceeds of such taxes to pay for vouchers which can be issued to those working in the non-profit world.

The more populist Left blames the disappearance of the jobs either on the greed of the corporate world, the internationalization process itself hiding behind strange acronyms (e.g.: IMF, GATT, NAFTA , EU), or some other conspiracy. The solution logically implies a slow down or counteract these forces.

Learning from the past on the Left?

The solutions recommended from the Left have also been tested recently. Some of the remnants of the New Deal and the Great Society projects in the US and the Welfare States in Europe are still around in the form of youth job creation programs and the like.

Government created jobs have left an aftertaste of failure, as well as a legacy of heavy taxes and bureaucracies, not to speak of unmanageable deficits and debts which will still have to be paid off well into the twenty-first century. No society, however generous, can indefinitely afford to keep a growing number of people on welfare; i.e., it is not a realistic option if the unemployment losses are not cyclical, but structural. The real problem is that these welfare programs have failed to lift people out of poverty. Worse still, the people who are being helped in this way on a long-term basis lose self-respect and dignity as well.

Why Traditional Solutions won’t work this time

However well intended the proposals are from both sides of the political spectrum, neither will solve the problem at hand.

The big strategic question is whether the current unemployment problem – or in America employment at levels below one’s skill or training – is a short term problem that will disappear with the next business boom cycle; or whether we are dealing with a structural process, which will systematically grow over time. Much academic ink has been spilled on trying to distinguish which of the two we are dealing with. In truth we may be dealing with both.

I will distinguish between three types of unemployment.

  1. The so called “frictional” unemployment: even under the best of economic circumstances in a free market there will be some people who are fired or who leave and who remain for a few weeks or months “in between jobs.” We should expect there to be always some small percentage of people in such a transition.
  2. Employment due to the “inventory adjustments” in the normal business cycle. This manifest when stockpiles of finished goods grow in an industry. While this inventory is being gradually liquidated, quite often businesses will tend to temporarily reduce their production work-force. Again, we should expect that as long as there is a business cycle, demand for labor also to fluctuate between the good and the bad years.
  3. However, we now have enough evidence that in addition to both well-known types of unemployment described above, a long-term structural trend has also started to build up. This explains why the “frictional” unemployment seems to get worse decade after decade. This structural trend turns out to be just the job market consequence of the shift in the production processes from the Industrial Age to the Information Age. To the extent that this is true, none of the solutions proposed within the traditional Left-Right Political Divide framework will be capable of dealing with the structural nature of this problem. As we are only just starting to really enter into the Information Age, we should only expect a further acceleration of the corresponding trends.

For instance, breakthroughs in nano-technology — processes which enable to build objects atom-by- atom — promise to make obsolete the very idea that direct human labor is a necessary ingredient in production processes (sidebar).

The “Two-week Revolution”31

As soon as the “first nano-assembler works, we could order it to build another one. Then we could tell them to build other things. A great flourishing of new nano- technologies would follow — as fast as we could design them… When the first assembler works, a stampede of working machines could follow. This sudden surge of working nanotechnologies has been called the ‘two– week revolution’. In the first two weeks after the assembler breakthrough, the world will change radically. For some, this is not a metaphor but a prediction of great changes a matter of days. Entire new system of fully functional technology will emerge, ready to transform the world.”

Expert consensus is that this breakthrough is to be expected sometime during the first decade of the 21st century. Even if it takes longer than two weeks — as it most likely will — the long-term implications should be clear: produ put is a realistic possibility.

Our Next Leading Socio-Political Problem

As several futurists predicted a couple of decades ago32, accelerating technology is finally catching up with us. Therefore jobs promise to increasing become one of the hottest international political issues. In a global market system, no country or area can really opt out of world “progress,” without running the risk of also sliding into a downward spiral of under-development. On the other hand, we have not developed institutions or mechanisms to deal with the social dislocations that our new technologies lead us to.

“Here we stand, confronted by insurmountable opportunities!”33

Neither Left, nor Right, but Forward?

The traditional Left-Right debate is itself an inheritance of the Industrial Age economic framework. The origin of that debate had to do with private or public ownership of the “means of production,”

i.e. the factories and machines. As the means of production are becoming knowledge, the new political and economic vocabulary to deal with these new realities doesn’t yet exist.

But how about changing the monetary framework itself? To understand this, let’s first play a very simple game called the “Sufficiency of Money Game.”

The Sufficiency of Money Game

The game can be played with one or several people. You can do it by yourself, with your family or a group of friends or strangers. You may learn a lot about yourself and others in the process. There are no losers in this game; but the one who has most fun wins.

Just pretend that there is no scarcity of money. It has just happened by magic. You have become the founder of a large financial institution or foundation and the rules of the game require you to spend your money within your community. It can be a neighborhood, a group of friends or your family, a whole region, or a non-geographic community like a sub-group on the Internet. You then decide what you want to do with your money in this community. You can realize your dreams, and create a community of your dreams.

Then you answer these three questions.

  1. What talent would you like to develop and offer to your community?
  2. What is the vision of your newly formed community? What would you like to accomplish as a group?
  3. Who are the other people or organizations you need to realize this vision?

If you play this game with others, have everyone explain their answers.

In a second round, see how your different dreams can help each other, how some of your initiatives can mesh with those of others. You will often find that they strengthen and synergize each other in unexpected ways


*    *

Some of the goals for communities that have come up when this game has been played include:

  • Quality Child care.
  • Teaching.
  • Youth mentoring.
  • Elderly care.
  • Infrastructure repair.
  • Housing rehabilitation.
  • Environmental cleanup.
  • The greening of towns.
  • Arts, entertainment, music, dance, theater, fun
  • Public transportation
  • Crime prevention.
  • Preventive health care.

We can see that there is a lot of work to be done in our communities, in our cities, among the people and the families that we live with and around.

There are people capable of and willing to do the work – people who have the skills and the knowledge to achieve these things. Our problems are not caused by a scarcity of people or ideas. There are even organizations who have the skills to hire the people and put them to work. This could all be done. What is missing?

Waiting for Money, or is it Godot?

What is missing is money. Everyone is waiting for money.

If one stops to think about it, it is a fascinating phenomenon.

Imagine a Martian landing in a poor neighborhood and seeing rundown communities, people sleeping in the streets, children without mentors or going hungry, trees and rivers dying from lack of care, ecological breakdowns and all of the other problems we face. He would also discover that we know exactly what to do about all these things. Finally, he would see that many people willing to work are either unemployed, or use only a part of their skills. He would see that many have jobs but are not doing the work they are passionate about. And that they are all waiting for money. Imagine the Martian asking us to explain what is that strange “money” thing we seem to be waiting for. Could you tell him with a straight face that we are waiting for an “agreement within a community to use something – really almost anything – as a means of payment”?

And keep waiting?

Our Martian might leave wondering whether there is intelligent life on this planet.

But how about changing the monetary framework itself?

What this game illustrates is what Edgar Cahn, the creator of Time Dollars, means when he says:

”The real price we pay for money is the hold that money has on our sense of what is possible

– the prison it builds for our imagination”34

The fact is that there is enough work to be done for everyone in your community to keep busy for the rest of his or her life. Work that expresses our specific creativity. Have we become so hypnotized by our fear of the scarcity of money that we are also fearing lack of work?

So what can we do?

The short answer is: create complementary currencies designed to fulfill social functions that the national currency does not or cannot fulfill. A variety of such non-traditional currencies already in operation in over a dozen countries will be described below. Here I will just outline the new possibilities such a strategy would create.

Imagine what becomes possible when two complementary economic systems are allowed to operate in parallel. On the one side a competitive global economy driven by the mainstream existing national money system, and a cooperative local economy fueled by the complementary currencies. The competitive economy would be the familiar “jobs” of today paid in scarce national currency, while the cooperative economy could encompass all kinds of activities that people are happy to pay for in a complementary currency always available in sufficiency. Unemployment and underemployment could be resolved by people doing work at improving their communities, and payable in local currency.

As in the vignette story “A World in Balance” (chapter 1) most people would be involved part of their time in both economies. Or within a given family some members would be employed mostly in the global competitive economic loop, while another might be active mostly in the local economy.

Hopefully both might be “following their bliss,” ideally both having the opportunity for their work also become their job.

Such an outcome is possible within what I will call the “Integral Economy” (explained in detail in Chapter 9), which consists of both the traditional competitive economy on one side, and a local cooperative economy on the other. The former produces financial capital, and the latter social capital. They can operate in symbiosis with each other, as represented in Figure 5.2.

Figure 5.2 Integral Economy with Complementary Currency Systems.

I call it “Integral” because it aims at integrating dimensions that the official economy has tended to downplay or ignore. But before understanding how the Integral Economy operates, we need to gain more familiarity with these non-traditional currencies which would complement the usual national currencies. Examples of such complementary currencies are the topic of the balance of this chapter, and the next one.

What was most surprising to me was to discover how remarkably close we once were to implementing such a solution once before, back in the 1930’s. However, governments at the time did not seem ready to give this approach a real chance. The Zeitgeist of the 1930’s was favoring strongly hierarchical and centralized solutions to all problems. You will also see that these experiments were stopped by governments, not because they were not working, but because they were working too well without the need for central government involvement.

The Path not Taken in the 1930s

If your family lived in the 1930’s in Western Europe, the US, Canada or Northern Mexico (i.e. the area where the Great Depression hit hardest ), you may have heard about the path not taken. In the aftermath of the German hyperinflation period of the 1920’s, or of the Crash of 1929 in the other countries, literally thousands of communities started their own currency systems. Your village or town probably used one.35 Before we get into some actual stories of how these systems came to be, let us look at the general context in which this was taking place, highlighting the differences and parallels with today.

1930’s Problems: Some Differences and Parallels

There are obvious differences between the context of the 1930s and today. However, notwithstanding the differences, some disturbing similarities can be detected in the results of the monetary policies pursued today (see sidebar).

New Ways to Repeat Old Problems?

The monetar mistakes made in the 1930s are now part of any economic textbook. The consensus is that what could have been an ordinary recession became a nightmarish depression because of errors made by Central Banks, particularly in Austria and in the US.

In the Spring of 1931, the Kredit Anstalt, Austria’s largest bank, was on the verge of collapse. But when the government came to the rescue with freshly printed domestic currency, it created a capital flight out of the country because of fear of a repeat of the hyper-inflation similar to what happened after World War I, still fresh in people’s memory. Austria pleaded for help from its neighbors and the newly formed BIS. Help came too little, too late.

Meanwhile, the Federal Reserve in the US was trying to defend the gold standard at any cost, at the expense of the real economy. President Herbert Hoover took as priority to balance the budget instead of re-launching the economy by deficit spending. Everybody believed that short-term pain was necessary to repair the damage of past excesses.


There is a consensus among economists that we couldn’t make the same mistakes now as in the 1930s. However, we may be making new ones with the same effects.

When Japan tries to re-launch its stalled economy with deficit spending, the international credit agencies downgrade its outstanding debt, making it too onerous to continue such a policy.

When Thailand, Korea or Indonesia see their economy collapse, they are being told to increase interest rates in order to “restore credibility with the international financial markets”, further increasing the depth of the Asian slump.

Meanwhile in Europe, governments have painted themselves into a corner similar to Herbert Hoover’s, by the unfortunate timing of the need for budget orthodoxy while unemployment is skyhigh.

Are these not new ways to defend the monetary system at any cost, at the expense of the real economy?

Or to inflict short-term pain hoping to repair past excesses? Are the International Agencies not helping too little, too late?

During the 1920s in Germany, the Reichsmark had completely collapsed. (The meltdown of the Russian Ruble is a parallel today).

In other countries, the national currency had become unbearably scarce because of bank and business failures of the 1930’s. (Today’s parallels can be found in the Asian and Latin American credit crunch).

1930s Solutions

The interesting solutions which were implemented at that time include a now almost forgotten movement of “emergency currencies”.

There was one overriding objective in all the 1930’s complementary currency systems: ensuring that people had the medium of exchange necessary for their activities, to give each other work. Two means were used to attain that single objective:

  • people compensated for the scarcity of the national currency by creating their own complementary currencies;
  • in the more sophisticated implementations, they also built in an incentive to avoid hoarding of currency. This feature aimed at counteracting the tendency for people who had any money, to hoard it out of fear of the future, thereby worsening the crunch for everybody else. (This same problem has now been observed in Japan in the late 1990s).
Compensating for the Scarcity of National Currency

Unemployed people don’t earn money. If enough of your clients are unemployed, your business also fails, increasing the number of unemployed further, which brings down even bigger businesses, and so on. This is the snow-ball effect that was happening throughout the Western World as the shocks of the crash of the 1920’s were being absorbed.

“When someone knows he is going to be hanged in a fortnight, it concentrates his mind wonderfully.” Suddenly people realized that, after all, money is only “an agreement within a community to use something – almost anything – as a means of payment.” So they agreed to accept pieces of paper issued locally, metal tokens, or whatever else they could settle on. Among the more exotic outcomes of this creative brain storm of the 1930’s I found

  • rabbit tails used in Olney, Texas (issued by the local Chamber of Commerce in 1936) – it apparently also had a desired side-effect of reducing an excess of jackrabbits in the area
  • sea shells marked with the seal of Harter Drug Company in Pismo Beach, CA (issued March 8, 1933)36
  • the wooden discs engraved with “In God we Trust” manufactured by the Cochrane Lumber Company as medium of exchange for Petaluma, CA (1933).
Pictures of rabbit tail, shell
and wooden ring currencies
Circulation Incentive

Silvio Gesell (1862-1930): Prophet, Crank, or just Unlucky?

Silvio Gesell was born on March 17, 1862 as the seventh of nine children in Rhenish Prussia from a Walloon mother and German father. He emigrated to Argentina in 1887 where he became a successful businessman. He left his businesses to his brother and returned to Europe to settle on a farm in Switzerland. He did what Keynes called “the two most delightful occupations open to those who do not have to earn a living, authorship and experimental farming.” In 1911, he moved to an agricultural cooperative near Berlin, founded by Franz Oppenheimer (1864-1934) whose ideas later shaped the Kibbutz movement in Palestine.

His business experience with highly unstable currency in Argentina had convinced him that the key to socially responsible capitalism is money and land reform. In 1891 he described the role of velocity of money as a decisive factor in determining the level of prices, preparing the ground for Irving Fisher’s celebrated work of the 1920’s. At the end of the war of 1918, he published a prophetic warning in the Berlin newspaper Zeitung am Mittag “In spite of the sacred promise of the nations to reject war for ever more, in spite of the cry of the masses ‘Never again war!’ In the face if all hopes for a better future, I must state the following: If the present monetary system – the interest-driven economy – is maintained I dare to predict even today that it will not take 25 years before we are faced with another even more terrible war. As in former times, attempts will be made to annex foreign territory and for this purpose arms will be manufactured with the justification that this at least provides work for the unemployed. Wild revolutionary movements will form among the discontented masses and the poisonous plant of extreme nationalism will flourish. There will no longer be any mutual understanding between nations and in the end this can only lead to war.”

In 1919 he was named Finance Minister in the government of Gustav Landauer, in the Rätterrepublik of Bavaria, but Landauer was brutally murdered within a week by a right-wing paramilitary group, and Gesell was arrested. Immediately thereafter, hard-line Marxists took over in Bavaria, and arrested Gesell again to court-marshaled him for high treason. Even after his acquittal, he had become persona non grata to the Swiss and could not return to his farm. He died in 1930, just before his 68th birthday. His passing was pointedly ignored in the German Press.


His monetary theories on “Free Economics” have often been summarily dismissed by the Right and the Left almost ever since, sometimes by misunderstanding, more often because these ideas were trying to “hold the center” in a Marxist-Capitalist ideological battle field. Indeed his work has been considered a “great reconciliation of individualism and collectivism.” Many German economists consider that his work is coming back into relevance now.37 Two non-German Nobel laureates in economics, Maurice Allais and Lawrence Klein, have now joined the earlier praises by Keynes and Fisher on Gesell’s contributions.

Once the currency was created, the next problem was ensuring that people did not hoard it. Every time someone hoards currency, by definition its lack of circulation deprives other people in the community of being able to perform transactions. The more sophisticated forms of complementary currency of the 1930’s included a circulation incentive feature recommended by the Argentinean-German business man and economist Silvio Gesell (see sidebar). We will talk more about Gesell’s ideas later.38 At this point, let us limit ourselves to the “stamp scrip” mechanism he recommended. The core idea was to encourage people to circulate the money through an anti-hoarding fee (technically called “demurrage”, a word dating back to the railroads’ practice of charging a fee for leaving a railroad car inactive). The back of each note had typically 12 cases (one for each month) where a stamp could be fixed. Any bill, to remain valid, had to have its stamps up to date. These stamps could be purchased with local currency at shops participating in the scheme.

Let us now see how this generic scheme was implemented in practice in three key countries: Germany, Austria and the US.

The German Wara System

By 1923 the German official currency situation had become totally hopeless. To get an idea, we can look at the exchange rate of the Weimar currency against the US dollar. Before World War I (1913) the value of one US dollar was 4.2 mark. By the end of the war, it had risen to 8. In 1921, it was worth 184, and a year later 7,350. In the summer of 1923, a United States Congressman, A.P. Andrew, dutifully reported that he had received 4 billion mark in exchange for 7 dollars, then paying 1.5 billion mark for a restaurant meal and leaving a 400-million-mark tip.39

The game stopped when, on the 18th of November 1923, one dollar bought 4.2 trillion marks. By then, 92,844,720 trillion Marks were in circulation.40 Postage stamps cost billions, paying for a loaf of bread required a wheelbarrow full of money. Daily wage negotiations preceded work, and salaries were paid twice per day and spent within the hour.

It is in this context that the “Wara” experiment came into being. The hero of the German “Wara” story is Dr. Hebecker, the owner of a coal mine in the small town of Schwanenkirchen. He gathered all of his workers and explained that they had a simple choice: either they accepted two-thirds of their wages in “Wara” backed by the coal they were extracting or he would have to close the mine. After a predictably lively exchange, they finally accepted the new currency when Hebecker arranged for vital food-stuffs to become available in Swanenkirchen which could be purchased with Wara.

Photograph of Wara bill
from Catalog

The “Wara” is a compound name in German meaning “commodity money.” The Wara was a piece of paper fully backed by the coal inventory, and – to cover the storage costs – it also had a small monthly stamp fee. This fee was a form of demurrage tax which ensured that the money would not be hoarded, but would circulate within the community.

It saved not only Dr. Hebecker’s coal mine and the whole town of Schwanenkirchen, but it started circulating in wider and wider areas. It became a center piece of the “Freiwirtschaft” (“Free Economy”) movement, whose theoretical underpinnings came from Silvio Gesell’s work. Over 2,000 corporations throughout Germany started to use this alternative currency. Although this currency, by definition, could not become inflationary (given that its value was tied to the value of coal), it was definitely considered much too successful by the Central bank. It exerted pressure on the Ministry of Finance so that it would decree in October 1931 that the Wara was illegal41.

The next thing that transpired was that Hebecker’s mine had to close, and people went back into the unemployment line. As it had become impossible for people to help themselves on a local level, there only remained one option: a strong centralized solution. In the Bierhallen of Bavaria, an obscure Austrian immigrant began having increasingly interested audiences when he delivered his fiery speeches.

His name was Adolf Hitler.

The following graph shows the direct correlation between the level of unemployment and the percent of seats captured by National-Socialism in Germany on the successive elections between 1924 and 1933. (Figure 5.1a) By the way, this graph could also serve to illustrate one of the key steps in the “vicious circle of unemployment” — the feeding of political extremism.

Figure 5.1a Relationship between Number of Unemployment and Percent of National-Socialist Seats

Between 1924 and 1928, unemployment in Germany had been gradually dropping from 340,711 to 268,443. The percent of Nazi seats declined in parallel from 6.6% to 2.6%. In contrast, from 1930 to 1933, as unemployment shot up first to 1,061,570 and then to 5,598,855 the percent of seats obtained by the National-Socialist Party climbed first to 18.3%,, then to 43.7%, to culminate with 92.1% by the end of that last year.

Wörgl Stamp Script

Meanwhile, elsewhere…

One of the best known applications of the stamp scrip idea was applied in the small town of Wörgl, Austria, with a population of about 4,500 people at the time. When Mr. Michael Untergugenbergen (1884-1936) was elected Mayor of Wörgl, the city had 500 jobless people and another 1,000 in the immediate vicinity. Furthermore, 200 families were absolutely penny-less. The mayor-with-the- long-name (as Professor Irving Fisher from Yale would call him) was also familiar with Silvio Gesell’s work and decided to test it.

He had a long list of projects he wanted to accomplish (re-paving the streets, generalizing the water distribution system for the entire town, planting trees along the streets, and other needed repairs.) He had many people available who were willing and able to do all of those things, but he had only 40,000 Austrian Shillings in the bank, a pittance compared to what needed to be done. Note that this situation is much like the “Sufficiency of Money Game” we played earlier.

Instead of spending the 40,000 Shillings on starting the first of his long list of projects, he decided to put the money on deposit with a local savings bank as a guarantee for issuing Wörgl’s own 40,000 Shilling’s worth of stamp scrip.

Photograph of Wörgl Currency
showing boxes and stamps.

He then used the stamp scrip to pay for his first project. Because a stamp needed to be applied each month (at 1% of face value), everybody who was paid with the stamp scrip made sure he or she was spending it quickly, automatically providing work for others. When people had run out of ideas of what to spend their stamp scrip on, they even decided to pay their taxes, early.

Wörgl became the only town in Austria which managed to correct the extreme levels of unemployment prevailing everywhere. It is in this context that the “Wara” experiment came into being. The hero of the German “Wara” story is Dr. Hebecker, the owner of a coal mine in the small town of Schwanenkirchen. He managed to secure a loan. They had not only re-paved the streets and rebuilt the water system and all of the other projects on Mayor Untergugenberger’s long list, they even built new houses, a ski jump, and a bridge with a proud plaque reminding us that “This bridge was built with our own Free Money.” (see photographs) Six villages in the neighborhood copied the system, one of which built the municipal swimming pool with the proceeds. Even the French Prime Minister, Ëdouard Dalladier, made a special visit to see first hand the “miracle of Wörgl.”

Photographs: Bridge Plaque,
house construction, bridge

It is essential to understand that the bulk of this additional employment miracle was not due directly to the mayor’s projects.(as would be the case, for example, in Roosevelt’s contract work programs described below). The bulk of the work was provided by the circulation of the stamp scrip after the first people contracted by the mayor spent it. In fact, every one of the Shillings in stamp scrip created between 12 and 14 times more employment than the normal Shillings circulating in parallel! (See sidebar). The anti-hoarding device proved extremely effective as a spontaneous work-generating device.

Wörgl’s Experiment: Facts, Figures, and Fiction43

The experiment lasted from July 5, 1932 to November 21, 1933. The “work notes” were issued in three denominations valued respectively at 1, 5 and 10 Shillings. An average of only 5,500 Shillings of the stamp scrip were outstanding , but they circulated 416 times over the 13.5 months that the experiment was allowed to develop, producing 2,547,360 shillings of economic activity (equivalent to approximately 64 million of today’s shillings or US $7.5 million). As a result, the investment in productive assets in Wörgl jumped by 219% over the previous year.

In addition, the monthly demurrage fee was used for a soup kitchen that fed 220 families.


Mr. Unterguggenberger’s political program would be considered today as middle-of-the-road social-democratic, as he vigorously campaigned “against both fascism and communism and their utopian economic theories, State capitalism, bureaucracy and lack of economic freedom; and for private initiative and economic freedom.”44 Nevertheless, during the 1930s his experiment was branded by monetary authorities first as an “unfug” (“craziness”); then as a communist idea; and after the war as a fascist one…

Wörgl’s demonstration was so successful that it was replicated, first in the neighbor city of Kitzbülh in January 1933. In June of that year, Unterguggenbergen addressed a meeting with representatives of 170 other towns and villages. Soon thereafter 200 townships in Austria wanted to copy it. It was at that point that the Central Bank panicked and decided to assert its monopoly rights. The people sued the Central Bank, but lost in the judgment in November 1933. The case went all the way to the Austrian Supreme Court, but was lost again. After that it became a criminal offense in Austria to issue “emergency currency.”

So Wörgl had to go back to 30 percent unemployment. In 1934, widespread social unrest exploded throughout Austria. During the crackdown against the civil disorder, all political parties to the left were outlawed. Michael Unterguggenbergen’s party was identified with that group, so he was removed from office at that point. He died in 1936, still very much loved by the local population.

Does it sound familiar? Only a central authority savior can help people who are not allowed to help themselves locally. And as all economists will point out, when there is enough demand, supply always manifests in some way. Even if you have to import it.

During the Anschluss of 1938, a large percentage of the population of Austria welcomed Adolf Hitler as their economic and political savior.

The rest is well-known history…

US Depression Scrips

In the 1930’s there were complementary currency issues all around the world; in the Baltics, in Bulgaria, Canada, Denmark, Ecuador, France (the “Valor” project), Italy, Mexico, the Netherlands, Romania, Spain, Sweden, Switzerland, even China and Finland. Not all of them were suppressed, either. As we shall see later, at least one of these systems survived the war and is successful to this day (the WIR system in Switzerland, described below).

But the “mother of all stamp scrip applications,” and the place where the implementation came the closest to become official public policy was in the US.

The US, in fact, has a much longer history of issuing complementary currencies than is generally known. With clockwork regularity people under similar circumstances of duress seem spontaneously to reinvent the same solution. Complementary currencies sprung up during the Panic of 1837, the Civil War years, and the Panics of 1873, 1893 and particularly of 1907.

Professor Irving Fisher of Yale, author of a classic book on Interest Rates, and widely considered the most prominent American economist of his time, heard about the Wörgl experiment and published several articles about it in the US. He had concluded that: “Stamp Scrip is no panacea, but I believe it is the most efficient anti-depression remedy yet found.”45 At the time he was advising several communities on starting their own stamp scrip systems and was so inundated with additional requests that he decided to quickly publish a little monograph to meet the demand.46

He counseled against poor applications, such as the one implemented in 1932 by Charles J. Zylstra in Hawarden, Iowa, which erroneously applied Gesell’s theory. In his case, the stamps were to be applied to the scrip at each transaction, instead of every month or every week, like it should be. This transaction-based taxation effectively was a sales tax, which in actuality encouraged hoarding, instead of discouraging it. It did not have the desired effects and users ended up hating it. As Zylstra was also a member of the Iowa House of Representatives, he had become a very active and prominent salesman for – unfortunately – the wrong approach. A resolution was passed in the 45th General Assembly of Iowa and approved by the Governor on February 25, 1933, authorizing counties to relieve the poor and unemployed people by issuing such stamp scrip. Sometimes this erroneous application has been described by detractors of the complementary currency systems as ‘typical’, while in reality it was an exception.

However, notwithstanding such mishaps, the majority of the applications in the US were correctly designed and successful. There even exists a remarkable catalog illustrated with several thousand examples of local scrip from every state in the Union.47

On February 18, 1933, the bill S. 5674 was introduced in the US Senate by Senator Bankhead of Alabama, and in the House of Representatives (under the name H.R. 14757) by congressman Pettingill of Indiana. The intent was to issue up to one billion Dollars worth of stamp scrip in one dollar denominations which would be redeemed by 52 weekly stamps of 2 cents, and which would be used as legal tender in the country. They would be distributed to all the states in proportion to their population. Both of these bills, after being read and discussed, were sent to the Committee on Banking and Currency for detailed evaluation.

In addition to the federal level, the “stamp scrip movement” as it became known, had already spread to 450 cities around the United States. For example, the City of St. Louis, Missouri, was in the process of issuing $100,000 worth of stamp money. Similarly, Oregon was planning to launch a $75 million stamp scrip issue.

This sets the context for some key conversations between Professor Irving Fisher and Dean Acheson, then Undersecretary of the Treasury. Fisher was convinced that stamp scrip was the way out of the Depression, and brought his considerable knowledge to bear to prove this. He went on record with the statement that “The correct application of stamp scrip would solve the Depression crisis in the US in three weeks!”48 Dean Acheson, a prudent man, decided to check out the whole concept with one of his own Economics Professors at Harvard, the well-respected Professor Russel Sprague. The answer came back that in his opinion this approach would indeed succeed in bringing America back to work out of the Depression. But it has also some political implications about decentralization that he may want to check with the President…

We know what President Roosevelt’s reaction was from the speech he made a few weeks later. This is probably his most famous address, the one that coined the sentence “The only thing we need to fear is fear itself.”49 In it, he announced a series of impressive centralized new initiatives to counter the crisis: the expansion of the Reconstruction Finance Corporation, and a series of large-scale Federal government-managed work-creation projects. Basically, what became known as the New Deal, completed in 1934 by the first US Export- Import Bank. And he signed an executive decree that he would henceforth prohibit “emergency currencies.” This was the code name for all of the complementary currencies already in existence, and all of those in preparation all around the country.

This is how the road was not taken in the US in the 1930’s. It was a close call, but the Zeitgeist of the time seemed definitely in favor of spectacular centralized decisions for which political credit can more easily be claimed.

What is most interesting is that there is a growing consensus among economic historians that these centralized initiatives did not really get the US out of the Great Depression after all. They were better than nothing, and a lot of hard-working people produced a lot of valuable work under these programs. But the majority of economic historians agree today that — for the US as for Germany — the specter of the Great Depression was only vanquished by shifting the economy to prepare for World War II.

Some Political Lessons

The main lesson is that what appear to be boring technical decisions relating to banking and currency regulations are probably one of the biggest political time bombs around. We cannot prove that Hitler would not have been elected, or that the Anschluss would not have happened if the Wara and other stamp scrip grass-roots initiatives had been left to flourish. We cannot prove either that World War II would not have happened if the path not taken in the 1930’s had been given a chance. There are obviously many other variables affecting such sweeping phenomena. History is not a laboratory experiment in which we can try again from scratch, and neatly change only one variable each time.

The historical record shows, however, that stamping out the popular grassroots initiatives where people tried to solve their problems on a local level helped push a sophisticated and educated society into violently scapegoating its minorities toward less and less democracy and, ultimately, toward war. That such suppressions have this power should not amaze us, given the cumulative nature of “the vicious circle of unemployment” we saw earlier in Figure 5.1 Mussolini had it right when he claimed that “fascism is not a doctrine, it is a response to the need for action.”

The 1930’s were one more demonstration of the “vicious circle of unemployment” connecting unemployment, violence, fear, political polarization and instability. The closing of the loop back to higher unemployment was only avoided by the biggest instability of them all: war.

Given this historical record, we can make the next three observations:

  • Whoever makes the decision to stamp out complementary currency initiatives should also be held accountable for providing alternative solutions and finding the money to pay for the services that they render. It just won’t do to block them on some technicality and leave the subsequent social and political mess and despair to take care of itself, because we know exactly where this leads. We have been there before.
  • Impeding individuals or groups from solving their own problems at a local level automatically creates demand for a savior. Such a savior invariably appears, whether called the Central Government, the Führer, the Duce, Zhirinofski, Buchanan, Le Pen or Gianfredo Fini, or any one of their successors.
  • The record also shows that the only really effective way for large-scale centralized approaches to reduce serious structural unemployment is to prepare for war. Such economic reasons for war have been found not only for World War II, but for many other conflicts as well.
“Technical” Monetary Decisions and Political Consequences

Just to illustrate how monetary issues can have substantial political implications, let us follow the steps of one particular man who was instrumental in many key decisions in Germany at that time. His name was Hjalmar Schacht, and he became two times President of the Reichsbank (then the name for the German Central Bank); the first time from 1923 to 1930, and the second time more controversially as “Hitler’s Magician”50 from 1933 to January 1939. His story has some of the strange fate qualities that one finds mostly in Greek tragedies. It also has a touch of that quintessential Twentieth Century myth of Dr. Frankenstein — a scientist creates a monster that ends up destroying everything around him, including his creator. The ironic twist here is that it is not an excess of monetary experimentation – but a lack of it – which may have been the problem.

Schacht was definitely not intending to favor the Nazi party in his decisions between 1923 and 1930, but those decisions did nevertheless exactly that. Later, when the consequences had become irreversible, he switched sides “to try to control Hitler”, but ended up instead with the dubious distinction of spending time both in concentration camps as well as among the accused war criminals during the Nuremberg trials after the war.

Hitler’s Magician or a Monetary Dr. Frankenstein?

The 1923 German currency crisis propelled to the monetary helm a man who, at the age of forty-six, had not yet ventured in the public field at all. On November 12, 1923 the government of Gustav Stresemann had named Schacht in a specially created position of “Currency Commissioner.” On November 15, the first new Rentenmark currency notes were issued, and simultaneously an injunction was issued that henceforth all forms of “emergency currencies” (“Notgeld”) would be prohibited. This regulation did not differentiate between some fly-by-night currencies, and the more sound systems such as the Wara which had a physical backing.

Havenstein, President of the Reichsbank, who just had refused to step down from his position as requested by Stresemann, solved Stresemann’s dilemma by dying from a heart attack on November 20, 1923. Schacht got nominated as his successor because he was a monetary conservative with strong democratic credentials. His election was achieved only after Stresemann managed to obtain the support of the Social Democrats in a fierce battle against the candidature of Helfferich, suspicious because of his extreme right-wing connections.

A few months later (April 1, 1924), at the other end of the country and the social spectrum, Adolf Hitler was sent to the prison of Landsberg-am-Lech where he would write his book “Mein Kampf”. He was , accused of “disturbing public order” in Bavaria. The countdown that would propel these two very different destinies together had begun.

Schacht proceeded to earn his reputation as a tough and orthodox Central Banker with the leitmotiv “No monetary experiments.” This orthodoxy worked well initially, but ended up creating the rise in unemployment which played directly in the hands of the National Socialist Party. (In all fairness – even if it weakens my Frankenstein analogy – Schacht should not bear the bulk of the blame of Hitler’s rise to power. The draconian reparation payments imposed on Germany by the Treaty of Versailles and the resulting hyperinflation had set up circumstances that had started the process years before Schacht got involved. However, it is also clear that Schacht’s medicine did not reverse the political polarization process, but accelerated it until it reached an irreversible momentum.)

We need to reemphasize, however, that Schacht was definitely not on Hitler’s political side when he was introducing these policies. For instance, when he decided to sever his connection to the Democratic Party in 1926, it was in protest against proposals for confiscating property belonging to the Hohenzollern royal family. And he ended up resigning from the Reichsbank in 1930 because of the unacceptable conditions imposed on Germany by the Young reparation program.

It is only during a boat trip to New York during that year that for the first time he read Adolf Hitler’s Mein Kampf. He dismissed it as a “populist document” and as “an insult to the German language.”51

However, in November 1932 Hitler’s future propaganda minister Goebbels notes in his diary52 that he has met Schacht, and that he thinks he can become useful He introduces Schacht to Hitler a few weeks later. By February 20, 1933, Goebbels had convinced Schacht that the next elections of March 1933 would be won by Hitler and that these elections would be “the last for certainly ten years, and probably for one hundred years.” Schacht decided to cooperate with Hitler and would justify his switch later in Nuremberg as the only way he knew to try to control Hitler. According to David Marsh53, the real reason may be simple personal ambition. Schacht’s cooperation with Hitler may indeed have been a way to attempt to bring power back to himself . There is some independent evidence that his reasoning may have been valid. For example, in October 1934, William Dodd, the US ambassador in Berlin noted in his diary that he believed that “if Hitler was assassinated, Schacht would probably be called upon to head the German State.”54

During these years Schacht supported unequivocally Hitler in public, but in private the relationship remained a lot more complex. For instance, the Chief of the SS made the revealing complaint that Schacht would always address Hitler merely as “Herr Chancellor” rather than “Mein Führer.” And Hitler remarked himself that Schacht was the only person who allowed himself such liberties in address.55

However, instead of Schacht controlling Hitler, Hitler from 1936 onward gradually shifted all decision making power toward Hermann Goering. Schacht grew increasingly worried about the effects of the harassment of Jews and economically influential groups such as the Free-Masons on Germany’s standing abroad. Schacht’s main turning point in public was the famous Kristalnacht (November 9, 1938) when 250 synagogues were set on fire, nearly a hundred Jews died and 26,000 were sent to concentration camps. During that year’s Christmas gathering of Reichsbank employees Schacht made public his position with the comment: “Kristallnacht was a cultural disgrace which should make every decent German red with shame.”

But by then it was too late. David Marsh concludes that “Had Schacht been pushed by his later expressed doubts about the Nazis to resign from the Reichsbank in 1937, the course of history may have been different. Schacht was not, however, the only contemporary player – both in Germany and abroad – who failed to estimate the momentum pushing Hitler toward the brink.”56

Schacht and most of his colleagues of the Directorate would be removed from the Reichsbank on January 20, 1939, after they refused to turn on the printing presses to finance Hitler’s entry into war. His successor was Fuchs, a weak man who would always tell Hitler what he wanted to hear. Schacht would end up in a variety of concentration camps including Dachau after being involved in the July 20, 1944 plot to assassinate Hitler. He was liberated by the Americans in April 1945. He was tried in Nuremberg for his years of cooperation with Hitler. He died in 1970, a bitter man, at the age of 93.

The relevance of Schacht’s story to complementary currencies is that sticking to being a competent Central Banker should not obscure the fact that that deep political consequences are attributable to such ‘technical’ monetary decisions.

Today’s systems

Very few complementary currencies survived the turmoil and reconstruction processes of World War II and the booming postwar years. As we should expect, it is only when economic duress knocks on the door that suddenly, like mushrooms under the appropriate weather conditions, local systems reappear. Today’s systems have, therefore, reappeared primarily where unemployment has become abnormally high for local reasons.

The following figure best summarizes the dramatic growth of all types of complementary currencies over the past decade. As recently as the 1980s, there were less than 100 such currency systems in the world. They have multiplied by a factor of twenty over the past decade.

Figure 5.3 Number of Community Currency Systems Operational in Twelve Countries 1984- 200357

In the balance of this chapter and the next one we will have a look at the different types of such complementary currencies currently operational, and how they have been implemented in specific countries.

Clarifying Some Distinctions

Before describing some of the contemporary examples of non-traditional currencies, it is important to clarify some money distinctions. In some of the literature on new currencies, confusion has sometimes arisen between barter and complementary currencies. Occasionally, barter is erroneously described as any exchange that does not involve the “normal” national currency. By definition, barter is the exchange of goods or services without any form of currency. Barter requires as a prerequisite that the two people involved each have something that the other wants. In technical terms, the parties need to have “matching needs and resources”. This is a strong constraint to the fluidity of exchanges. It is also why money was invented as a medium of exchange in the first place. In contrast, a complementary currency refers to an agreement within a community to accept a non-national currency as a means of payment. Such currencies are called complementary because their intent is not to replace the conventional national currency but to perform social functions that the official currency was not designed to fulfil. It is also complementary because most participants use the normal national currency and a complementary currency in parallel. It is often the case that a single transaction includes partial payments in both currencies at the same time.

Another useful differentiation is the one between fiat money and mutual credit currencies.

A fiat currency, as we saw earlier (Chapter 2), is a currency which is created out of nothing by an authority. For instance, all our national currencies (including the Euro) are fiat currencies.

In contrast, mutual credit currencies are created by the participants themselves in a transaction as a simultaneous debit and credit. A more detailed description on how such currencies operate will be provided hereafter in the case of LETS or Time Dollars, both mutual credit currencies. Thomas Greco found references to such mutual credit systems back in colonial Massachusetts.58 Mutual credit systems are simply a monetary formalization of the tradition of helping each other that is embedded in almost all traditional societies. In Southern France, for example, it used to be called “aller aux aïdats.”

These distinctions will help in identifying the kinds of currency which encourage reciprocity and cooperation, instead of destroying them. Complementary currencies, particularly of the mutual credit variety, have proven effective in achieving that goal. This is so because, in contrast with fiat national currencies, they are compatible with a gift economy. They sometimes even spontaneously fuel a re-birth of a tradition of gift exchanges among neighbors.

Finally, it is notable that none of the currencies which have been most effective at fostering community bear interest. Remember, interest is one of the “obvious” features of our familiar national money systems. It is also the hidden mechanism which was shown to generate competition instead of cooperation among participants (“The Eleventh Round” of Chapter 2).


By far, the most frequent complementary currency system currently operating in the world is the Local Exchange Trading System (LETS). It was re-invented in the early 1980’s by Michael Linton in British Colombia (Canada).59

Canadian Prototypes

In 1983, Michael Linton and David Weston had implemented in Vancouver, Canada, a very simple but effective way to stretch the remaining scarce dollars circulating in high-unemployment communities. He incorporated a local non-profit corporation which is basically a mutual credit company, whose only indispensable asset was a personal computer. It is a membership organization, and a small entrance fee is paid to cover the set-up costs.

Just after this pilot episode, in the Northeastern provinces of Canada, years of over-fishing created a sudden necessity for fishing quotas to try to replenish the stocks. Just as suddenly, this brought to a halt entire fishing communities in the Maritime Provinces. Previously prosperous villages suddenly found themselves at the brink of disaster with 30-40% unemployment levels. The LETS model became a way to address this crisis.

So let us follow Amy who has decided to participate in her local LETS-Happyville system after she had paid her $5 set-up fee and $10 yearly membership fee.60 Amy’s account begins at zero balances. She sees from the (electronic and/or physical) notice-board that Sarah is offering automobile tune- ups, and John is the local dentist participating in the system. She also sees that Harold wants fresh- baked whole wheat bread. Amy sees potential trades in all of these. She negotiates with Sarah for her car tune-up for 30 “green dollars” plus $20 in cash for the new spark plugs. She gets her dental treatment from John for 50 “green dollars” and $10 in cash. She agrees to provide Harold with two breads this week for 10 “green dollars” and finds out that he also would like some of the vegetables from her garden for another 30 “green dollars.”

The cash component is handled by all the participants directly as in any ordinary sales transaction, and only the “green dollars” component is called in by phone or by a note to the LETS system. At the end, Amy ends up obtaining what she needs for only $30 in cash for a total value of $110 of goods and services. She also ends up still owing another 40 “green dollars” to the community as a whole. The “green dollars” are not a scarce currency; as soon as people agree on a trade the currency is available. Neither do they pitch the participants against each other the way the normal dollar does (remember the Eleventh Round?). In most systems, there is no interest charge on any balances. Finally, the information about any individual’s outstanding debit or credit balance is available to all participants so that there is a self-policing process to avoid abuse of the system by attempts to accumulate unreasonable debits.

Canada has 25 to 30 operating LETS systems at this point.

However, LETS became much bigger in the UK than in its country of origin.. From there it spread to a dozen other countries, primarily in regions where high unemployment levels prevailed.


In 1994, Alan Wheatley, a Reuter journalist, filed this report:

“Manchester, England,

Warminster has its ‘link’. Tomes its ‘acorn’ and Manchester its ‘bobbin’.

They are the currencies of some of the 200 or so local exchanges trading schemes (LETS) that have sprung up in Britain, most of them in the past 18 months, as self-help initiatives to revive economic activity in communities ravaged by recession. “I think they’ve become so popular because cash is short. That’s the common story everywhere,” says Siobhan Harpur, who works at the National Museum for Labor History in Manchester, and who helped set up a scheme in that city of 3 million people…

“At least 40 percent of the economy of a city like Manchester should be in complementary currency by the year 2000” Harpur says. “No one should have to work in sterling terms more than 20 hours a week at the most.”

The local council is encouraging the scheme by extending a 10,000 Pound loan to be repaid in bobbins, which the council will use to buy child-minding and other services…

Ed Mayo, director of the New Economics Foundation, an “alternative economics” think tank, says complementary currency schemes could be particularly useful in greasing the wheels of commerce between cash-strapped small businesses. ‘They have tight credit lines and could well benefit from local schemes to trade between themselves’ says Mayo, who is founding a LETS in Greenwich, southeast London. […]

It would be wrong to dismiss complementary currencies as the passing fad of misty-eyed do- gooders. Some people get involved because they’re interested in recreating a community,’ Mayo says. ‘But for others it’s not a hobby, it’s a livelihood. It gives them access to goods and services they might not otherwise be able to get hold of.’.

Geoff Mulgan, director of the Demos think tank, believes parallel economies such as LETS could provide jobs for many people without the skills or competence to participate in what he calls the money-based ‘first economy’. ‘Moreover, they may turn out to fit better within the culture of much of modern Brit in, and in particular the culture of the young unemployed, than traditional solutions,’ Mulgan says.”

A group of dedicated volunteers were behind the remarkable community information campaign which made the UK a fertile ground for complementary currency efforts. In 1991, a group centered around LETSLINK UK including Liz Shephard and Harry Turner, were key agents in this process. Several innovations or expansions on the original model resulted from all this, such as: the increased importance of the “Directory of Wants and Offers,” or new software developments. The Schumacher Award for “triumph of individual effort” formally recognized all these efforts. The role of the New Economics Foundation, a spin-off from The Other Economic Summit (TOES) meetings should also be mentioned. Some specialized LETS project have also been successfully developed around healthcare issues (see sidebar).

Mental Healthcare Project based on LETS

The “Creative Living Centre” in Manchester is a charitable company that supports people with emotional distress (patients with light mental health problems). It is based in a building owned by a health trust which was part of a huge mental hospital, and is operated in cooperation with National MIND (a mental health charity) and a group of people with personal experience of their own distress. A LETSystem is one of the mechanisms that provides networking support.

About 100 people come in for support on a weekly basis. The Creative Living LETS has 150 members. There is a LETS shop, people can hire rooms and space for LETS and there are regular markets and auctions. There is a community gardening project which has an allotment and uses the garden around the center, a coffee shop, and regular arts classes are offered through LETS. Complementary therapists offer some of their services through LETS, and there is the usual mix of services and goods sold trough the system entirely independently of the center.

As a result of this experiment, a national LETS and Mental Health Conference was held in Manchester which attracted hundreds of people. There are now a number of health trusts in the UK incorporating a LETSystem into their designs for “Healthy Living Centres” as part of a government initiative for bringing communities together around health issues.

The Minister for Social Security of the Conservative government, Mr. Peter Baldwin, announced on December 8, 1993, that “LETS type credits will not be counted as income for the purpose of the Social Security income test. LETS type schemes are a useful community initiative which should not be artificially discouraged by Social Security arrangements. I believe there is a strong case for giving Social Security clients the flexibility to participate in such schemes. In particular, LETS type schemes represent a form of activity that assists our clients in keeping in contact with labor market skills and habits, and indeed, in contact with the labor market itself.”

As of 1998, there are well over 400 LETS systems operational in the UK, a 100% growth since Alan Wheatley’s report in 1994. It should be noted, however, that impressive as this may all seem, in the big picture of economic things, the whole process remains still marginal. An estimated 30,000 people are involved with a total annual turnover of only UK Pounds 2.2 Million.61

Another indication of the depth of the social experimentation with money that is going on in the UK is that there are now 500 credit unions (community created pools of ‘normal’ national currency to lend among members) operational in the country.62

New Zealand

David James, a Quaker from Whangarei, and Vivian Hutchinson, a community activist from New Plymouth, both in New Zealand, participated in a Quaker-organized alternative economics workshop in London in 1984.

Back home, the new Lange-Douglas government had commenced the most significant restructuring of economic policies since the Great Depression. These new policies, combined with a global economic slowdown, created high unemployment throughout New Zealand, particularly in the rural/forestry areas.

By 1986, both the ideas and the social stress had reached critical mass, and David James launched the first New Zealand “green dollar” scheme: the Whangarei Exchange and Barter System (WEBS for short). He further conducted workshops to disseminate the idea. A government official, Hilary Allison, Regional Manager of the Alternative Employment Program of the Department of Internal Affairs in Dunedin, decided to fund an information tour of Otago and Southland in 1988. The national Television news broadcast (TVNZ) covered the success story of Whangarei, and the process spread like wildfire across the country.

We know more about the New Zealand situation than many others thanks to the first Ph.D. Thesis about LETS systems, by Mark Jackson.63 He started off with an inventory of 61 green dollar systems as listed in the Spring 1993 issue of the New Zealand Green Dollar Quarterly. He found 47 of these systems functioning well, and 14 moribund or deceased.

The backgrounds of the “movers and shakers” who were instrumental in getting green dollar systems successful in New Zealand provide an insight into the amazing variety of people who are pioneering complementary currency technologies. They include government officials, Christian fundamentalists, hippies, mainstream political reformers, as well as ordinary citizens.

One of the most intriguing findings of this survey is the involvement of women in the process is also increasing with time, independently of their social or political background. In fact, in communities using the green dollar, women have often the highest participation rate.

Last but not least, there have been substantial debates and evaluations in New Zealand within the Internal Revenue Department (IRD, the tax authority) and the Department of Social Welfare (DSW, the administrator of the welfare and unemployment support system).

The tax authority in New Zealand has followed a general ruling that whenever systematic professional services are involved (e.g. a plumber doing a plumbing job), the green dollar income should be accounted for as regular income, taxes are therefore due, and remain payable in NZ$. However, when the activity is outside of the normal activity (e.g. that same plumber repairing a car and getting paid in green dollars), then no taxes are due.

The Department of Social Welfare has been directly instrumental in funding a number of start-up projects in LETS systems However, different regional offices of the DSW within the country had different interpretations about whether green income was making the participant ineligible for regular unemployment benefits or not. Finally, after an evaluation of the social effects in the field, the DSW ruled not to consider the green dollars as a reason to exclude people from the normal support system because:

  1. The green dollar systems help the beneficiaries to maintain and acquire skills;
  2. Participation helps maintain motivation to search for ‘normal’ jobs; and
  3. These systems are often a springboard to self-employment.

Currently, Australia has the highest ratio of complementary currency systems per capita. Although the government has not been as actively involved as in New Zealand in supporting LETS systems, the latest estimate is that there are over 200 systems operational today. In 1991 there were 45 systems in Australia, and only three years later four times that amount. One of the best known is the Blue Mountains LETS near Sidney, with well over 1,000 members.

Among the reasons for this blossoming is that, after evaluating the results in the field, provincial governments, such as the one of Western Australia, help launch new LETS systems.

The French case: “Le Grain de Sel”

We could go on and on, covering every single Northern European country: Scandinavia, Germany, the Low Countries, and make an inventory of what is happening in each.

Instead we will take the story of only one more country, France, because it illustrates the explosive nature of the multiplication process of complementary currencies when the unemployment conditions are serious enough. As the French unemployment level shot up in the early 1990s, Claude Freysonnet, an organic farming specialist from Ariège, decided to take an initiative. In 1993, she heard about complementary currencies from Phillip Forrer, a Dutch friend. And presto, here comes “le Grain de Sel” (literally the “grain of salt,” which in French, as in English, has the double meaning of something not taken quite seriously). SEL is also the acronym for “Système d’Échange Local” (Local Exchange System).

Today, Claude sells her production of organic cheeses to the 300 participants of her “Grain de Sel” network of Ariège. She has spent her own “Grain de Sel” income on fruit trees for her garden, bicycles for the kids, even the car she drives. In addition to the one-to-one deals typically found in LETS systems, every fortnight in Ariège, there is a new tradition: a very special big party in the market place of Poix. People come to trade not only their cheeses, fruits and cakes, as in the normal market days, but also hours of plumbing, hair cuts, sailing or English lessons. Only “Grains de Sel” accepted!

Many people from all around the area come just “because it is more fun this way.”

Two and a half years later, Claude Freysonnet has imitators in France. A lot of imitators. There are now over 200 “Sel” networks in France. Some have decided to call their unit of account “la Truffe” or “Le Coquillage”( the truffle, the seashell).

In addition, there are some 350 centers specializing exclusively in trading knowledge and information (“Réseaux d’Échange de Savoir”). That concept has been around in neighboring countries as well. A typical example is what happens in “La Maison de l’Amitié” (“the house of friendships”) in the sleepy town of Beauraing, Belgium. Their little brochure has as cover title “I teach you, you teach me, we learn together This process has spawned a book on how to start your own information exchange center.64

According to a survey made in December 1994 by the CREDOC (Centre de Recherche pour l’Étude et l’Observation des Conditions de vie) one out of four French are now performing exchanges not using the official French Franc: 2% of all the French now trade mostly that way, 10% regularly, another 13% occasionally.

Even in France, there are professional party poopers. The “Fisc” (the tax authority) is interested in its cut on exchanges over 20,000 FF per year, or if the exchange occurs in the normal professional activity of the person (as we saw in the UK).


“WIR”65 is a Swiss example of a complementary currency run by and for a community of individuals and small business people. It is interesting for three reasons. First, it is the oldest continuous system in the modern Western world. It was founded in 1934 by 16 members in Zurich, and has continuously grown in both number of participants and volume of business for over sixty years. Second, it illustrates that complementary currencies make sense, even in the most conservative and hard – nosed capitalist country with one of the highest standards of living in the world. Finally, it is a system which has grown to a respectable size. In 1994, on the sixtieth anniversary of the WIR system annual volume reached 2.5 billion Swiss Francs ( i.e., over two billion dollars). Its 80,000 members live now in all areas of the country. It operates in four languages and owns its own bank building, as well as six impressive regional offices.

“WIR” is an abbreviation for “Wirtschaftsring-Genossenschaft” (roughly translated as “Economic Mutual Support Circle”), and also means the pronoun “We” in German.

Two of its key founding members – Werner Zimmerman and Paul Enz – were true visionaries for their time (see sidebar on next page.)

WIR’s Founders

In 1933, Werner Zimmerman published a paper about “The liberation of women” where he demanded “monetary compensation for the work of mothers.” Note that this is Switzerland, the last European country to have given the right to vote to women (1971). In 1935 he gave speeches on “Dying forests and rivers – the issue of living water,” and in 1972 published “Nuclear Energy – Blessing or Curse?.”

Paul Enz founded in 1931 a horticulture foundation whose mission was the “care and promotion of the physical and ethical recovery of the whole nation.” He also managed a chain of natural food stores in Zurich.

Zimmerman and Enz had studied the theories of Silvio Gesell and decided to copy two “circles” which had applied these theories in Scandinavia and the Baltics during the early 1930’s.

In their own words: “What do we want? – Satisfying work, fair earnings and secured prosperity. This is what all working people strive for economically, and what they could and should all have….”66 The name “WIR” was explained by Zimmerman in opposition to “Ich”(German for “I”) because together as a community, we better protect the interests of the individual.”67

The start was rocky, given that the creation of this complementary currency was heavily attacked by the press, the banks, and the more traditional business circles. But they managed to raise some 140,000 SF of working capital, mostly in amounts of 50 and 100 SF. Given that this was in the middle of the Great Depression, this was an extraordinary achievement in its own right.

The WIR system was started with about 2,950 members in 1935, and its low point was in 1945, when the turmoil of the war had brought membership down to only 624 members. After the war, it gradually picked up year after year, reaching 12,567 members in 1960, 24,227 members by 1980 and over 80,000 members now. Most members are middle-class individuals and small- to medium-sized businesses. The volume of business has grown remarkably.

Total turnover was still only 196 million SF in 1973, reached close to 1 billion SF by 1980, and is valued now at over 2.5 billion SF. The volume of credits outstanding in 1994 was the equivalent of about 1 billion SF.

There are two ways by which a member can obtain WIR: either by selling a good or service to someone else in the circle, or by obtaining a ‘WIR” credit from the coordinating center. In other words, the WIR is a hybrid of mutual credit (whenever trading occurs by selling a good directly) and fiat currency (whenever a loan is made from the Center). Such credit has a very low interest rate (1.75% per annum). In practice, these credits are often guaranteed by real estate or another asset. As is true with all currencies, trust remains the key. The WIR credits are automatically removed from circulation whenever a member reimburses a loan to the center.

The value of the WIR is pegged to the Swiss Franc (i.e., 1 WIR = 1 Swiss Franc), but all payments have to be made in WIR. (In technical parlance, the unit of account is the Swiss Franc and the means of payment the WIR.)

Members report that they participate in WIR exchanges for the following reasons:

  • it is a very cost effective way of doing business: commission on sales limited at 0.6% on deals completed in WIR;
  • it gives access to a pre-screened and loyal client base; credit is much cheaper than in national currency;
  • there are other services provided (direct-mail, publicity among members, publications, etc.);
  • it offers a buffer against exterior shock, such as a sudden increase in the national currency interest rate, or other economic disasters;
  • it is a way for small businesses to gain some of the advantages to which otherwise only big businesses have access.

WIR, therefore, provides an idea of the economic potential of a complementary currency system when it can reach full maturity.

Regional Development Currencies

One of the most promising applications of complementary currencies – also one of its most recent ones – is its application to regional economic development. It is also an important sign that some significant governmental authorities are starting to take complementary currencies seriously. Two case studies will be presented briefly here: an initiative by the European Commission and perhaps the most impressive one of all by the Japanese Ministry of International Trade and Industry (MITI).


The European Commission (DG V) has been co-financing four pilot regional projects, jointly defined as the “Barataria” projects (described in the website The four prototypes were purposely chosen to be of a different nature from each other. They are:

  • the Scottish SOCS (
  • the ROMA project in the Connaght area, Ireland.
  • Amstelnet in Amsterdam, the Netherlands (email
  • and “3er Sector” project organized by the non-profit La Kalle in the Vallecas district of Madrid, Spain.

The first two were developed in the country side, while the two latter are for city dwellers. The Irish system is a paper scrip currency, while the three others are purely electronic money. In all cases, the normal taxes are due on local currency transactions, including Value Added Taxes (VAT). A few words about each gives a flavor of the range of these applications.

  1. The Scottish experiment is an adaptation of the WIR precedent adapted for regional development purposes. It was launched by Ruth Anderson of the Scottish Rural Forum in 1997. Membership to the SOCSystem is restricted to organizations, such as businesses, governmental agencies and non-profit organizations. Each member has an interest-free (unsecured) line of credit, which is determined on the basis of the number of trading partners and volumes. Additional credit can be granted when the organization can provide some guarantees (secured line credit). The SOCS directory is maintained on a website as well as in periodic print form. Payments are made using credit checks, but other instruments are planned in the future. Membership dues are payable quarterly, and cover administrative overhead and a reserve account for bad debts.
  2. The Irish experiment is operational in what is called the “Black Triangle” in Ireland, the region bordering County Mayo and Roscommon, where economic decline continued even during the 1990s boom period in the rest of the country. It is an area with low density and vanishing population (about 25,000 people) spread over many small farm units. The unit of account is the ROMA which has been issued since January 1999, and it operates like a LETS system but with fairly strict credit rules. This particular project involves Richard Douthwaite, author of Short Circuit: Strenghtening Local Economies for Security in an Unstable World68. This book develops convincingly the reasons for specific regions to create their own currency systems.
  3. Amstelnet is an initiative of Aktie Strohalm Foundation in Amsterdam, the Netherlands. The area covered is one of the highest population densities in the world. It is a business network for companies, professionals and organizations and uses the “Amstelnet Eenheden” (AE “Amstelnet Units” equivalent to one guilder) as unit of account and means of payment. The non-profit Aktie Strohalm is specifically focused on research and implementation of non-traditional currency systems. It has been active for a decade, counts in 1999 a full time staff of 47 people, and has been pioneering several other projects in Holland.
  4. Finally, the Spanish “La Kalle” project is implemented in Vallecas, near Madrid. With 200,000 inhabitants, it is one of the largest working class neighborhoods in the country. The unit of account is the BICS equivalent to 100 pesetas. Interest-free loans are available automatically up to the equivalent of 50,000 pesetas, and after approval from a credit committee for larger amounts. One operating rule is that at least 25% of any trade has to involve BICS units.

Japan’s Next Development Model and “Eco-Money”
Extracts from Memoranda by Tashiharu Kato, MITI)69

“Using the Silicon Valley as a model, Japan needs to actively create diversity in its different regions in order to promote a new socio-economic system based on the local community… In Japan’s movement toward an information society, it must make innovations in its economy and community to take the lead as a front-runner type society. Japan should implement a concrete action plan to carry out its shift to be a part of the next generation information society. This involves a coordination of business, government, education and community, to work together as one organization. Individual regions will develop their own unique industrial clusters, resulting in specific economic bases with entrepreneurial environments and creative communities…

When we look to academia, modern economics does not provide us with any clear-cut solutions. The traditional world view of economics deduces the total movement of the economy from a simple sum of component elements. With this world view, it is impossible to analyze and understand the changes associated with economic shifts from one attractor to another attractor…

The true task of an economic policy is to shift the attractor at the core of the economic movement, and through this effort, to put the economy on the track of solving the problems. In order to do this, we must not only note the decisions made by individuals and corporations who are the constituents of society at the macro-level, we also need to look at the interactions among these…

The Japanese type new development model will be based on regions, and it has the characteristic of a dual structure of regional economy and community.70


One of the key tools he introduces to create the dynamic of simultaneously activating a regional economy and a community is “eco-money”.

“Eco-money is money for the 21st century which can be used in the exchange of varied and ‘soft’ forms of information covering such areas as the environment, social welfare, communities and culture… Eco-money is always used in the direct exchange of items and services so that it does not accelerate any money creation functions. Therefore there is no risk of inflation, creating a bubble economy, or the shrinking of money circulation after the burst of the bubble. .. People can use standard money in parallel with ‘eco-money’ and make efficient use of one or the other to create the most appropriate life-style…The ultimate objective in implementing eco-money is to nurture trust among people, so that a sense of community can be cultivated.”71

Toshiharu Kato, the Director of Service Industries Division of the Ministry of International Trade and Industry (MITI) – the powerful coordination mechanism between government and the corporate world in Japan – completed personally a three year study in the US of two types of high-tech development models: the “Route 128 model” and the “Silicon Valley model”. The former is named after the development of high-tech companies around a nucleus of large corporations (e.g. Raytheon and Hewlett Packard) and universities (e.g. MIT) in the Boston Area; the latter refers to the proliferation of small high-tech computer companies and Venture Capital firms which conglomerated southeast of San Francisco near Stanford University. He concluded that the “Silicon Valley Wave”, based on high density contacts among hundreds of small corporations (without large companies at the center), is the wave of the future for Japan. More impressive still, he pushed his regional development strategy to its logical end by introducing a new concept of regional currencies, which he called “eco-money” (sidebar). He created the Eco Money Network as a non-profit organization which provides local regions with the support needed to introduce local and regional currencies. From four initial pilot projects the experiment has now expanded to ten different implementation models. They vary from a small village (Yamada in the Toyama prefecture), to a town of 16,000 people (Kuriyama in Hokkaido) and whole prefectures (equivalent to a county, specifically Shizuoka, Chiba and Shiga). Some include LETS type currencies, others “Fureai Kippu” (described in the next chapter) and still other integrate various services into a single smartcard system. An impressive list of 27 different types of activities are being integrated by using eco-money, including welfare, education, disaster prevention, environmental protection, services promoting the understanding of cultural assets, as well as a series of “civil businesses” such as enterprises providing natural foods for children with allergies to chemicals, production of soap made from recycled cooking oil, and at-home care for the sick and elderly.

As of October 1999, besides the ten pilot projects, another thirty are in an “assessment” stage (designing the specifications of their own systems, while evaluating the results of the ten pilots projects).

These projects are being combined with the generalization of the use of smart cards by the Ministry of Health and Welfare. Already one of the smartcard pilots in Yokosuka combine health insurance data with eco-money and normal national currency useable for everyday shopping. Plans for a “Next Generation Info-Community Network” expand that concept to include medical care support and allergies data, safety confirmation systems for natural disasters, various licenses, public ID, Internet as well as physical mall shopping, phone card and discount services for long-distance phone calls, gasoline and other services available at discount rates, public transport and travel mileage services. Whether all these functions will end up on a single smartcard or not, the main point remains valid: Japan is determined to be a leader in regional development strategies for the Information Age, and is using the appropriate tool of complementary currencies to achieve it.

Some big corporations are already getting involved in this eco-money process: for instance Nippon Telegraph and Telephone (NTT) is developing software systems in the context of its “Daily Life Welfare Information Network” project (which includes city governance, local businesses and non- profits, healthcare and welfare information, job training and volunteer information, etc.) Similarly, Oracle Japan has expressed interest in getting involved as well.

Financing Small Businesses

To further illustrate the flexibility of these local-currency concepts, here are examples of small businesses which have obtained financing through the use of complementary currencies. In this category fall the Berkshire experiments in Massachusetts or the “Dining Dinero” issued by Cafe de la Paz in Berkeley.

None of the following complementary currencies were designed to be used as a general means of payment, but rather as an alternative financing mechanism for specific predetermined purposes, supported by the community.

The four main Berkshire experiments are Deli Dollars, Berkshire Farm Preserve Notes, Monterey General Store Scrip and Knitter Restaurant scrip.72 Normal banking sources were not interested in providing such financing . All these experiments follow a similar pattern which we will illustrate with the Farm Preserve Notes. The Farm Preserve Notes – officially sanctioned by the Massachusetts State Agricultural Department – provide working capital for some small farmers who sell them against normal US dollars. These certificates are redeemable at the next crop against merchandise and produce. A discount is built into the price of this future produce to provide an incentive to the buyer to purchase now what will become available only months from now. This approach was very well received by the clients, and enabled the farmer to raise working capital immediately, while ensuring him in advance the sale of part of his crop with reliable clients in the future.

The Cafe de la Paz in Berkeley, CA, needed capital for refurbishing a community meeting room on the side of the main restaurant. It approached several banks with a request for financing. When none were forthcoming, the Cafe de la Paz issued a scrip which was redeemable against lunches and dinners in the future. The accounting works as follows: a client buys for $100 the value of 120 “Dining Dinero” (so the client gets a 20% discount on the corresponding meals). As the cost of goods sold is about $40, Cafe de la Paz still makes a $60 profit on the transaction. It also obtains the financing needed, and in addition has increased the loyalty of its clients. It is a win-win for everybody.

Local Loyalty Schemes

The last examples of a special type of complementary currency aiming at creating local employment are local loyalty schemes. It is now generally recognized that small businesses are the major source of future employment. However, the development of superstores and American-style shopping malls has continued unabated over the past decades. For instance, in the UK, superstores have increased their share of retail space from 12.9% to 23% over the ten years to 1996. In some areas 70% of the grocery market is accounted by just two surperchains.73 The net result: systematic death of the local retail outlets, and the transformation of downtown areas into ghost towns with high unemployment and crime rates. This doesn’t have to remain necessarily so, as was proven by a butcher’s initiative in a small English town (sidebar).

Saving Downtown: the case of Leominster74

The local butcher Graham Hurley decided to fight back against the superstores in his small town of Leominster when 17% of local downtown shops had already closed down. .Local unemployment had risen in parallel to 8.1%.

He invented a scheme which he called “Loyal to Leominster”. Local businesses paid 20 UK Pounds to join, and received in exchange “Loyal to Leominster” cards and posters. Within a year, 63 businesses had joined and 8,000 loyalty cards had been issued (which later grew further to 15,000 cards). Temporary “Visitor to Leominster” cards were also issued to attract tourist trade. Some businesses reported as much as a 30% increase in sales. The scheme was so successful, that several new businesses moved to town to take advantage of it.

Leominster’s idea was copied the next year by nearby Midsummer Norton and Radstock, which attracted 8,000 customers and an increase in turnover of 15%. Bath followed the same year with a “Bath Shopping Card”.

Newcastle, Wilmslow, New Milton, Havant and Harlesden all did the same thing somewhat later.

The full potential of these schemes has definitely not been exploited so far, as there has been no effort to collect the names and addresses of members or to cross-market additional services to them.

The possibilities for local loyalty schemes for revitalizing local downtowns, stimulating small business employment, competing more effectively against the larger distribution systems, and improving the quality of life generally, has only been barely tapped so far. With the growth of Internet businesses, expected to become one fifth of European company sales in five years time75, the importance for groups of smaller businesses to learn the sophisticated use of complementary currencies can only increase over time.

Conclusion: Complementary Currencies as “Early Prototypes”.

In conclusion, complementary currencies make sense socially, economically and from a business viewpoint. It should also be noted that many of the current complementary currency systems should be considered in a stage where aeronautical engineering was when the Wright Brothers made their first flying attempts. The remarkable feat about the Wright Brothers was that their contraption did fly at all. But it was nevertheless their and their “crazy” colleagues pragmatic demonstrations that ultimately has made possible that we and our most perishable products can fly routinely around the world. It is also significant that the New York Times mentioned for the first time the Wright Brothers achievement only four years after the fact, and then only because the President of the United States was present at such a demonstration. The actual understanding of the theory of why these contraptions could fly had to wait for many more years after that.

There should be no shame attached to considering most current versions of complementary currencies as “early prototypes”. Practically all of today’s systems remain obviously marginal in terms of total economic volume for instance. Just like the Wright Brothers, they are typically being ignored, or when noticed sometimes ridiculed, by mainstream academic or media pundits. Most are still waiting to be recognized by some “Presidential witness” to be taken seriously. But what matters for us here is that they have already proven that they can “fly”, that they actually produce the intended effects at the scale for which they were designed.

Specifically, the following findings have already been demonstrated in practice:

  1. Complementary currencies make possible transactions and exchanges that otherwise would not occur. This means in practice that more economic activity – implying more work and wealth – is being created than would otherwise be the case. In two separate field surveys, in one case about a third and in the other more than half of the people interviewed actually started to provide their services as a direct result of the availability of the complementary currencies in their community.76
  2. This additional work and wealth is being generated where it is most needed without the need for taxes, government bureaucracy and without creating the risk of inflation in the mainstream economy (this last point will be developed in detail in Chapter 7). Note that this is additional wealth, not a result of redistribution of existing wealth. Therefore, complementary currencies are not a new form of welfare. Welfare is a compulsory transfer resources from the rich to the poor via taxes. In contrast, the use of complementary currencies is voluntary for everyone; it creates new wealth, and – once started – becomes a completely self-funding mechanism to address many social problems without requiring permanent subsidies or taxes.
  3. Local complementary currencies make not only social sense, but also business sense. They enable locally owned businesses to better compete against the large chain distribution systems. Small local businesses can more easily accept the local currency, because they can spend them in the community — as is the case for small farmers who can use local labor at harvest time. In contrast, large chains have suppliers that are typically far away, and are therefore less likely to be interested in local currency participation. In this sense, complementary currencies can also contribute to making the local economy more self-reliant, a modest but healthy counterweight to the relentless globalisation of the economy. This creates a more level economic playing field for smaller merchants, which ensures better competition and therefore overall benefits to the consumers and society.
  4. The WIR case and the one of Curitiba show that complementary currency systems can be scaled up to quite substantial volumes – in the first case to 80,000 members and several billion dollars of trade, and in the latter to a city of several million people in Third World conditions.

Nevertheless, I do not claim that complementary currencies are a sufficient solution to the complex problems of unemployment in the Information Age. I specifically do not claim that more traditional forms of employment encouragement should not be implemented. My point is simply that complementary currencies are potentially an important tool – that so far often has been overlooked – and that they deserve more attention than has been the case so far. Given the foreseeable scale of the employment problem during the transition period of the next decades, can we afford to ignore tools that have shown that they can be effective?


Table of Contents










  1. Needleman, Jacob Money and the Meaning of Life (New York: Doubleday Currency, 1991) pg, 177
  2. Timberlake, Richard H. “Private Production of Scrip-Money in the Isolated Community” Journal of Money, Credit, and Banking Vol 19 # 4 (November 1987) pg 437-447.
  3. An entire book is dedicated to that specific issue: Mysterium Geld: Emotional Bedeutung und Wirkungsweise eines Tabus (Munich: Riemann Verlag, March 2000).
  4. Naisbitt, John. Megatrends (New York: Warner Books, 1982) pg. 183
  5. Chicken Soup for the Soul (Deerfield Beach, Florida: Health Communications, Inc. 1993) pg 149
  6. First and second meaning of the word “JOB” in the Oxford English Dictionary.
  7. The original text is “ That weore waes begunnen onzean Godes willan” Aelfric Homilies (11th century)
  8. Premier’s Council on Health Strategy: Nurturing Health: A Framework on the Determinants of Health (Toronto, 1991) pg 7.
  9. Richard Beeston “Computers could act as diplomats, says report” The Times (Wednesday May 17, 2000 pg 18) commenting on the report by the Foreign Policy Center entitled Going Public: Diplomacy for the Information Society.
  10. One of the better surveys of this problem is from Rifkin, Jeremy The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era (New York: Putnam, 1995). Several of the subsequent examples are extracted from this work.
  11. Both the Fortune and Wall Street Journal references as quoted in Netview (Global Business Network News) Volume 7, Number 1 (Winter 1996) respectively pg. 16 and pg. 9
  12. Data from The Economist (September 28, 1996) pg. 13
  13. The book that got it all rolling was Hammer, Michael & Champy, James Reengineering the Corporation: A Manifesto for Business Revolution (New York: Harper Business, 1994)
  14. quoted in The New Leaders (San Francisco: Sterling and Stone, Co.) May-June 1996 pg. . 6
  15. Bridges, William Ibidem
  16. Bassett, Philip: “Decline of full-time work to continue, says forecast” in The Times (London: October 29, 1996)
  17. reported by Melania Brian in The Independent (October 15, 1996)
  18. Bridges, William Understanding Today’s Job/Shift Conference in San Francisco, April 1995. Many of the US corporate examples provided in this section come from his research.
  19. Krugman, Paul The Accidental Theorist and other Dispatches from the Dismal Science (New York, London: W.W. Norton & Co, 1998) particularly Part I “Jobs, Jobs, Jobs”)
  20. Greider, William One World, Ready or Not ; Reich, Robert Inside the Cabinet
  21. Krugman, Paul Ibid. Pg 31
  22. Keynes, John Maynard Essay on Persuasion (1930)
  23. Wiener, Norbert: The Human Use of Human Beings (New York: Houghton Mifflin, 1950) pg 162
  24. Machiavelli, Nicolo in the anthology by Bouthout, Gaston L’Art de le Politique (Paris: Editions Seghers, 1969) pg. 146
  25. Case material assembled by Jeremy Rifkin for an article “African Americans and Automation” Utne Reader Number 69 (May-June 1995) pg. 68
  26. Nicholas Leman quoted by Rifkin Ibid.
  27. Tom Kahn The Problem of the Negro Movement (1962) quoted by Rifkin Ibid.
  28. ???
  29. Lakoff, George Moral Politics:What Conservatives Know that Liberals Don’t (Chicago and London: University of Chicago Press, 1996). Pgs 33-34
  30. Rifkin, Jeremy The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era (New York: Putnam, 1995)
  31. Cradall, BC Nanotechnology: Molecular Speculations on Global Abundance (Cambridge: The MIT Press, 1996). Pg. 52.
  32. Michael, Don: Automation: the Silent Conquest( ); Michael, Don The Unprepared Society( ); Toffler, Alvin: Future Shock( )
  33. quote by philosopher Pogo Possum.
  34. Cahn, Edgar :qoted in YES! A Journal of Positive Futures special issue on Money: Print your Own (#2 Spring 1997) pg. 12
  35. There is a remarkable catalog of over 300 pages which makes an inventory of several thousand examples of which sample currencies have been kept. See Mitchell, Ralph A. And Shafer, Neil Standard Catalog of Depression Scrip of the United States in the 1930’s including Canada and Mexico (Iola, Wisconsin 54990: Krause Publications, 1984). The Chase Manhattan Bank Museum of Money of the World has also an extensive collection of these items.
  36. Part of the Smithsonian Institution collection in Washington D.C.
  37. Among others, Prof Joachim Starbatty (Tübingen), Prof Oswald Hahn (Nürnberg), Prof. Hans C. Binswanger (St Gallen), Prof. Dietrich Suhr (Augsburg). Gesell’s work in German includes 18 volumes Gesammte Werke (ed. Werner Onken). Only his main book was published in English under the title Natural Economic Order, but dates from 1958 (translated by Philip Pye). Among the noteworthy exceptions of the unfamiliarity with Gesell’s work outside Germany, one could mention T. Cowen, R. Krosner, William Darrity and Mario Seccareccia all authors of recent publications about Gesell’s work.
  38. see Chapter 8.
  39. Johnson, Paul Modern Times: The World from the Twenties to the Eighties (New York: Harper and Row, 1983) pg. 134-135.
  40. Detailed numbers are available in Whale, P.B. Joint-Stock Banking in Germany (London, 1930, 1968) pg. 210
  41. Letters specific to this case include the letter from the Board of the Reichsbank (I 10513) to the Minister of Finance dated 8/8/1931 (Bundesbank Archiv R 31.01/15345, pg 145). A recent study including this case was performed by Million, Claude Nebenwärungen gegen Absatzstockung und Beschäftigungskrise” (Unpublished thesis at the Humbold University, Berlin April 9, 1998).
  42. The election of November 6, 1932 has consciously been left out of this graph because after the election of July 1932, Hitler had refused to become vice-chancellor under von Papen , forcing a new election only a few months later. As a consequence of this “All or Nothing” attitude, the National-Socialists lost 2 million votes in November 1932, but this backlash had clearly to do with Hitler’s intransigence and not with unemployment fluctuations.
  43. Sources: Wörgl’s “Heimat Museum” and Schwartz, Fritz Das Experiment von Wörgl (Bern: Genossenschaft Verlag Freiwirtschaftlicher Schriften, 1951).
  44. Unterguggenbergers Programm January 8, 1934. (Wörgl Heimat Museum)
  45. Fisher, Irving “Stamped Scrip and the Depression” Fourth Letter to the Editor The New Republic Vol 74, April 12, 1933 pg 246.
  46. Fisher, Irwing Stamp Scrip (New York: Adelphi Co., 1933)
  47. Mitchell, Ralph A. And Shafer, Neil Standard Catalog of Depression Scrip of the United States in the 1930’s including Canada and Mexico (Iola, Wisconsin 54990, Krause Publications, 1984).
  48. Schwartz, Fritz Das Experiment von Wörgl (Bern: Genossenschaft Verlag Freiwirtschaftlicher Schriften, 1951). Pg 14.
  49. Roosevel’t speech of March 4, 1933.
  50. Title of the book about him by Norman Muhlen, published in New York in 1939.
  51. Schacht, Hjalmar Abrechnung mit Hitler (Hamburg, 1948) pg 29-32
  52. Goebbels, Joseph (ed. Hugh Trevor-Roper) The Goebbels Diary – The Last Days (London, 1978)
  53. Marsh, David The Bundesbank: The Bank that Rules Europe (London: Heineman , 1992) pg 108
  54. Dodd, William and Dodd, Martha Ambassadors Dodd’s Diary 1933-38 (New York, 1941) pg 176
  55. Ritter, Gerhard Carl Goederer und die Deutsche Widerstandbewegung (Stuttgart, 1954)
  56. Marsh, David ibidem pg 110.
  57. Sources come mostly from Internet websites, particularly This site surveys data from a variety of other sites including a/o: Landsman Community Services, Canada; Letslink, UK; “Grains de Sel”, France []; Time Dollar Institute, Washington D.C. Germanic countries] .Ithaca Hours
  58. ???
  59. Linton, Michael and Greco, Thomas “The Local Employment and Trading System” in Whole Earth Review Number 55, Summer 1987. Also for one the best technical overviews on LETS and other alternative systems see Greco, Thomas New Money for Healthy Communities (Thomas Greco, Publisher. POBox 42663, Tucson AR 85733).
  60. adapted from Greco, Thomas Ibid. pg. 92.
  61. Mowat, Iain: The growing trend toward Local Exchange Trading Systems within Industrialised Nations (Honours Disertation at the Department of Economics of the University of Strathclyde, 1997-98) pg 3-4.
  62. New Economics Foundation: Community Works cited in New Economics Magazine #41, Spring 1997
  63. Jackson, Mark Helping Ourselves: New Zealand’s Green Dollar Exchanges (Bendigo: La Trobe University POBox 199 Bendigo 3550 Victoria Australia, 1996). It is further interesting that this thesis was a result of the ANZAC Fellowship Program, a reciprocal arrangement between Australia and New Zealand for people who have shown distinction in their fields and could benefit from research in the other country. Mark Jackson can also be contacted via e- mail on
  64. Suffrin, Claire and Marc-Heber Appel aux Intelligences. The testimonies from the use of the system come from Maison de l’Amitié, Allée du Nondeux, 5570 Beauraing, Belgium.
  65. Sources: 50 ans de Cercle Economique WIR (publication in honor of the 50th anniversary of WIR) October 1984 Une entreprise de services et une banque pour le developpement economique des PME publication by WIR. Also E. Simon Enstehung und Entwicklung des Schweizerischen Wirtschaftringes (Formation and Development of the Swiss Business Circle); and P. Enz Wie und warum der WIR enststand (why and how the WIR was formed).
  66. WIR-Nachrichten (Wir News) Number 1, November 1934.
  67. Speech by Werner Zimmerman, Fall Conference of 1954.
  68. Douthwaite, Richard Short CircuitL Strenghtening Local Economies for Security in an Unstable World (Dublin:: A resurgence Book, 1996)
  69. Based on personal discussions with Kato-san in Tokyo in September 1999, and on extracts from several documents including Kato, Toshiharu Silicon Valley Model (NTT Books, in Japanese); and the website
  70. Kato, Toshiharu “Silicon Valley Wave: Toward the Creation of the Next Generation Information Society” italics added.
  71. Kato, Toshiharu “Eco-Money: Its Significance and Possibilities in the 21st Century”
  72. See Washington Post Monday, May 20, 1991, pg. A1. Also The Berkshire Record April 26, 1991 pg. B1. All four experiments and several others are also analyzed in Greco, Thomas New Money for Healthy Communities (Tucson, AR. Thomas Greco Publisher, POBox 42663, AR 85733)
  73. Marketing May 9, 1996.
  74. Worthington, Steve & Halsworth, Alan “Leominster card boosts town fortune” Retail Week June 28, 1996.
  75. Boyle, David E-Money (Special Report of the Financial Times, December 1999).
  76. The first was a study performed by the Maryland Institute for Aging on Time Dollar systems, and the second a field survey performed on the BREAD system, a very young local currency system operating in Berkeley, California. In this latter case 22 people out of a total of 40 interviewed in this system reported they had started the specific services they supplied to the network as a direct result of the creation of BREAD. It should be emphasized that the sample of the first survey is more reliable than the second. The 40 people interviewed for the BREAD study remains too small to be statistically significant. More hard data on the social and micro-economic impact of complementary currencies would clearly be useful…See Kobayashi, Kazunori Community Currency (Unpublished Senior Thesis, May 9, 1999). Berkeley Bread Case Study.