I recently read a pre-release manuscript that has since been published. Rethinking Money: How New Currencies Turn Scarcity into Prosperity is easily the best book I have read this year. Financial systems and currencies are not new topical areas for me but I was pleasantly surprised and then outraged with what I learned from some case studies in this new release by Bernard Lietaer and Jacqui Dunne. Many of you reading are already familiar with the Chiemgauer, Brixton pound, and other alternative, local currencies in operation right now in the US, Germany, UK, and elsewhere. We are also regularly informed that a solution to long-term economic stagnation is to go back to gold-backed currency and that devaluation is primarily attributed to the floating currency policies initiated in the 1960s and 70s. However, these authors convincingly argue otherwise with both startling historical precedents and emergent strategies taking place in the present day.
The crux of the argument of the book is that local currencies have far greater velocity or turnover than national currencies. The key factor that seems to underpin a successful operation, in addition to mutual trust, is a slight demurrage fee, meaning in this case that the currency must lose a small portion of its value in 30 to 90 days in order to encourage movement, which is the essential factor in wealth creation (or sensation).
The most sensational and disturbing portion of the book is worth outlining – the authors cite a case I had never heard of. In the 1920s and 30s, the German-speaking world was economically decimated through both losing World War I and the reparation debts that famously created nightmarish inflation in the Weimar Republic era. At this time, inflation was so intense that people were paid twice daily and had to scramble to the Lebensmittelgeschäft (grocery store) while prices skyrocketed. What is not known is that many German and Austrian towns developed their own currencies to avoid business closures and to meet their municipal budgets.
In the case of Wörgl, Austria, in the Tyrolean Alps, in 1932, a situation developed that was later called “Miracle of Wörgl” (chronicled in the book in pages 177-8 and reiterated here). Facing 30% unemployment and an inability to meet payroll for the employees of the city, the town’s mayor, Michael Unterguggenberger, employed an economic theory of Silvio Gesell of “Freigeld” (free money), issuing labor certificates. The result was more powerful than the creators probably imagined or intended. Within a couple of months, the town was the only one in Austria with full employment and they encountered the peculiar situation of people paying their taxes early. “[W]hen people ran out of places to spend their local currency, they would pay their taxes early, resulting in a huge increase in the town’s revenues” (pg. 178). The town carried out all of their intended projects, but also built additional houses, a reservoir, a ski jump, and a bridge which still stands today. It was estimated that this money circulated 12-14 times more than Austrian money and the situation drew so much attention that it brought about a special visit from the French Prime Minister, Edouard Dalladier. However, the Austrian Central Bank shut down the operation one year later and within a couple of months the town faced 30% unemployment again.
The most terrifying thing about this and other less notable experiments is that there may be a connection to their failure and the rise of fascism. Cooperative currencies were in use in Germany and Austria primarily from the 1924 to 1930, according to Lietaer and Dunne, and during this time the support and representation for the National Socialists fell from 6.6% to 2.6% in Germany. When alternative currencies were outlawed , employment increased by 500% in three years and the percentage of seats for the Nazi Party went from 18.3% in 1930 to 43.9% by 1933, the year that Hitler consolidated power.
Most hauntingly perhaps, as I learned here, the plaque at the bridge proclaims “This bridge was built with our own Free Money.”
There are other examples in the book of Switzerland having an inter-business currency that helped them stave off instability in the 2008-present crisis, particularly when the Swiss franc overheated in 2011, and then also an alternative banking system in Sweden whereby an operation somewhat similar to a credit union run by volunteers charges low or no interest, but requires loan seekers to hold deposits for several years before partaking in a mortgage of 15 years, and then having to keep the title to the house in the “bank” a further 12 years (thus funding other mortgage seekers), before being able to pull out the money, and thus having a huge savings package available.
One possible ideal scenario they advocate is a situation whereby several currencies are used for different functions. There could be a global reference currency, three main international currencies, scores of national currencies, dozens of regional currencies, even more local cooperative currencies, and a wide range of functional currencies dependent upon how the funds are to be used (199).
The message here is one which I try to drive home but where the authors have succinctly backed up through empirical evidence. Value and unlimited potential are literally omnipresent and centralization – mechanisms which pull money to one administrative location and then try to divvy it out – is not the way to handle our collective wealth-producing capacities.