The Consensus Distributed virtual conference had some pretty interesting sessions this year. There was a lot of talk about disruption coming not just to the payments business but to money itself, and this time is wasn’t coming from the Bitcoin maximalists. Some of the fantastical futurists predicting a fundamental shift in the set of international monetary arrangements (eg, me) think that it isn’t simply about new technology enabling decentralised alternatives but about a confluence of economic and political factors that create an environment for new technologies to take root. Things really are about to change.
This may seem a radical prediction, but it really isn’t. People think about money as a law of nature, as a kind of constant, but the way that money works today is not only just one of many ways in which it could work, it’s a relatively recent set of arrangements in the great scheme of things. It wasn’t that long ago that the developed world was on a commodity standard (ie, gold) and there was no national fiat currency. Go back 150 years and America did not have a central bank and a century ago there wasn’t even a circulating medium of exchange.
Wait? No money? Yes. At the height of the
Great Depression, 1932 and 1933, when the interest rate on U.S. Treasury bills was negative, unemployment was 25 percent and bank runs and closings were common. With no money moving around the economy, Americans reverted to barter.
It’s hard to imagine this now, but at that time America literally ran out of money. Because there was no cash — no Federal Reserve notes — available, communities began to print their own money. This was known as “scrip” and it is by no means limited to this single historical case: it’s a common phenomenon. An often-used example (by me, for example, in my book “Identity is the New One“) comes from the more recent Irish bank strikes, when people in Ireland wrote personal cheques to each other and these were then passed on to form a community scrip as a cash substitute in local economies. British Postal Orders circulating on the Indian subcontinent performing a similar function.
The “depression scrip ” issued around America took many forms (there is a vibrant collectors’ market for this: just search on eBay) and was issued by communities, companies and individuals. And it became close to becoming the norm! As Bernard Lietaer points out in this 1990 article, Dean Acheson, then the Assistant Secretary of the Treasury, had been approached by Professor Irving Fisher with the idea of scrip with a high “negative interest” rate (2% per week) and was calculated so that the face value would be amortised over one year, and the currency withdrawn at that point. Acheson decided to have it checked by his economic advisor, Professor Russell Sprague at Harvard. The answer was that it would work, but that it had some implications for decentralised decision making which Acheson should verify in Washington.
(In “Monopoly: The World’s Most Famous Game and How It Got That Way”, author Philip Orbanes mentions in passing that in 1933, Parker Brothers used their printing presses to print scrip that was accepted in their home town of Salem, Mass. Games to the rescue! I wonder if next time the financial system fails, it will be World of Warcraft gold , not Monopoly money, or Monero, or cartons of Marlboro, that fill the breach as the means of exchange to keep the economy going.)
In many parts of America, scrip was already part of the local economy. My good friend Brett King reminded me just the other day that in the Appalachians, “coal scrip” issued by mining companies was common. The companies argued that the remoteness of mining operations made it complex and expensive to provide cash. (In addition, it has to be said, to managing their capital outflows.) Interestingly, while the mining companies themselves would not redeem the scrip for cash it naturally traded for cash at a discount within the nearby communities. Indeed, in 1925 coal company lobbyists managed to get West Virginia to pass a law prohibiting scrip from being transferred to third-parties (this would be much easier to enforce with Bitcoin today)) thus crystallising the companies power over their employees to a form of serfdom.
(There are some lovely pictures of depression era script over the Wall Street Journal.)
This was not an American phenomenon. During the industrial revolution, and driven initially by the lack of money in circulation, a variety of British companies created money to pay their worker. This was known as “truck”, which is why the measures passed by the British Parliament starting in 1831 regarding the money payment of wages were known as the “Truck Acts”. Under these provisions, employers were forced to pay workers in cash, laws that remained in place until 1960 where they were superseded to allow for payments by cheque.
Anyway, back to America in its cash-free depression. While Acheson’s discussions were going on, the “stamp scrip movement” as it became known, had created interest by no less than 450 cities around the United States. For example the City of St. Louis, Missouri, had decided to issue $100,000 worth of stamp money. Similarly, Oregon was planning to launch a $75 million stamp scrip issue. A federal law had been introduced in Congress by Congressman Pettengil, Indiana, to issue $ l billion of stamped currency. Fisher published a little handbook entitled “Stamp Scrip” for practical management of this currency by communities, and described the actual experience of 75 American communities with it.
It looked as if the U.S. might adopt a decentralised money system, but on 4th March 1933 FDR passed legislation to enforce bank holidays, end the convertability of gold and to force the population of to sell their gold to the Federal government. In addition to launching the New Deal, the administration prohibited the issue of “emergency currencies” and the experiment was over. But, I cannot help but wonder, is it over forever? Now that the technologies of blockchains, biometrics and bots mean that absolutely anyone can issue their own money, why not look at community scrip as way to reboot devastated economies?
I am hardly the only person to think this way. In virus-ravaged Italy, the town of Castellino del Biferno in southern Italy’s Molise region has started to issue its own money (the “Ducati”), redeemable in local merchants only, with a 100% reserve in euros. This kind of scrip (strictly speaking, a “currency board” rather than a “currency”) is intended to keep money circulating within the local economy but there’s no reason why an actual local currency might not circulate over a wider area. In the north of Italy, to continue with this particular example, anti-euro Lega nationalists and the alt-Left Five Star Movement were at one time planning to go around the euro and create a rival payment structure based on ‘IOU’ notes (a course of action I may well have helped to stimulate). If the COVID-19 crisis tips us into even more of depression, more regions may well decided to decouple themselves from national and supra-national currencies in order to manage their own monetary policy on the road to recovery.
(It’s surprising, I think, to Europeans to realise just how much passion these events still stir today: there are no end of books, magazines, pamphlets and web sites that still refer to FDR’s actions then as if they were yesterday.)