Complementary currencies: History,theory,prospects

Introduction

Complementary currencies have assumed diverse forms in history, and they proliferate in the contemporary world. Renewed theoretical and practical interest in complementary currencies has been undergirded by problems which plague ‘official’ currencies, be they national or supranational, as well as by the general economic malaise which continues to afflict the world in the wake of the financial crisis of 2008. After defining what I mean by a ‘complementary currency’ (henceforth CC) below, this essay examines the history of complementary currencies (‘History’ section). The point of presenting this, admittedly selective, history is to establish that such currencies and their widespread use are not historically rare. Of particular note, I argue, are forms of ‘tax anticipation scrip’ from the 1930s. In the section thereafter (‘Theory’), I turn to the theory of complementary currencies. I review the ideas of Silvio Gesell and analyse the theoretical underpinning of Freigeld. I also discuss the unit of account function performed by complementary currencies. Following that, the section ‘Prospects’ considers the future prospects for complementary currencies and asks under which conditions economic activity using a CC can expand to allow complementary currencies to realise a potential that is implicit in complementary currencies. This potential is to provide opportunities for marginalised groups, such as the poor and unemployed, to meet their basic subsistence needs and to offer significant opportunities for employment outside the formal market economy.

By ‘complementary currency’ I mean currencies which are not issued by sovereign nation-states or by the designate of states, e.g. central banks, to which nation-states, or, in the case of the euro, a collection of nation-states, grant the exclusive right, usually a monopoly, to issue currency. Conceiving CCs as ‘money’ requires that we abandon our proclivity to conceive money in its ‘all-purpose’ form. With all-purpose money, one monetary object performs the four standard functions of money – unit of account, means of payment, medium of exchange and store of value – exclusively or with near exclusivity. To qualify as a CC, a currency must perform at least one of these functions, though not exclusively, for it is used alongside the state-issued currency which circulates in the jurisdiction in question. I refine this definition of a CC in the ‘Theory’ section, for it will transpire that some functions of money are, as it were, more equal than others. Anthropologists have long familiarised us with thinking about money in forms other than its all-purpose manifestation, and the study of ‘primitive money’, as it was once called, has revealed the existence of a great many limited- or special-purpose monies (Dalton, 1961). Those of us who have grown up with a monopolistic money that performs the four aforementioned functions have lost the habit of thought of conceiving money in anything but this form. With this in mind, I turn to the history of CCs.

History

In what follows, I examine a small selection of CCs to show that they are neither historically uncommon nor economically marginal. Let us start in the late Middle Ages with the phenomenon of ‘ghost money’ which was widespread in Europe. A ghost money denominated the values of commodities in merchants’ contracts and thus functioned as a unit of account. Its ghostliness stemmed from the fact that the unit of account did not correspond to a physical ‘money thing’, i.e. a coin, for the coin on which the unit of account had been based was either no longer in circulation or had never existed (Cipolla, 1967: 38). Luigi Einaudi (1953) explains:

a customer could pay a shopkeeper for an ell of velvet, priced £10 tournois in money of account, by giving him 4 écus du soleil rated at £2 10 s. each. Similarly, the buyer of a barrel of wine, costing £12, could give in payment 20 testoons at 12 sous per testoon … If there was a change in the ratio between real and imaginary money … the number of coins to be paid in discharge of a debt would vary inversely. (p. 236)

Our second example is of currencies of the British North American colonies. Due to the colonies’ trade deficits with Britain, the coin of the Crown was chronically scarce. To facilitate internal payments, American states used CCs, the first being issued in Massachusetts in 1690, with other states following suit in the 18th century, the last issue dating to 1775 (Grubb, 2012: 14–15). Some states, e.g. Pennsylvania, utilised an accounting unit – the Pennsylvania pound – which, like ghost monies, did not exist in physical form. It allowed the value of goods to be denominated in a standard unit whilst payment could be discharged in natural goods or coin. Most states, however, issued paper money known as bills of credit. These bills – denominated in ‘pounds’ – were tied at a specific rate to the pound sterling. One method of ensuring their circulation was the state legislature’s guarantee to accept the bills in payment of taxes (Grubb, 2012: 18). The bills were thus a type of ‘tax-driven money’, that is a type of money which derives its circulatory validity and value from the public’s need to acquire it as a means of paying taxes (Forstater, 2006: 203). Tax-driven money is an essential concept of modern money theory and we will return to it below.

Whilst the above examples of CCs may be said to have some ancestral relationship with modern CCs, it is with ‘scrip’, our final example, that we meet the immediate forebear of modern local currencies. Some types of scrip date to the early 20th century, but the ‘era of scrip’, if we may talk of such, dates to the 1930s when, in the wake of the Great Depression, local currency experiments abounded. The experiments in Schwanenkirchen (Germany) and Wörgl (Austria) have been discussed often enough (Blanc, 1998; Fisher, 1933: chapter IV; Onken, 1983), and I refrain from recapitulating their history. I restrict myself here to a comparison of the degree of governmental involvement in the respective currencies.

Schwanenkirchen had its origins in the 1920s in a CC, the Wära, which was issued in a number of German cities in exchange for the German national currency, the Reichsmark, at par. Over one thousand firms and individuals used the currency, and some firms paid workers in the currency (Schneider, 1995: 31). It was with a loan from the Wära exchange society (Wära-Tauschgesellschaft) that a mining engineer, Max Hebecker, purchased and reopened the recently closed coalmine in Schwanenkirchen. Workers were paid mostly in Wära, and some local businesses accepted the currency (Onken, 1983: 5–7). Whilst Schwanenkirchen was a ‘private’ initiative, Wörgl was a public affair, with the municipal authority issuing a CC in the form of ‘Labour confirmation notes’ (Arbeitsbestätigungsscheine), the currency being issued on par with the Austrian Schilling, and the initial issue – of 50,000 units – being backed by an equal deposit of Schillings in the community’s treasury. In Wörgl, residents could pay local taxes in the newly issued currency, and so we meet a further form of tax-driven money. The ability of residents to discharge their tax obligations in the local issued notes increased its circulation because it gave the notes a use beyond a medium of market exchange.

In the United States, scrip was issued by diverse bodies including corporations, banks, local communities, barter clubs (especially to facilitate the exchange of labour time) and municipal authorities (Gatch, 2008: 48–52). The most significant in terms of scope was tax anticipation scrip, issued, in the 1930s, by city municipalities. During the Great Depression, many cities had defaulted on interest payments on the funds they had borrowed because property tax receipts were in arrears (partly a result of foreclosures, sometimes also of tax protests). With little credibility in capital markets, city authorities issued their own scrip in which they paid municipal employees (Gatch, 2012: 23–24). The scrip was accepted by city authorities in payment of local taxes, and hence we meet a further form of tax-driven money. Its validity as a means of paying taxes gave scrip a currency not enjoyed by other types of scrip which transpired to be less extensive and more ephemeral than tax anticipation scrip. In Detroit, the site of one of the most successful tax anticipation scrip schemes, $40 million of scrip was circulating in 1933–1934 and it was valued at par with the US dollar, that is, not at a discounted rate, after the city’s Committee of Industrialists backed the scrip at par with a fund of $1 million (Gatch, 2012: 30).

Irving Fisher famously lent his name to the stamp scrip movement, and he saw the introduction of scrip as the way out of recession in the 1930s. The type of scrip he proposed was to carry an ‘ambulatory tax’ whereby each note each week would lose its validity and regain it only if its owner purchased a stamp (Fisher, 1933: 11). Fisher (1933: 17) adopted the idea from Silvio Gesell and his followers, though he distanced himself from other aspects of Gesell’s monetary theory. The ambulatory tax which afflicts a monetary note at fixed intervals contrasts with some US scrip schemes which required the fixation of a stamp each time the note in question was used to make a purchase. Fisher (1933) disapproved of the latter feature because the stamp would act as a sales tax and hence discourage people from spending the scrip, thus undermining its very purpose, viz., to accelerate the rate of circulation of money (p.31). Fisher (1933) proposed that stamp scrip be redeemable in US dollars though at a cost, so that ‘the more timid souls’ would not be tempted to make use of this possibility with too much alacrity (p.46). Fisher (1933) was also keen on municipalities assuming responsibility for scrip schemes, for they had ‘the best chance of enlisting the support of every element in the community’ (p. 45).

Increasing the velocity of circulation of scrip would help to achieve the ultimate goal of Fisher’s (1932) scrip scheme of increasing the general price level following sharp deflation (p. 227). Fisher (1933) further hoped that the federal government would coordinate scrip schemes so that they would extend in scope ‘beyond the city horizon’ (p.59–60); he saw no benefit in keeping scrip local. Fisher did not propose that scrip be used as a means of paying taxes, even though some of the most successful scrip schemes of the 1930s permitted this use. Although, according to Fisher, city authorities are meant to play a role in circulating scrip – he encourages, for instance, the payment of municipal workers in scrip (1933: 88) – he does not mention paying local taxes in scrip. The city also has a role in engendering support for scrip, but this support comes in the form of garnering assurances from businesses and workers that they will use scrip in transactions amongst themselves (1933: 86). Fisher’s (1933) occasional mentions of taxes stress that stamp scrip of the sort he proposes is not a sales tax; although the purchase of stamps is a tax on users, the tax is ‘paid by the citizens out of new business created by that tax’ and hence it is ‘painless’ (p. 53, 86); he also suggests issuing scrip to the value of $100 to each citizen as a ‘gift’, and the purchase of stamps by those who hold scrip is not envisaged to be a major imposition (1932: 227–230). The proceeds of the stamp tax would relieve the city of having to impose other forms of tax on its citizenry (1933: 88), but the success of scrip was a matter of getting private individuals and businesses to use it in transactions amongst themselves.

Although Fisher (1933) is undoubtedly a theorist and proponent of CCs, he marginalises their role to ‘emergency’ situations in which the US dollar fails to circulate at an appropriate rate; if the US dollar does thus circulate, it needs no complement (p. 59). As a CC, scrip, in Fisher’s view, might come and go, but it would not be an ever-present feature of US economic life. Ultimately, Fisher failed to convince President Roosevelt of the need for state support of scrip, and although the President held Fisher’s proposal to be ‘worth looking over’ (Allen, 1977: 574–575), scrip not only came – in some local arenas at least – but also went, and has yet to return to US in the form and scope it assumed in the 1930s. Here, then, we take our leave of the history of CCs and turn to their theory, for which we will examine the work of the intellectual instigator of scrip, Silvio Gesell, who is often seen as the father of contemporary local currencies.

Theory

Let us start our theoretical analysis with Gesell’s critique of Marx. Marx’s (1972: Chapter 4.1) ‘general formula of capital’ manifests itself in the sphere of circulation as a movement Marx denotes as M-C-M’. That is, the owner of money, qua capitalist, uses a sum of money, M, to acquire a commodity, C, which he subsequently sells for a sum of money, M’, whereby M’ exceeds M. The excess of M’ over M is ‘surplus value’. Surplus value, Marx (1972: Chapter 4.2) argues, cannot originate in the sphere of commodity circulation, for in an exchange of commodities for money, the former fetch a money price equal to their respective exchange values; market exchange is an exchange of equivalents. Even if one assumes that sellers were able routinely to sell commodities above their value, thus acquiring more value from an exchange than the buyer, as soon as a seller turned buyer, he would be in the disadvantaged position of the buyer over whom he had just got the better when he was in the role of seller. If we assume that one side has the advantage over the latter, the only result would be that the distribution of value between sellers and buyers would change from what it is when equivalents are exchanged; but no additional, surplus, value would be thus created. Consequently, Marx takes leave of the sphere of circulation and seeks the source of surplus value in the realm of production, where the capitalist meets a commodity which, though it is exchanged for money at an equivalent value, has the peculiar property, qua use value, of creating value.

Gesell (1991), like Marx, locates the origin of money in the market: as, in history, the division of labour increased, so did people’s reliance on acquiring commodities through exchange; ‘money is medium of exchange, nothing else. It is meant to facilitate the exchange of commodities and circumvent the difficulties of barter’; ‘money owes its very existence only to the difficulties of barter’ (p. 238, 329, cf. 199–200). Once money assumes the role of a medium of exchange, its characteristics engender problems for economic life, and here Gesell’s analysis of exchange diverges from Marx’s.

Compare the position of a commodity producer with that of someone who possesses money. The latter, argues Gesell (1991), has an advantage because money is ‘superior to’ commodities (p. 8). Money, whether it takes the form of gold coin or paper notes, does not ‘rust, go bad, break or die. Frost, heat, sun, rain, fire – nothing can harm money’ (1991: 181). The perishability of most other commodities vis-à-vis money means that the owner of money can postpone the exchange act without suffering any material loss or damage to the money he possesses. The commodity producer, however, is forced into the exchange because postponing it would mean that she both relinquishes the interest on the money she would acquire through exchange and suffers the material atrophy to her commodity from its being stored rather than consumed (1991: 181). Money exploits its superior status vis-à-vis commodities: in order to be tempted into an exchange and to give up the superior commodity which he possesses, the money owner requires a ‘fee’ (Abgabe), a type of ‘tribute or tax’ (1991: 183, 327). This fee goes to the merchant or, if the merchant borrows money to finance his activities, to his creditors. Commodity producers must acquiesce to this ‘discount’ (Abzug) on their commodities if they are to convince a merchant to buy (1991: 182). As a result of this fee, the exchange of commodities for money is not an exchange of equivalents; therein lies the source of surplus value, not, Marx thought, in the sphere of production, but in exchange (Gesell, 1991: 326).

Money’s superiority to commodities consists, then, in its lack of perishability. As a result of this characteristic, money becomes the most desirable store of value, a function of money which conflicts with the function for which, according to Gesell, it exists, namely, to facilitate the exchange of commodities. Money, Gesell holds, should be denuded of this superiority: ‘Money should … like commodities, rust, become mouldy and rotten’ (p. 8); it can be made to ‘rust’ by incorporating a feature we discussed in the previous section when examining scrip, viz., that it be subject to devaluation. Gesell proposed a weekly devaluation of one-thousandth of the value of money which could be made good through the affixation to monetary notes of a stamp purchased at a cost (1991: 244). This measure would give holders of money a strong incentive to enter into transactions with commodity producers; no longer would the former be able to postpone the exchange of money for commodities without suffering the same disadvantages faced by commodity owners. The new form of money – Freigeld – that Gesell proposes would abolish surplus value. ¹

In the context of CCs, one should note Gesell’s thoughts on monetary competition. If money demands too high a ‘fee’ (interest rate) from the value of commodities, i.e. if money owners try to impose too unequal an exchange with commodity producers, such endeavours will fail. Limits to money’s power are set by its substitutes which do not carry such a fee: commodity producers who wish to evade this fee can take flight in (i) self-sufficiency, (ii) barter and (iii) the use of bills of exchange (Wechsel). Self-sufficiency might provide little alternative in a society with a developed division of labour; barter, too, in light of its inefficiencies, is not much of an alternative; but privately issued bills of exchange might be a potent competitor to money, for they set limits to the level of interest that money owners can extort from commodity producers (1991: 329–335). Bills of exchange are in fact the only monetary form Gesell mentions which answers to the name of a complementary currency. Freigeld itself is not conceived to be complementary; Gesell intended it to supplant conventional money and become the single monetary form within a nation; it was not conceived as a ‘local’ currency.

The foregoing makes the claim that Gesell be the intellectual forebear of modern CCs seem odd, for Freigeld has almost imperialist claims on the money system, not a mere aspiration to complement. Here, the divide between Gesell and Fisher could not be wider, for the latter saw, in scrip, a currency which would, as it were, help out the dollar when the dollar’s circulation faltered. Gesell does make an observation on the possibility of CCs coexisting with Freigeld. Those, he writes, who oppose Freigeld might issue their own private coinage and the state can let such initiatives take their course without intervention. The state, that is, need not be concerned about CCs because Gesell assumes that alternative currencies to Freigeld would take the form of coin. Gesell’s Freigeld is emphatically paper money; precious metals, he holds, are too resistant to ‘rusting’ to serve the purpose Gesell demands of money, and so a state-issued precious metal coinage is to be abolished with the introduction of Freigeld. But if a private issue of gold coin came into existence as a rival to Freigeld, an individual who accepted it in payment would have to assay and weigh each coin to determine its value, and she would also have to be assured that others would accept the coin from her when she tried to make payments therewith. This would be both cumbersome and risky, and Gesell’s prediction is that a rival coin would not survive. The person who tried his luck using private coin would, ‘as a penitent sinner, return to the lap of the one and only true (alleinseligmachend) Freigeld’ (1991: 247). Freigeld is to be the only paper money.

Let us now turn to Gesell’s account of the origin of money, which may be described as ‘orthodox’ in light of its congruence with the account of neoclassical economics. Indeed, that money emerges in the market to overcome the difficulties of barter is a story of money still to be found in modern economics textbooks which care to comment on the origins of money. This view of money’s genesis is seldom supported by historical evidence, and for monetary historians who, unlike most economists, allow themselves to be detained by the details of historical evidence, the economists’ account of money’s genesis is but a myth. Since this topic has been treated elsewhere (e.g. Peacock, 2013), I comment no further on it here.

Gesell’s reconstruction of the origins of money also has implications for hierarchising money’s functions, for his story that money arises in the market to overcome the difficulties of barter leads to the prioritisation of the medium of exchange function as money’s primary function: money, as we quoted Gesell above, ‘is medium of exchange, nothing else’. Gesell’s emphasis on the medium of exchange function is partly rhetorical, for he wishes to alert us of the dangers of using money as a store of value. But by focusing so closely on the medium of exchange function, he neglects another which money – whether Freigeld or conventional state-issued money – must perform, namely the unit of account function. This function is, as JM Keynes argued, the ‘primary concept of a Theory of Money’. A unit of account ‘comes into existence along with Debts, which are contracts for deferred payments, and Price-Lists, which are offers of contracts for sale or purchase’ (Keynes, 1930: 3). These prices and contracts must be expressed in terms of a unit of account as a condition for making payments, hence the priority of the unit of account function of money. The unit of account function is ‘primary’ in the sense that it is presupposed by other functions of money, e.g. medium of exchange and means of payment. For instance, if we return to ghost monies, in order to pay for an ell of velvet using écus du soleil, a consumer first has to know how much the velvet is worth, and this is given by the ghost money which denominates values; only once we know how much the velvet is worth (that is, only when its value has been denominated in a particular unit of account) can we use a particular coin as a medium of exchange to purchase the velvet. Similarly, one can apply Keynes’ conceptual logic to the workings of a typical local exchange trading system in which participants advertise the goods or services they offer at prices denominated in an, often virtual, currency. The fact that the currency is virtual and thus has no physical existence is not of great significance, for whether payment takes the form of handing over of a physical monetary token or whether payment is effected virtually, through the deduction of a sum from one account and the crediting of another, in both cases, the prices quoted are denominated according to a unit of account. Virtual currencies are invariably tied to the national currency by adopting the same unit of account, something which calls into question both their ‘alternative’ nature and their complementarity.

The foregoing leads me to revise the tentative definition I gave of a CC in the ‘Introduction’ section. There, I stated that something was to be deemed a CC if it performed one or more function of money, even if it does not do so exclusively. If, however, the unit of account function has primacy, this ought to be reflected in the definition of a CC. Indeed, some functions of money seem not to be definitive of money. There are, for instance, many stores of value and, although this is undoubtedly a function of money, it is a function shared with so many other items, e.g. works of art, corporate shares and vintage cars, that the performance of this function alone should not lead us to deem the thing which performs this function to be money. If, as I have argued, the unit of account function has primacy, then we may deem a monetary form to be a CC (or any other form of money), if it serves as a unit of account, even if there are other monetary items which serve as a unit of account. Serving as a unit of account is, therefore, a necessary condition for something’s being money, something which is not so apparent with other monetary functions (Gesell’s Freigeld, for instance, is not supposed to function as a store of value at all). To refine the definition of a CC, then, we may say the following:

A CC defines a monetary unit which denominates the value of goods and services. Whether it assumes physical form or not, a CC is not issued by a sovereign government or a delegate thereof, and the exchange of a CC from one person to another (when physically or virtually) is the manner in which payments are effected in transactions denominated in the CC.

A notable feature of CCs, as noted above, is that they are usually tied to the national currency, probably to facilitate accounting. This equivalence was instituted by Michael Linton, the instigator of the first modern local exchange trading system in British Columbia in 1983, who denominated the system’s goods and services in the green dollar, tied to its Canadian counterpart at par. Parity of value between a CC and the national currency obviates the need of members to learn a new mode of calculating value based on an unfamiliar monetary unit. (Holiday makers who sojourn in a country with an unfamiliar currency usually convert the prices of commodities in the foreign country into amounts denominated in the vacationer’s domestic currency; by tying the value of a CC at a rate of one-to-one with the national currency, instigators of CCs remove this calculatory burden from their members who can simply treat a unit of a CC as equivalent to a pound or a dollar).

Prospects

One is struck by the diverse motivations people have for joining an economic community based on a CC. Georgina Gómez (2009: 101–102) lists the following ‘visions’ of Argentina’s Red de Trueque, at one time the world’s biggest exchange ring: ‘a complement, an alternative or an improved capitalist economy; a new kind of informal economy; a means to learn participation and democracy or a market by and for the poor … ; an environmentally friendly local initiative; a women-dominated economy’. There are obvious tensions amongst the interests of their users, and in what follows, I distinguish two ideal-typical groups with divergent interests in CCs. I unimaginatively dub them ‘Group I’ and ‘Group II’. For those in Group I, involvement with and use of a CC is a symbol of opposition to the mainstream economy. ³ CCs are a vehicle of ‘re-embedding’ economic activity in relations of intimacy and trust, whereby a community can exercise control over its economic activities rather than being subject to the vagaries of ‘impersonal’, ‘global’ economic forces. Group I adherents of CCs are likely to prioritise the symbolic nature of CCs whilst paying less attention to their economic import. Members of Group I, that is, might have primarily ‘ideological’ reasons for supporting CCs but do not turn to CCs out of economic necessity. They are often gainfully employed, financially secure and well educated. Their degree of participation in the economic life surrounding the CC might be small, but it serves to cement relations within the community, and thus the local nature of this economic activity is of import to such people. Gil Seyfang (2004) lists two typical Group I motivations for joining local exchange systems based on a CC – ‘ethical (practising different values to the mainstream economy), and environmental (practising greener lifestyles)’ (p. 60). Indeed, a number of studies have found that members of local exchange systems are supporters of the Green Party (Schraven, 2000). Others studies describe members as hailing primarily from the ‘disenfranchised middle class’ (Gómez, 2009: 7; Pacione, 1997: 1188).

Group II, by contrast, consists in those who see, in CCs, a means of providing opportunities for economic gain and material survival which are not available to them in the formal capitalist economy. Those in precarious, low-paid jobs as well as those without jobs in the formal economy populate Group II. Their interests are best served by the expansion of trade based on CCs such that basic goods and services can be routinely acquired in an exchange system. I should stress that the motivations of Groups I and II are ideal-typically depicted; one and the same person might be motivated by factors listed in each group, but what I wish to highlight is that achieving the goals of one group might come at the expense of sacrificing the goals of the other. All too often, the interests of Group II are sacrificed in the pursuit of Group I goals. This is illustrated (i) by the offers made by members of local exchange trading systems which are often exotic, hobby-based but not the sort of items necessary for day-to-day subsistence, and (ii) by the very low rate of trade carried on by many members. Here we find a contrast between many contemporary CCs and those of the 1930s. US scrip systems, for instance, were born of economic hardship, and although scrip experiments were local, their localness was not their ideological driving force. As Gatch (2008) writes of the US experience in the 1930s, they ‘expressed the practical exigencies of economic distress. The “localism” per se of local currencies was seldom valued in its own right’ (p. 54). Indeed, the less local, city-wide, experiments with tax anticipation scrip were the most successful in terms of realising a Group II goal, namely, generating economic activity. Irving Fisher had Group II interests at heart with his proposals for scrip and their extension to a national level, and, like the schemes which proliferated at the time, Fisher did not celebrate the local as an end in itself.

When it comes to developing CCs so that they better cater to Group II interests, the Red de Trueque is a good example in terms of its size and ability to cater to the needs of the poor. The hundreds of branches across Argentina in the early 2000s involved upward of two and a half million members (from a population of about 40 million), including many unemployed people who used the system to meet basic needs (Gómez, 2009: 113–114, 147–149, 178). The scope of the Trueque is partly attributable to the crises in Argentina of the 1990s and 2000s which affected middle class people who were not only affected adversely but also disposed over the physical, human and/or social capital which acts as a fillip for participation in networks like the Trueque. Few branches, however, have experimented with paying local taxes in the main currency of the Trueque, the crédito (Pearson, 2003: 218, 228). One exception is the node in Venado Tuerto, launched during the crisis, in which members were allowed to pay a proportion of their local taxes in the node’s currency – the punto, which was subject to devaluation of 5% every four months. Other nodes, despite attempts to involve local government, did not arouse the latter’s interest, whilst the anarcho-Marxist elements of the Trueque abjured all contact with the state (Gómez, 2009: 97–98, 163–164, 169). A further element which might explain the scope of the Trueque in Argentina is the country’s experience with parallel currencies. In the 1960s, the government paid state employees in bonds as a counterinflationary measure, and in the depths of the crisis of the early 2000s, provincial governments issued ‘cuasi-currencies’ which, in 2002, amounted to as much as one-third of the national monetary supply (Gómez, 2009: 43, 54). ⁴

More recently, the Brixton pound (B£) scheme in London is experimenting with municipal authority involvement in two ways. First, local government employees in the London Borough of Lambeth may opt to be paid part of their salary in the B£ and they are able to transfer a portion of this money to charities in the area (Shakhli, 2013). Second, businesses which use the B£ may pay their local taxes in the B£. The latter possibility resembles tax anticipation scrip, and although the B£ is not issued by the municipal authority, its use as a means of paying taxes involves it in the fiscal economy of Lambeth Council. Whether the B£ will be used instead of pounds sterling as a means of paying local tax remains to be seen, and a logical extension of the fiscal use of the B£ would be to allow employees of the council to pay their council taxes on property using the B£. This would increase the attractiveness for employees of receiving their salary payments in the B£. The B£ would thereby adopt characteristics of tax-driven money, and this would tend to enhance circulation.

To close this discussion of ‘prospects’, I would like to take leave of the near and real possibilities for CCs just discussed and examine more speculative prospects which, though far from realisation, are present in the structure of CCs and could easily be implemented if participants wished. The future scenario starts from an issue which has arisen in the context of modern CCs and returns us, once again, to taxation.

Income earned in a CC is taxable. Tax authorities tend to treat income earned in time banks, in which the hour is the unit of account and each hour’s work irrespective of its nature is treated as equal, as non-taxable (Hallsmith and Lietaer, 2011: 138–139; Walker, 2009). In schemes with a non-time currency, a person who earns income in a CC through the use of professional skills through which she earns money in the conventional economy is subject to income tax (Canada Revenue Agency, 1982; Keller, 1982; Williams, 1996b: 98). A natural response to the demand that CC users pay income tax is that they be permitted to pay in the CC in which they earn this income. Behind this demand presumably lies the following train of thought. If users of a local CC pay part of their income tax in the CC, once in the government’s hands, the units of the CC would be available for the government to spend. The government could only spend its CCs in the locality in which it originated, for the CC would have no validity beyond and no use to people who did not live there; an unemployed carpenter from Inverness would not accept his unemployment benefit in a CC issued by a local exchange scheme in Chelmsford and paid to the government as income tax. Hence, paying income tax in a CC would ensure that the money flows back to the community which paid it; the CC will remain local.

However, unimpeachable the above train of thought might seem, it contains a fault. If residents of Chelmsford are permitted to pay their income tax partly in a local CC, let us call it the Chelmsford CC (ChelmCC for short), the government is recognising the ChelmCC as a valid means of paying tax, along with the pound sterling and any other CCs the government might accept in payment of tax. By thus recognising the ChelmCC, the government bestows it with circulatory validity and the ChelmCC will be of use to people as a means of paying taxes even if those people do not live in Chelmsford. Our carpenter from Inverness would, therefore, have a use for the ChelmCC, namely, paying taxes. Even if, being out of work, the carpenter is not required to pay taxes, there will be residents of Inverness who do have income tax liabilities and who, like residents of Chelmsford, are permitted to discharge this debt using the ChelmCC. The carpenter would be able to spend his units of the ChelmCC on products sold by other residents of Inverness who, in turn, would be able to use the ChelmCC as a means of their paying taxes. For example, the carpenter might buy a second-hand car by transferring 500 units of the ChelmCC to the car dealer in Inverness. The car dealer would accept the ChelmCC because she would be able to pay her taxes with it. Alternatively, the car dealer could purchase other commodities from retailers in Inverness, and the owners of these retail businesses would accept payment in the ChelmCC in the knowledge that, underlying its acceptability, is the government’s promise to accept the ChelmCC as a means of paying tax.

The example does not represent the way CCs currently operate, but it does reveal the logic of CCs, should they ever become integrated into the fiscal monetary circuits of central government. Proponents of CCs are aware of this: ‘the most effective way for a governmental entity at any level to encourage the acceptance of any CC is to require that it be used for payment of a tax’ (Hallsmith and Lietaer, 2011: 212). Hallsmith and Lietaer’s recommendation goes beyond the concept of tax anticipation scrip in the US because, in the US, people were allowed but not required to pay taxes in the relevant CC. An insistence that a proportion of taxes be paid in a CC would give tax payers no choice but to acquire the CC in question; this would massively increase the demand and use of a given CC. Such a move, however, would not accord with the wishes of all members of economic communities based on CCs. Group I members of local currency networks, I noted above, wish to maintain the localness of their CC and do not wish it to become integrated into circulatory networks which they cannot control and which take their currency into far-flung domains; government might be seen as an entity from which CCs should maintain distance and autonomy, and the prospect of CCs circulating to any point under the government’s fiscal authority would undermine the localness of a CC and a community’s control over it. Group II members of such networks, however, might welcome the development I have sketched, for if government – local or national – were to require that members of an exchange network pay a portion of their taxes in a CC, it would increase the use of CCs which, in turn, would provide access to a greater range of goods and services for consumers and would give those who seek employment by offering goods and services a greater demand and hence more likelihood of earning a living than they would have in a small-scale exchange network.

Currently, governments insist that income tax be paid in the monetary means of its specification, usually a national currency, and if this remains the case, the potential of CCs which I have just sketched will not be realised. Some scholars who support the widespread use of CCs even concede to government the right to specify the means in which taxes are paid. Friedrich Hayek (1990), for example, writes:

A government must of course be free to determine in what currency taxes are to be paid and to make contracts in any currency it chooses (in this way it can support a currency it issues or wants to favour), but there is no reason why it should not accept other units of accounting as the basis of the assessment of taxes. (p. 40)

Conclusion

Proponents and instigators of CCs would do well to examine the wide array of CCs in (particularly 20th-century) history to draw inspiration from models of CCs which might today be emulated. If, as I hold, CCs should become a more potent economic force which can play a part in meeting the needs of those who are marginalised in the formal economy, connecting CCs with fiscal networks via the use of CCs in payment of taxation would be worthy of consideration. I do not propose this as a necessary or sufficient condition for expanding exchange networks, for two networks – the Red de Trueque in Argentina and the WIR Tauschring in Switzerland – boast of an impressive scope and membership with little or no connection to the fiscal sphere. Rather, the ability or necessity to pay part of one’s taxes in a CC would, as the tax-driven money model suggests, create an incentive or need on the part of members to acquire sufficient units of the CC to meet their tax obligations. This would promote the use of the relevant CC. Such a move would be anathema to those who prize the localness and small size of an economic network based on a CC, but increasing the scope of a CC’s circulation would actually reconnect such networks with the visions of their two greatest champions in the 20th century, Silvio Gesell and Irving Fisher. Although Gesell’s ideas inspired two of the most famous local experiments – in Schwanenkirchen and Wörgl – his Freigeld harboured no romanticism about ‘the local’, for it was designed to be the dominant, state-issued currency in its national jurisdiction. Fisher, too, had national visions for scrip, which were instrumental to his scheme to heave the US economy out of the recession of the 1930s. Neither thinker, however, attended sufficiently to the possibility of making alternative currencies tax-driven, although Gesell presumably conceived of Freigeld, qua single national currency, to fulfil the function of a means of paying taxes. The idea of tax-driven CCs was realised by the concrete monetary experiments of the 1930s in the US, which, in this author’s opinion, provide a model of CCs worth emulating. The fiscal relevance of a CC has, alas, received less attention than the characteristic of ‘demurrage’ or ‘rusting’ (Godschalk, 2012).