Tuesday, December 15, 2009

Microfinance without the finance: self-liquidating currency

Tuesday, December 8, 2009, 2:29
Reposted from Microfinance Focus, by Prof. Jonathan Warner

In my earlier article (Microfinance Focus August 2009) I wrote about the potential of using community currencies, or scrip, as a basis of a local microfinance project. As I pointed out there, one problem with using a community currency is the redemption of the scrip: if everyone changes their community currency back into legal tender as soon as they receive it, there will be no benefit from using scrip. On the other hand, setting limits on the redemption of the scrip reduces its attractiveness. In addition, the ability to redeem the scrip requires that there is some monetary asset to back it (in the form of legal tender bank deposits or even cash). This article examines an alternative mechanism.

A form of community currency that was used in certain American towns during the Great Depression provided a novel method of providing credit within a community – a form known variously as stamp money (or scrip); self-liquidating stamp money; or as Gesellian money, after Silvio Gesell, who appears to have originated the idea.

Among the abundance of substitutes for money that appeared in the United States during the Great Depression, stamp scrip is arguably the most exotic. Unlike bank-issued Clearing House certificates, it did not rely on the backing of bank deposits for its value. Nor, unlike tax anticipation bonds, did it rely on the tax-raising powers of local governments. Instead stamp scrip is a form of community-generated credit, whereby a payment levied on the use of the scrip builds up a fund to redeem the scrip. In practice, stamp scrip took the form of certificates to which a special stamp had to be affixed each time the scrip was used (transactions-based scrip, championed by Charles Zylstra), or every week or month (time-based scrip, as advocated for by Silvio Gesell[i] and later by Irving Fisher[ii]). Some issuers of stamp scrip opted for a hybrid scheme, whereby the stamp needed to be affixed every time the certificate changed hands, or on each stamping date if it had not already been used.

Gesell’s original idea was to discourage the hoarding of money by causing it to depreciate in value if it were not used. Putting the stamp on restored the certificate to its face value. The money collected from the sales of the stamps could then be used to fund the redemption of the scrip.

The stamp money was therefore self-liquidating, in that the use of the certificates themselves generated the money for their ultimate redemption. Gesellian stamp scrip was first used in Wörgl in Austria[iii] and Schwanenkirchen in Bavaria in the early years of the Great Depression as a way of paying workers when cash was no longer available. In the latter case, a coal mine was reopened, and the workers paid with special certificates, that needed to be stamped. The result was that the local economy was reinvigorated, as the certificates circulated rapidly around the town.

Stamp scrip appeared in the United States first in Anaheim, California in January 1932[iv]. After decidedly mixed results in California, the idea caught the public imagination when Zylstra’s Plan was launched in the small Iowa town of Hawarden in October 1932. As a means of providing relief for the unemployed, the businesses of the town agreed to accept certificates in exchange for goods and services, giving 97c of value for a dollar certificate. The remaining 3c was used to purchase a special stamp, which was affixed to the back of the certificate. The certificates would be given to unemployed family men in exchange for labour on make-work projects of value to the community snow removal, road repair and so forth. The men could then use the certificate to buy necessities for their families.

The grocer receiving it could then use it to buy goods or services from other businesses, or pay his light bill or his employees, or perhaps prevail upon his customers to take the certificate as part of their change[v]. The Hawarden scheme was very successful, largely as a result of the publicity it received, which attracted visitors to the town who not only injected money into the local economy, but also often took away a piece of the scrip as a souvenir, or even paid face value for a redeemed example. As a result of the publicity and its apparent success, the Hawarden Plan was widely copied, sometimes with modifications, both in Iowa and further afield

Both varieties of stamp scrip (transactions-based or time-based) have their drawbacks. Transactions-based schemes tended to suffer from slow circulation of the certificates: the issue in Pella, Iowa, circulated at a snail’s pace, and even four years after its introduction, many certificates had not completed the 36 transactions necessary for their redemption[vi]. Time-based scrip speeded up circulation – but led to a rush, rather like a game of musical chairs, when the stamping hour came around. It was usually merchants who were stuck with the cost of stamping each week. Perhaps best was the hybrid scheme, used in towns such as Rock Rapids and Mason City. Here a stamp was required for each use, or, if the scrip hasn’t been used, on a particular date. This reduced the incentive to hang on to the scrip, and tended to reduce the “musical chairs” effect.

Stamp Money Microfinance

The stamp money schemes of the Great Depression were predominantly a way of providing relief for the poor. The certificates were placed into circulation, generally by a City Council or a sympathetic Chamber of Commerce, by paying unemployed family men to clean ditches, shift snow, or other similar make-work projects. In South Haven, Michigan, the stimulation of business was the primary aim. Local merchants obtained scrip from the Chamber of Commerce and then handed it out to their customers, who could then use it to buy within the town. The amount of extra business generated was thought to render sufficient benefit to meet the costs of the scheme. Even schemes aimed at welfare for the poor had this effect: the Hawarden merchants were told that the 3c stamp was actually a cheap way of getting extra business, as the average merchant spent at least that amount on advertising.

Mason City, Iowa, provides a good example of how a modern stamp scrip project might work. Although the primary purpose of the scrip was to provide income to the unemployed, the community was asked what work should be done by the unemployed in exchange for the certificates. Around twenty different suggestions were published in the local paper. The final decision was to finance the building of a road, as a demonstration of the benefits of a concrete surface never before used in the Midwest which was manufactured in the town. The aim was to prove the benefits of this type of surface, and so generate sales of the concrete elsewhere.

A similar scheme could be tried today, using the experience of the Depression-era schemes to produce a design that is most likely to be successful.

How it might work

Unlike Frank Tortoriello’s “Deli dollars[vii]” it is not the issuer who pays the cost of the scheme by redeeming the scrip, it is the community: people by paying into the redemption fund through using the scrip and buying the stamps bear the costs. Therefore, the best use of stamp scrip would be for a community project, such as building a road, a bridge or a school. If there are willing and capable workers available, and the raw materials can be obtained (local stone or wood for building, for example), then the scrip is a means of spreading the costs between the members of the community and ensuring that those actually working on the project are paid. In what follows, I shall assume, for the purposes of illustration, that the currency of the country is the dollar, that the certificates are of one dollar value, and that a 2c stamp is used, which must be affixed for each transaction, or every seven days if the scrip has not been used in the interim.

The community decides on the project, and the cost. Scrip for that amount is printed and used by the local council to pay those working on the project. Stamps are also printed, and sold at face value to anyone who wants them. (For the sake of convenience, businesses would be encouraged to keep a stock of stamps to make things easier for their customers.) The workers receiving the scrip use it to purchase things they need in the local community, taking a small discount on the face value (2c on the dollar, or 2%) which is used to pay for the stamp. The receiver of the scrip uses it to buy things he needs in the community, again taking the 2% discount (or paying for the stamp). If the scrip is unused for (say) seven days, the holder must pay for and affix a stamp. (Dated spaces for the stamps on the back of the scrip make it obvious when a stamp is due.) When the requisite number of stamps has been affixed, the scrip will be redeemed for its face value by the issuing authority. If a one-dollar certificate and 2c stamp were used, 50 transactions would be necessary to build up the fund necessary to redeem the scrip. As there are costs associated with the printing of the certificates and stamps, many schemes required an extra stamp or two to cover these costs. As there are 52 weeks in a year, 52 stamps might appear as the “natural” number of stamps necessary. In this case, the scrip would self-liquidate within a year of being issued.

Certain other preconditions are necessary. First, it is necessary that the local economy is sufficiently monetized so that transactions are generally monetary-based, rather than the result of barter. This probably rules out its effective use in communities where money is considered exotic, and not something to be used for day-to-day transactions.

Secondly, as with all scrip, the community, and especially businesses, need to be supportive of the scheme. Without community buy-in, the scheme is likely to collapse – some businesses refuse to accept the scrip, which gives others an incentive not to, and ultimately the scrip ends up trading at a discount, or as worthless. Community leaders would need to canvass support for the idea (as Zylstra did in Hawarden, getting merchants to sign a petition to the City Council requesting a scrip issue). This has the corollary, of course, that the scrip issuer must be trusted by the community: that they will make good on the promise to redeem the scrip, rather than running off with the money from stamp sales[viii].

Thirdly, the issue of scrip needs to be limited to the capacity of the community to absorb it. In 1930’s Iowa, when wages were around 20c per hour for manual work, Zylstra thought that $1 per person per year would be a sustainable amount. Experience suggested, though, that this was too high – perhaps 25c per person per year was nearer the mark. At the time, this would translate into something like 1-1¼ hours’ wages per head of population, which might therefore be an appropriate limit. Thus if a town of 5,000 people with average wages for manual labour were 40c per hour, the maximum scrip issue should not exceed $2500. If $1000 were necessary for the purchase of raw materials, and workers paid at the average rate, the scrip issue could provide 3750 hours of employment, or a month’s work for around 20 people[ix].

Fourthly, there needs to be a clearing-house arrangement to cope with the problem of “congestion” – where some businesses end up with more scrip than they can use. Zylstra originally thought the banks could play that role: they were allowed to buy scrip from businesses with too much at 96c per dollar, then sell it to the public at 97c without the need to attach a stamp. This encouraged banks and their customers to use the scrip (they both made 1c on the deal), but left the merchants covering these costs. Perhaps a better alternative is to have the issuer accept the scrip back at 98c per dollar, and then use it (affixing the stamp) in its own transactions, or (as often happened in the 1930’s) as payment of its workers[x]. It is, of course, very helpful if the issuer will accept the scrip in payments made to it (for local taxes or other bills, for example).


To the best of my knowledge, the idea of stamp scrip-based microfinance for development has yet to be tried. The only way to see whether it has possibilities is to try a pilot project, to see if it works. The necessary preconditions for success have been sketched above:

· The local economy must be significantly money -based

· The project financed by the scrip issue must require few external inputs

· The community must be willing to accept the scrip for transactions

· The scrip issuer is seen as being trustworthy

· The scrip issuer should provide a way for the scrip to be used in its own transactions

Whether these conditions are jointly sufficient for success can probably only be determined by giving it a try. Stamp scrip is certainly not a panacea, and, as the experience of the 1930’s demonstrates, is likely to work only if certain restrictive conditions apply. Nevertheless, it could potentially be a useful addition to the microfinancing toolkit. What is needed is a pilot project to test the idea more fully.


[i] Silvio Gesell The Natural Economic Order (Berlin: Neo-verlag 1929; originally published in German in 1906) Part IV, available at http://www.appropriate-economics.org/ebooks/neo/part4/1.htm (accessed September 25, 2009)

[ii] Irving Fisher Stamp Scrip (New York: Adelphi 1933).

[iii] A detailed account of the Wörgl scheme is Fritz Shwarz, The Experiment inn Wörgl (Bern: Verlags-Genossenschaft Freies Volk, 1951), available in an abbreviated English translation at http://www.sunshinecable.com/~eisehan/woergl.htm (accessed October 1, 2009).

[iv] Ralph A Mitchell and Neil Shafer, Standard Catalog of Depression Scrip of the United States: the 1930s Including Canada and Mexico. (Iola, Wisconsin: Kraus Publications, 1984); Jonathan Warner, “The Anaheim Scrip Plan” Southern California Quarterly vol. 90 No. 3 (September 2008) pp. 307-325

[v] For a contemporary account of the Hawarden scheme see C.C. Clifton, “Nation Eyes Hawarden’s Experiment in Scrip Money” Des Moines Register December 4th, 1932 p. 1 and Wayne Weishaar. Men Without Money (New York: G P. Putnam’s sons, 1933). Recent accounts include Sarah Elvins, “Scrip Money and Slump Cures: Iowa’s Experiments with Alternative Currency during the Great Depression, The Annals of Iowa Third Series, Vol. 64 No. 3 Summer 2005, pp. 221-245 and Jonathan Warner, “Charles Zylstra and Stamped Scrip” in ed. Paul Fessler et al. Dutch Immigrants on the Plains (Holland, MI: The Joint Archives of Holland, Hope College 2006) pp. 162-180

[vi] Pella’s second issue, of March 1933, required 50 2c stamps to be attached, one per transaction. The first piece was fully stamped and redeemed on October 13th 1933 (“First Stamp Note is Retired Here, Pella Chronicle 19th October 1933); final redemption of the last notes did not take place until June 14th, 1937 (“Notice to Holders of Pella Stamp Notes” Pella Chronicle June 3rd, 1937; The Informer [Newssheet of the Pella Chamber of Commerce] September 1937; which signs off with “…everything is cleaned up now, so let’s forget it.”

[vii] See my previous article, and the reference there in endnote iv

[viii] Occasionally individuals issued stamp scrip, the most famous example being that of the newspaperman W. H. Caslow in Chicago. Unfortunately he issued too much scrip, there was too little support for the plan, and the result was that the plan was abandoned after only a few months, leaving many people holding worthless certificates. Fortunately, cases like Caslow’s are rare.

[ix] I should stress again that the figures are for illustrative purposes only, to give some idea of the size of project that might be undertaken using stamp scrip.

[x] Note, though, that the issuer would then have to place the cash equivalent of the scrip used in the redemption account to avoid a shortfall.


  1. 美麗的事物是永恆的快樂,它的可愛日有增加,不會消逝而去..................................................

  2. "To the best of my knowledge, the idea of stamp scrip-based microfinance for development has yet to be tried."

    Jct: Love the title "Microfinance without the finance." There was a report today on Philadelphia's Equal Dollars being used in many such new ways: