“Sometimes, money. Just. Stops” said Warren Buffet, billionaire investor, in May at the Berkshire Hathaway Annual Shareholders meeting. The phrase “money stopping” refers to ceasing of trading of money for goods and services between people. Effectively the flow of money dries up, much like water in a drought. This is what happens in recessions and depressions of the economy. Money. Just. Stops.
This year, nations around the world have been plunged into recession due to the pandemic — but recessions hit some cities and regions harder than others (Day and Jenner 2020). In countries like Australia and the United States, small towns can be most affected (Lawrence 1982). I should know, I grew up in a small country town in Australia during the 1990s recession.
With many people out of work, residents stop spending — putting pressure on local businesses to close (Fishback, Haines, and Kantor 2007 cited in Fishback 2012). Local businesses are crucial for employment in a small town, especially if the town is relatively isolated (Lawrence 1982). Consumer spending is a vital part of our economy, typically making up about 55% of the total economy in Australia and 60% in the United States (CEIC Data 2020). If consumers don’t spend — businesses close — end of story.
During the Great Depression the federal and state governments in Australia and the US offered relief funds (Fishback 2012), but relief can be difficult for some local governments to access. What if there was something we could do to prevent “money stopping”? In the onset of a recession or depression — could a town just print its own money?
During the Great Depression of the 1930s, one town in the United States came up with a novel solution to this problem. That town was Tenino, Washington: estimated population 1865 (United States Census Bureau 2020). Small towns like Tenino cannot issue federal currency, that is they can’t issue United States Dollars — but there is nothing legally stopping them from issuing their own local currency — and so, in 1931 the “Wooden Dollar” was born.
Photo: One printed Tenino “wooden” W$25 dollars exchangeable for $25 US (City of Tenino).
Tenino is a relatively isolated town in between Portland and Seattle. According to the Mayor Wayne Fournier (interviewed on Bloomberg’s Odd Lots 2020) when the 2020 pandemic hit, for about 3 months, people, cars, and traffic disappeared from the local streets. Shops in town closed their doors, and there was almost no economic activity in the town other than the local supermarket.
Ingeniously, the Mayor decided to bring back the wooden dollar to inject a flow of money into to the town. Wooden dollars (W$) were circulated by the local government, who gave W$300 to each negatively affected town resident. Wooden dollars can only be used as currency in participating local businesses, so the benefit of the extra cash stays in the town. If the local government had just given US $300 to citizens, much of it might have been spent online, and not helped the local economy. Restrictions on the Tenino dollar mean it can’t be used to pay for alcohol, gambling, cannabis, or lottery tickets.
The residents of Tenino have taken up the wooden dollar enthusiastically, some Tenino businesses offer twice as many goods for Tenino dollars as they would for US dollars (Fournier 2020). The mayor believes there may be a future for Tenino dollars in the town post COVID-19 (Fournier 2020). The city of Tenino is liable for the wooden dollars it prints; however, it will not pay more than US $1 for a wooden dollar (Fournier 2020). A peg on the exchange rate of the Tenino dollar for US dollars limits the liability and risk on the local authority.
Photo: One printed Tenino “wooden” W$25 dollars exchangeable for $25 US (City of Tenino).
The wooden dollars were printed using the original printing machine from the 1890s, used to print the first wooden dollars in the 1930s (Fournier 2020). The press had been housed at a local museum for almost a century (Fournier 2020).
Since the Great depression various forms of wooden dollar have been used around the world both in good times such as the ‘Ithaca Hour’ in New York (Meckley 2015, Rietz 2019), and in times of crisis, such as Argentina in 2001 – 2002 (Colacelli and Blackburn 2009). My hometown of Maleny created its own local currency called ‘Bunyas’ in 1987. Community Exchange System (2020) stated there are a total of 38 local exchange groups operating in Australia. Exchange trading systems are particularly useful for people who are unemployed, underemployed, self-employed, or retired (Sunshine Coast LETS n.d.).
Australian politician Peter Baldwin, Keating Government Social Security minister, encouraged the use of exchange systems like ‘wooden’ dollars because they allow unemployed people to borrow to make purchases or to start their own businesses (Wilson 2015). In Argentina alternative currency use was found to increase monthly income by over 15% (Colacelli and Blackburn 2009). Just like conventional income, taxes apply to income earned through exchange systems (Australian Taxation Office 2020). As Milton Friedman says, there is no such thing as a free lunch.
References
Australian Taxation Office. 2020. “Bartering and trade exchanges”. Accessed 8 September 2020. https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/Barter-and-trade-exchanges/
CEIC Data. 2020. Australia Private Consumption: % of GDP 1959 – 2020 | Quarterly | % | CEIC Data . Accessed November 17, 2020. https://www.ceicdata.com/en/indicator/australia/private-consumption–of-nominal-gdp.
– . 2020. United States Private Consumption: % of GDP 1947 – 2020 | Quarterly | % | CEIC Data . Accessed November 17, 2020. https://www.ceicdata.com/en/indicator/united-states/private-consumption–of-nominal-gdp.
Colacelli, Mariana, and David J.H. Blackburn. 2009. “Secondary currency:Anempiricalanalysis.” Journal of Monetary Economics 56 (3): 295-308.
Day, Iris, and Keaton Jenner. 2020. Labour Market Persistence from Recessions. September 17. Accessed November 17, 2020. https://www.rba.gov.au/publications/bulletin/2020/sep/labour-market-persistence-from-recessions.html.
Fishback, Price V. 2012. “Relief During the Great Depression in Australia and America.” Australian Economic History Review 52 (3): 221 – 249.
Fournier, Wayne, interview by Joe Weisenthal and Tracey Alloway. 2020. “Meet The Mayor Who Printed His Own Currency To Fight The Virus.” Odd Lots. Bloomberg Markets, (20 July).
Lawrence, Geoffrey. 1982. “Rural unemployment in Australia: orthodox and radical perspectives.” Journal of Australian Political Economy 11 : 59-72.
Meckley, Faith. 2015. “New local currency offers Ithaca another alternative” The Ithacan, April 15, 2015. Accessed 18 November 2020. https://theithacan.org/news/new-local-currency-offers-ithaca-another-alternative-currency/.
Rietz, Justin. 2019. “Secondary currency acceptance: Experimental evidence with a dual currency search model.” Journal of Economic Behavior and Organization 166: 403–431.
Sunshine Coast LETS. What is LETS. Accessed September 8, 2020. https://sunshinecoastlets.weebly.com/what-is-lets.html.
United States Census Bureau. 2020. “City and Town Population Totals: 2010-2019, Incorporated Places: 2010 to 2019.” United States Census Bureau. May 7. Accessed November 17, 2020. https://www.census.gov/data/tables/time-series/demo/popest/2010s-total-cities-and-towns.html.
Wilson, David. 2015. “A cashless economy? Where’s the catch? .” The Sydney Morning Herald, July 30, 2015. Accessed 3 September 2020. https://www.smh.com.au/money/saving/a-cashless-economy-wheres-the-catch-20150730-gingrc.html.
Economics with Coffee by Ellie Fleischer 