Stamp Scrip: Money People Paid to Use

Federal Reserve Bank of Cleveland. Economic Commentary, Apr 2008 by Champ, Bruce

Gesell suggested that a periodic tax placed on money could do the trick. By making it costly to hold money, he believed people would be encouraged to spend it. In a severe depression, the idea that spending could be stimulated by making money costly to hold seemed appealing. In fact, Gesell's views received the stamp of approval of the renowned economist John Maynard Keynes in his General Theory.

Keynes viewed stamp scrip as a possible solution to what has been referred to as a "liquidity trap"-a situation where interest rates are so low in an economy, that no one cares to hold interest-bearing assets. By establishing a carrying tax on money, the nominal rate of return on money could be lowered, creating an incentive for people to hold interest-bearing assets, which might stimulate greater production across the economy.

Successes and Failures

Some early, apparently successful, stamp scrip implementations inspired by Gesell's ideas occurred in Germany and Austria in the 1930s. Both countries were experiencing deflation, commercial bank failures, and high unemployment, much like the United States at the time.

The German experiment occurred in the town of Schwanenkirchen, where a stamp scrip called Wära was issued. It received attention in the United States through numerous newspaper and magazine articles, including one by Hans R. L. Cohrssen that appeared in The New Republic in August 1932. He reported that in 1931 the owner of a coal mine that had been closed for a couple years borrowed 40,000 Reichsmarks and approached miners about being paid in Wära and local merchants about accepting it. Merchants were at first hesitant, but soon supported the scrip. By Cohrssen's account, the plan was successful. The 1 percent per month tax on the scrip appeared to encourage its rapid circulation. Cohrssen called it the "miracle of Schwanenkirchen."

Ultimately, Wara was accepted in thousands of stores in Germany, and a few banks actually created accounts denominated in it. But eventually the scrip was declared illegal by the German Ministry of Finance.

In Austria, stamp scrip was issued in the town of Wörgl in August 1932 to finance a number of public works projects. Accounts of the episode indicate it had some success. However, as in Germany, the Wörgl experiment was short-lived. An Austrian court forbade its issuance in November 1933.

The U.S. experience with stamp scrip began in the small town of Hawarden, Iowa, in 1932. Hawarden's scrip strayed from Gesell's original suggestions in that it was undated. To spend this kind of scrip, customers had to buy a stamp at the time they were making their purchase and affix it to the scrip. Dating was intended to encourage rapid turnover of the scrip, but undated scrip served in effect as a tax on consumption.

Many towns in the United States issued stamp scrip. Most scrip was issued in early 1933, when bank suspensions were frequent and widespread. The state legislatures of North Carolina, Indiana, Michigan, Tennessee, New Jersey, Ohio, and North Dakota passed laws allowing localities in their respective states to issue stamp scrip. Statewide stamp scrip issue was proposed in Iowa but never enacted.