The following text is an updated version of the 1995 essay “Local Currencies: Catalysts for Sustainable Regional Economies” by Susan Witt and Robert Swann. The 1995 essay was based on one of the Eighth Annual E. F. Schumacher Lectures presented by Robert Swann in 1988.
The economist E. F. Schumacher argued in Small Is Beautiful: Economics As If People Mattered that from a truly economic point of view the most rational way to produce is “from local resources, for local needs.” Jane Jacobs, author of Cities and the Wealth of Nations, emphasizes Schumacher’s point through her analysis of a healthy region as one creating “import-replacing” industries on a continuing basis; however, she argued that a well-developed regional economy which produces for its own needs is possible only when control of its resources and finances lies within the region itself. The ownership of land, natural resources, and industry is increasingly controlled by market forces at the whim of the highest bidder. Likewise, big banks hold a controlling hand in the determination of conditions for receiving credit as well as in currency issue. Most regions face the troubling reality that their economic resources are subject to forces outside the area.
The banking system is one of the most centralized institutions of our economy and is one of the major obstacles to strengthening regional economies and the communities within them. Yet centralized banking is a recent development in the United States. The customs of borrowing, lending, and printing money grew up over generations in towns and rural communities to form what we now call our banking systems. These systems were initially on a small scale and regionally governed. The U.S. Government nationalized paper money in 1863 with the issue of “Greenbacks” in order to raise funds for the war against the Confederate States, but it was not until 1913 that a central system became formalized with the Federal Reserve Act. Centralized banking and control of money called for large banks and wealthy investors who could assemble huge, unprecedented sums. These banks in the money centers, with their industrial customers, could pay a higher interest rate to depositors than could the smaller banks, and these smaller, often rural banks began sending their deposits to the large cities. The national currency made money more fluid and allowed rural dollars to support urban industrial growth. Rural creditors were pleased with this arrangement until the first time a New York bank closed and carried off the savings of a small town or until local farmers could not secure a loan because a Chicago bank was borrowing from their bank at a high rate of interest.
A national currency facilitated the industrialization of the United States, which in turn created many jobs; however, the centralization of the monetary system has served to centralize the benefits of the system as well.
The effect on small farmers and rural economies has been devastating. The ongoing “farm crisis” is a dramatic manifestation of what is really a monetary crisis that began in the deep depression of the 1870s and 1880s and was later codified in the Federal Reserve Act. Credit for small-scale farming and the small rural businesses that are a part of the farm community had dried up long before the Depression of the 1930s. As a result, the United States government had to create the Farmers Home Administration in order to help replace—with tax money—some of the rural capital that had been lost to the large cities.
The “housing crisis” is also in part a monetary crisis. Investors place money in land as a hedge against inflation, which drives land and housing prices up. The high cost of land is a major factor in the present shortage of affordable housing, and it takes home ownership out of reach for a large percentage of Americans.
The local and decentralized banking systems of a hundred and fifty years ago had the advantage of diversity. The failure of a local bank—even a New York bank—was still a local failure, and its costs were internalized. But today we are facing the failure of an entire system. Consider the trillions of federal dollars issued to bail out banks and the auto industry during the 2008 financial collapse. And also consider the billions of tax dollars spent by the Federal Deposit Insurance Corporation (FDIC) to bail out the Savings and Loan industry two decades earlier. In the 1980s billions of dollars were added to the U.S. national debt in order to again bail out the banking system when developing countries defaulted on their loans. These systemic failures are bound to occur if local economic control of banking customs and money supply is compromised by centralization and sacrificed to serve the heedless demands of growth.
This predicament calls for a reorganization of economic institutions so that they will be responsive to local and regional needs and conditions. These new institutions would decentralize the control of land, natural resources, industry, and financing to serve the people living in a region in an equitable way. We need to create an infrastructure that encourages local production for local needs. Community land trusts, worker-owned and worker-managed businesses, non-profit local banks, and regional currencies are some of the tools for building strong regional economies.
Because we have all learned to assume that national currencies are the norm, a regional currency is perhaps the least understood of these tools. Jane Jacobs, in her book Cities and the Wealth of Nations, views the economy of a region as a living entity in the process of expanding and contracting and a regional currency as the appropriate regulator of this ebbing and flowing life. Just like a nation, a region which does not produce a sufficient number of the goods it consumes comes to rely heavily on imports and finds its currency devalued. Import costs increase, the exchange of goods is reduced, and the region has to “borrow,” which means that it exports its capital—dollars, not goods—and ends up importing nearly everything it needs. But if the region is supplying its own needs, then its currency “hardens” and holds its value relative to other currencies. Imports are cheaper, and trade is more equitable—or even skewed in favor of the self-reliant or “import-replacing” region.
Jacobs describes currencies as “powerful carriers of feedback information . . . and potent triggers of adjustments, but on their own terms. A national currency registers, above all, consolidated information of a nation’s international trade.” This feedback informs economic policy makers. But should the industrial Great Lakes region or the farm-belt states adjust their economies in the same manner as the Sunbelt states or the Silicon Valley of the west coast? A very significant part of any region’s economy is governed by a monetary and banking system over which members of a community have little or no control. The dependency on national currencies actually deprives regions of a very useful self-regulating tool and allows stagnant economic pockets to go unaided in a seemingly prosperous nation. What is called for instead is the establishment of a system with community accountability.
Regional currencies are not a recent invention—the practice is centuries old. The so-called free banking era of U.S. history, when many currencies circulated, contributed substantially to bringing about Thomas Jefferson’s dream of a nation of small, independent, self-reliant farmers who found ready credit with community banks to produce and sell their goods. Even in the early years of the twentieth century local banks issued their own currency, which John Kenneth Galbraith, in his 1975 book Money: Whence it Came, and Where it Went, says was important for the rapid development of the American economy.
How were those banks different from banks today? Because they were located in small towns, the bankers knew the people they were dealing with in a personal way and could make loans on the basis of “character,” not strictly on the basis of how much collateral an individual had to secure the loan. A more striking difference is that each bank could issue a scrip, its own local currency. Unlike a national currency, which easily leaves the region in which its value is created, the local currency could circulate only in a limited regional area; local currencies and local capital could not travel to the money centers to finance the operations of multinational corporations or interest payments on debt. Credit decisions were made by local bankers with particular personal knowledge not only of the borrowers but also of the needs of the region as a whole.
One of the major objections to “free banking” in the nineteenth and early twentieth centuries was that some of these local banks failed and some of them printed money to speculate in land and to make unproductive loans. The argument is that such abuses can be controlled if money is issued centrally. But it was unity—a shared belief in communal responsibility and vigilance—rather than uniformity that was needed.
Decentralization and diversity have the benefit of preventing large-scale failure. This is as true in banking as it is in the natural world. Think of seeds. If many different strains of corn are planted by different farmers and a disease hits the crop, some strains will resist and the corn will be harvested. But if all the farmers have shifted to a new hybrid seed and blight hits the corn, the result can be widespread crop failure and disaster. How do we ensure diversity in banking? As the economist Frederick Hayek has pointed out, to keep banking honest it would be better to return to a banking system that utilizes competing currencies rather than to rely on a central system.
In the 1930s a worldwide deflation encouraged many new forms of exchange that competed with the national currencies. The town of Wörgl in Austria created a scrip system that drew international attention. The people in this little town were able to trade the labor and materials, which they did have, rather than Austrian shillings, which they didn’t have, and they managed to pull themselves out of the Depression in a matter of months. Local scrip also sprang up around the United States. A former editor of The Springfield Union in Massachusetts told the story of a scrip issued by his newspaper. He was just a copy boy at the paper during the bank failures of the 1930s, but he remembers that the publisher, Samuel Bowles, paid his newspaper employees in scrip. It could be spent in the stores that advertised in the paper, and the stores would then pay for ads with the scrip, thus closing the circle. The scrip was so popular that customers began to ask for change in scrip. They would see Bowles around town and had more confidence in his local money than in the federal dollars. Newspaper money helped to keep the Springfield economy flowing during a period of bank closures, facilitating commercial transactions that went well beyond the original intent of the issue.
Forty years later in the town of Exeter, New Hampshire, the economist Ralph Borsodi and Robert Swann issued a currency that was based on a standard of value using thirty different commodities in an index similar to the Dow Jones Average. It was called the Constant because, unlike the national currency, it would hold its value over time. The Constant circulated in Exeter for more than a year, proving, as Borsodi had hoped, that people would use a currency that was not the familiar greenback. At the time, it received national publicity in Time, Forbes, and other magazines. When asked by a reporter if his currency was legal, Borsodi suggested that the reporter check with the Treasury Department, which the reporter did. He was told, “We don’t care if he issues pine cones, as long as it is exchangeable for dollars so that transactions can be recorded for tax purposes.” This is all that the government requires of a local currency.
All that a local currency requires of a community is trust. A currency is only as strong as the confidence that people have in one another to produce something of value. Trust is at the heart of the successes in Springfield and Wörgl and Exeter.
Borsodi discontinued his experiment after a year for health reasons (he was then aged 90), but he had accomplished his purpose: to verify the legality of locally issued, non-governmental currencies and to demonstrate local acceptance. Robert Swann went on to co-found the Schumacher Center for a New Economics, which houses Borsodi’s papers on the Constant as well as other archival collections. The Schumacher Center Library contains a wide variety of materials gathered from over fifty different alternative currency projects around the globe, making it a unique collection on the theory and application of local currencies. In 2004 the Schumacher Center organized the conference “Local Currencies in the 21st Century,” drawing participants from thirteen countries and launching the modern discussion on democratizing monetary issue.
The southern Berkshire town of Great Barrington, Massachusetts, home of the Schumacher Center, has—not surprisingly—been a leader in the development of its own currency. The story told in this essay will make plain the particulars of how local currency works and how it encourages economic self-reliance. In 1981 a discussion group on regional economies led to the incorporation of a non-profit organization called SHARE (Self-Help Association for a Regional Economy), with open membership and a board elected from its members. This was the first step in organizing the Berkshire community to issue its own currency.
The soundest method for issuing any currency is to issue for productive loans. A productive loan differs from a consumer loan in that it provides the recipient with the capability to produce goods for market with a value in excess of the loan, thereby creating new economic wealth in the community. The classic example of a productive loan is one made to farmers for seeds in the spring so that they will have an abundant harvest of food in the fall. Currency that is created responsibly for productive loans will maintain its value or even strengthen in value as the wealth of the community increases relative to the supply of scrip in circulation.
SHARE’s first objective was to make productive loans to people who were unable to secure normal bank financing but who had the kind of small, locally-owned enterprises that produced quality goods and services for local consumption. Some of these businesses could get bank loans but only at rates that were at that time as high as 15 or 18 percent, too high a price for a start-up enterprise. SHARE was determined to make lower-cost loans available. SHARE members opened savings accounts, written as joint accounts with SHARE, at one of the local community banks, but ownership of funds was left with the depositor. These accounts were pooled by SHARE to collateralize loans.
This kind of lending requires that the community separate the functions of banking. The bank makes the loans and handles the accounting, but the lending decisions, based on a unique set of social, ecological, and financial criteria established by SHARE, are made by the community of depositors.
Sue Sellew of Rawson Brook Farm makes a soft chevre cheese from the milk of her dairy goats and the herbs she grows on her organic farm. In 1983 she borrowed $5,000 from SHARE to bring her milking parlor and cheese room up to state regulation standards. This enabled her to sell the cheese to stores and restaurants.
Jim Golden trained his two draft horses, Spike and Rosie, to haul timber and firewood from forests. Jim could assure his customers that their woods would be treated in an ecologically responsible manner and wouldn’t suffer the undue stress caused by heavy equipment. A SHARE loan was made to complete a barn for the team.
Bonnie Smith, who had never borrowed money, had a knitting machine that took bulk-weight yarn, and she had a talent for designing clothes. She knitted sweaters, tights, leg-warmers, and scarves in whimsical, colorful designs. Her small SHARE loan bought a bulk supply of wool yarn, which lowered her overall costs and established credit with suppliers. She borrowed again to buy a knit- ting machine when the first loan was repaid. Her business kept on growing, and she applied for a third time to buy a second machine for an employee. The first two loans had established bank credit for her business, so SHARE sent Bonnie directly to the bank’s loan officer, who readily approved a loan.
The payback record on SHARE-collateralized loans was 100 percent, both because of their scale and because of community support for the loan recipients. SHARE members helped maintain this perfect record by recommending these small businesses to their friends.
Most loans were for start-up businesses requiring no more than $3,000. They were made for equipment or inventory but not for salary or advertising—productive loans, not consumer loans. A piano teacher purchased a piano with loan funds in order to provide lessons in her home, but an application to purchase a piano for private use was sent to the bank’s consumer-loan officer.
The SHARE loan-collateralization program was simple to operate and easily copied. Similar programs have started around the United States using the model created in the Berkshires. It is the “grandmother principle” which made SHARE a success: When people without credit histories decide to go into business, they frequently turn to a family member, such as a grandmother, for help. Instead of lending directly, the grandmother might offer a savings account or certificate of deposit as collateral for a bank loan. The SHARE program simply extended “the circle of grand- mothers” to include members of the broader community.
SHARE put a human scale and a human touch back into local economic transactions. A newsletter explained to SHARE depositors “what your money is doing tonight”—it was working locally to make cheese or sweaters or to house two very big horses. On weekends SHARE members would visit Sue Sellew’s farm, where the baby goats nibbled at the keys in visitors’ pockets. They stopped by the next weekend with their grandchildren and on the next weekend served Monterey chevre at their dinner party. Monterey chevre is not just any cheese; it is a cheese with a story, and SHARE members were a part of that story. They asked for the cheese at local stores. They thought of Bonnie’s wool sweaters when contemplating a special gift. They rooted for Spike and Rosie at the draft-horse pulling contest. These local economic relationships encourage social patterns that in turn shape a uniquely local culture.
Frank Tortoriello was the owner of a popular deli on Main Street in Great Barrington. He turned to SHARE when he lost his lease and the bank refused him a loan to renovate his new location. But Frank didn’t need SHARE’s circle of grandmothers; he already had a circle of his own in his customers. SHARE suggested that Frank issue Deli Dollars as a self-financing technique. The notes would be purchased during a month on sale and redeemed after the Deli had made its move. A local artist, Martha Shaw, designed the note, which showed a host of people carrying Frank and his staff, all busy cooking, to their new location. The notes were issued in 1989 and were marked “redeemable for meals up to a value of ten dollars.” The Deli would not be able to redeem all the notes right after reopening, so SHARE advised Frank to stagger repayment over a year by placing a “valid after” date on each note. To discourage counterfeiting, Frank signed every note individually like a check.
SHARE recommended that the notes be sold for $10 each, but Frank thought that would be too good a deal for the Deli. With his customers in mind he sold $10 notes for eight dollars and raised $5,000 in thirty days: contractors bought sets of Deli Dollars as Christmas presents for their construction crews; parents of students at nearby Simon’s Rock College knew Deli Dollars would make a good gift for their kids; the banker who turned down the original loan request supported Frank by buying Deli Dollars. The notes even showed up in the collection plate of the First Congregational Church because church-goers knew the minister ate breakfast at the Deli. Regular customers were pleased to help support what they saw was a sure thing: they knew firsthand how hard Frank worked and believed in his ability to make good on redemption. Frank repaid the loan, not in hard-to-come-by federal notes but in cheese-on-rye sandwiches.
Jennifer Tawczynski worked at the Main Street Deli and carried the idea home to her parents Dan and Martha Tawczynski, who owned Taft Farm, one of two farm markets in the area at that time. The Tawczynskis came to SHARE with the idea of issuing “greenbacks” to help them meet the high cost of heating their greenhouses through the winter. Customers would buy the notes in the late fall for redemption in plants and vegetables come spring and summer.
At around the same time the other farm market in town, the Corn Crib, was damaged by fire. Customers of the Corn Crib came to SHARE with the idea of issuing notes to help owners Don and Ruth Ziegler recover from the ravages of the fire. SHARE suggested that the two farms together issue a Berkshire Farm Preserve Note. Martha Shaw designed the note with a head of cabbage in the middle surrounded by a variety of other vegetables. The notes were issued in 1991 and read “In Farms We Trust.” The ten-dollar notes were sold for nine dollars each, thus providing a discount to participants. The Massachusetts Commissioner of Agriculture traveled from Boston to purchase the first Berkshire Farm Preserve Note, and five national TV networks featured Berkshire farmers using Yankee ingenuity to survive a difficult winter. The Berkshire Women with Infants and Children (WIC) program purchased Berkshire Farm Preserve Notes in order to give them to families as part of a local initiative to supplement the federal food program. The notes did not carry the food-stamp stigma, which made them more appealing to the struggling families. The Berkshire WIC program also knew it was supporting local farmers at the same time it was supporting local families.
The notes could be purchased at either farm and were redeemable at either farm. At the end of the redemption period SHARE acted as the clearinghouse for the notes. The farmers received the income (ranging from $3,000 to $5,000 per farm per year) from the sale of the notes. The farmers also found that the notes drew a committed base of customers who would travel out of their way to buy from their local farms rather than purchase the jet-lagged vegetables from supermarket chains.
Deli Dollars started a consumer movement in the Berkshires. The Berkshire Farm Preserve Notes, Monterey General Store Notes, and Kintaro Notes that followed gave Berkshire residents a way to vote for the kind of small independent businesses that help to make a local economy more self-reliant.
The popularity of the scrip inspired the Southern Berkshire Chamber of Commerce to work with the Schumacher Center’s staff to issue a note called “BerkShares” as a summer promotion in 1992. Customers were given one BerkShare for every ten dollars spent in a participating business over the six-week summer period. During a three-day redemption period in the autumn, customers could spend their BerkShares just like dollars in any of the seventy participating stores. The success of the BerkShares program depended on the energy and cooperation of a small group of merchants and in large part on the sense of community among consumers. Of the 75,000 BerkShares handed out (representing three-quarters of a million dollars in BerkShares trade) 28,000 were spent during the three-day redemption period: A high return for a give-away item. Some families pooled their BerkShares to purchase a gift. People who were going away over the redemption weekend were sure to give their BerkShares to a neighbor who would use them. A spirit of festivity and excitement filled Main Street that weekend as people chatted about how they planned to use their BerkShares.
Although the BerkShares and Deli Dollars and Farm Preserve Notes represented a major shift in local attitudes toward an alternative exchange and captured the imagination of both consumers and producers, they were not yet the year-round local currency that the organizers had envisioned. A suggestion from several community banks pushed the effort forward to its next stage. In 1995 the BerkShare organizing committee proposed that the four local banks participate in a BerkShares 0 percent loan program during the winter holidays. The banks would qualify customers for a holiday loan, but it would be made in BerkShares instead of federal dollars. What was normally spent at big-box stores, malls, and mail order catalogues would instead go to the locally owned stores that accepted BerkShares, helping to secure local jobs and keeping local dollars local. Merchants could then redeem the BerkShares for federal dollars at a slight discount to cover some of the banks’ costs for managing the 0 percent loans.
The committee presented the idea at a meeting with the bankers, who in turn wondered why the effort was again being spent on a seasonal program. They proposed instead that the committee create a year-round BerkShare in the form of a 5 percent discount note. Customers would come to the banks and purchase one hundred BerkShares for $95 and redeem them at local stores for $100 worth of goods and services. The merchants would then exchange their BerkShares at local banks at 95¢ per share.
But how to clear the BerkShare accounts among the four banks? The Federal Reserve System moves dollars in the form of checks between the receiving bank and the issuing bank. This clearing system is automated and keeps the national currency moving. A local currency needs a local clearing system. The bankers at the meeting came up with the solution. They said, “Well, we can just walk down the street to one another’s banks and make the exchange, the way we used to with checks.” It gave these individual bankers, who are caught up in a highly centralized and fast-paced system, great pleasure to imagine recapturing in a small way the early days of banking when transactions had a warmer, more community-oriented spirit.
How would the currency be designed and structured to give the greater Berkshire community confidence in the issuer and in the currency itself? The following principles served as a guide:
- The issuing organization should be incorporated as a nonprofit so the public understands that providing access to credit is a service not linked to private gain.
- In order to provide transparency the organization should be democratically structured, with membership open to all area residents and with a board elected by the members.
- The long-term goal of the regional bank or currency organization should be to create new short-term credit for productive purposes. Such credit is normally provided for up to a year for raw materials, equipment, and component parts to produce goods—credit for things that pay for themselves in a relatively short time.
- The regional bank or currency organization should be free of governmental control, other than inspection, so that investment criteria and decisions are independent and reflect the specific natural resources, human skills, and unique culture of the region.
- Social and ecological criteria should be introduced into all loan-making decisions.
- Local production for local needs should be a priority in making loan decisions.
- In the short term the currency should be exchangeable for federal dollars to give participating businesses confidence in accepting large quantities of the scrip. In the long term the currency should be backed by goods and services in the local economy.
In February of 2006 the Schumacher Center for a New Economics received a grant to implement its vision of a democratized, citizen-issued currency. It incorporated BerkShares, Inc. as a non-profit Massachusetts corporation. Because U.S. federal tax law does not envision private currency issue—whether non-profit or for-profit—as a tax-exempt activity, BerkShares did not apply for federal status as a charity. This means that research and development funds for BerkShares advancement have been supported by grants to the Schumacher Center as part of its larger educational work to promote a just and sustainable economy.
We began by inviting small business owners, bankers, lawyers, technical and financial experts, farmers, editors, leaders in non-profit agencies, educators, and other members of the general public to form the first board of directors. Membership in BerkShares, Inc. was open to all residents of the Berkshire region for an annual membership fee of 25 BerkShares to keep it affordable. The initial appointed board was later replaced by an elected board once membership grew.
Crane and Company, which has long supplied paper for U.S. currency, is a Berkshire business. BerkShares, Inc. approached Excelsior Printing, a spin-off from Crane, about printing BerkShares. Excelsior had experience in printing security notes for banks, small countries, and investment firms. The company located a small batch of unique paper with security features on which to print BerkShares.
The BerkShares design committee settled on five denominations—1s, 5s, 10s, 20s, and 50s, with more 1s than 5s, more 5s than 10s, etc. The committee members selected five historical Berkshire figures to feature on the notes: a Stockbridge Mohegan Indian, representing the Berkshires’ native population, on the 1 BerkShare note; W. E. B. DuBois, founder of the N.A.A.C.P. and author of The Souls of Black Folks, a seminal work in African-American literature, on the 5; Robyn Van En, who founded the first Community Supported Agriculture (CSA) farm in the U.S. here in the Berkshires, on the 10; Herman Melville, author of the American classic Moby Dick and an early environmentalist, on the 20; and Norman Rockwell, beloved illustrator of small-town America, on the 50.
The committee interviewed representative local artists and selected paintings of Berkshire landscapes, streetscapes, and garden scenes for the back of each note. Designer John Isaacs crafted a simple but intricate template to avoid counterfeiting. The resulting notes reflect Berkshire culture and shared experience. The words “Community, Ecology, Economy, Sustainability” appear on all five notes, signifying BerkShares, Inc.’s commitment to these four principles. Each note has its own unique serial number for tracking purposes. The printing was carried out under tight security measures and held under lock and key until BerkShares board members went to pick them up.
On the recommendation of bankers who served as advisors, BerkShares, Inc. opened special reserve checking accounts at each of the sixteen participating branches of the four partner banks. With an outside accountant observing the whole process, the board of directors divided the newly printed notes into sixteen bundles and delivered them to those sixteen branches, to be held in their safes until called upon to be exchanged for federal dollars.
Citizens known to the banks can exchange federal dollars for BerkShares at a rate of $95 for 100 BerkShares. The federal dollars remain on deposit in the BerkShares reserve checking accounts to back the currency. The BerkShares circulate in the local economy at one for one with the dollar. Businesses that accumulate more BerkShares than they are able to recirculate can return them to any of the sixteen branches and exchange 100 BerkShares for $95, providing a 5 percent discount to customers but avoiding credit-card fees or the costs of billing because payments in BerkShares take place at the point of sale.
BerkShares, Inc. developed a website, printed promotional material, signed up businesses to accept BerkShares, and planned a launch party in September of 2006. The renovated and newly opened Mahaiwe Theater was filled to overflowing the night of the event. It was the beginning of a robust stream of media inquiry and coverage of the currency. Working with the Schumacher Center, BerkShares, Inc.’s team highlights a BerkShares Business of the Month on local radio and in the local press to focus attention on the variety and scope of businesses using BerkShares and their reasons for doing so. BerkShares Inc.’s team convenes events to celebrate the uniqueness of the local economy; acknowledges the important role of community banks in recirculating wealth originating in the Berkshires into local mortgages and local businesses; and encourages philanthropists to keep their gifting local to build an arts, environmental, and social-service network to complement the local economy work. As a result, the general populace understands BerkShares as a tool for promoting local businesses.
While that is certainly an important function of the currency, the vision of the organization’s founders was ultimately to build a structure for issuing “new” or unbacked money for productive loans in order to create jobs focused on import-replacement. The purpose was to return the power of money creation to a local, democratically structured entity that understands the region’s capacity for new manufacturing and empowers citizens to shape their region’s economic future—in other words, a democratization of monetary issue.
The obstacle to advancing to this next stage of the local currency program has been a lack of sound business proposals in which to invest community-created capital. Globalization has taken away almost all of the manufacturing firms from this once productive area of western Massachusetts, leaving a tourist/arts/food/education/health care/service economy.
How can we as citizens re-invigorate manufacturing, producing in the region more of the goods consumed locally? To answer this question we took a page from the Mondragon bank—the Caja Laboral. While the city of Mondragon in the Basque region of Spain is famed inter- nationally for its sophisticated structure for worker-owned and worker-managed cooperatives, the role of the bank is no less visionary. The bank learned that if it wanted new worker-owned businesses in which to invest the capital amassed by the cooperatives in the system, it would have to research and develop those businesses. This research arm analyzes existing cooperatives in Mondragon and evaluates the region’s natural resources, workforce skills, available technology, site requirements, transportation options, and possibilities for building on existing customer connections. The researchers then come up with viable new business plans that are kept in a “library” to share with teams wishing to set up new cooperatives. This approach takes much of the risk of starting a new enterprise off the shoulders of the members of the cooperative and places it with the bank, which is working on behalf of the whole Mondragon system.
Without a development bank to rely on, the Schumacher Center for a New Economics launched what is called a “Community Supported Industry” program to engage citizens in imagining, researching, marketing, and advocating for new import-substitution businesses. This advocacy could include securing an appropriate manufacturing site and obtaining town permits, investigating appropriately scaled equipment for small and medium sized batch production, testing prototypes with consumers, writing business plans, and other steps normally taken at the risk of the entrepreneur. In this case the community shares the risk in order to secure a local source of basic goods while building economic resiliency.
Working with the Schumacher Center, the BerkShares, Inc. team created an Entry-to-Entrepreneurship program to link mentors in the professional community with 16 to 30 year olds for the purpose of writing future business plans and encouraging youth to stay in the Berkshires on graduating. Since it began in 2015, program graduates with a developed plan have been given 200 BerkShares as seed money. They leave with an impressive list of local contacts—bankers, lawyers, accountants, retired business executives—to help with further implementation of their plans. BerkShares, Inc. has also convened meetings with people from anchor institutions and non-profit agencies, as well as with government officials, to review what they are importing into the region for their operations that might be turned into new local manufacturing products. All of this has meant that BerkShares Inc. has been a leader in educating the Berkshire community on the importance of supporting existing businesses and fostering new ones in order to hold on to existing jobs and create new ones.
The Schumacher Center and BerkShares, Inc. are planning to work with local businesses and banks to develop a commodity backing for the currency so that eventually loans can be made in BerkShares at an interest rate as low as 3 percent, which is the cost of servicing the loan. Unlike the SHARE loan program, which relied on federal dollars borrowed and held as collateral, a loan in BerkShares would carry no cost-of-money fees. A 3 percent loan could encourage new business ventures like local food processing that otherwise couldn’t compete because investment capital is too expensive. Once fully developed, a local scrip such as BerkShares is a powerful tool for residents to shape their own economic futures unfettered by high interest rates and credit decisions made in far-away money centers. Each region could be its own new money center, and local economic problems would have local solutions.
Participating community banks are prepared to make loans, using newly issued BerkShares, to businesses recommended by BerkShares, Inc. using newly issued currency. But how much volume of “new” money in circulation is necessary before moving to a floating exchange rate with the dollar? How can BerkShares Inc. determine the strength of the Berkshire economy against the national economy? What is the measuring stick for the comparison? Gold, a basket of local commodities, kilowatt hours? These are questions still ahead as this multi-decade initiative continues in its implementation of a citizen-issued currency.
Fully realized local currencies can play a vital role in the development of stable, diversified regional economies, giving definition and identity to regions, encouraging face-to-face transactions between neighbors, and helping to revitalize local cultures.