Making Money

Local Currencies and Bartering Networks Bring Economics Home

Managing without money may sound like a radical idea, but for most of history—and even in many parts of the world today—economic life didn’t revolve around currency. Homo economicus either bartered or made do with what he caught, foraged or grew himself.

Tom Garcia Illustration

While those days are mostly gone, it’s still possible to reduce your cash needs. Bartering networks, local exchange trading systems and radical approaches like locally—instead of federally—issued currency allow one to largely sidestep dollar bills and credit cards. Why bother? For the same reasons Henry David Thoreau did: to simplify one’s life, to gain free time, to feel a greater connection between one’s work efforts and spending needs, to become more self- or community-reliant, and to reduce your environmental impact.

Bartering and trading networks vary in detail, but share a similar basic setup: Members, whose skills and products are listed in a directory, make exchanges. These swaps are recorded by a computer as credits and debits (depending on whether you were the consumer or provider). Credits can be spent with any other member of the network, so you don’t need to directly swap with the person whose house you painted. Assuming traders don’t accumulate too many debits (similar to “maxing out” a credit card, with the major difference that it’s ill will from friends and neighbors that builds up), the system will work smoothly.

Local currency works on the same principle, but instead of a central computer recording transactions, locally-issued dollars change hands. Since that money is only accepted in its area, this strengthens a community’s economic self-reliance, say proponents. Out-of-town-based chain stores, for example, won’t accept it.

Act Locally

Businesses that receive community currency must in turn spend it locally, the intent being to create a positive economic cycle. It’s the opposite of what now typically happens when large corporations make profits in a community but then use it to invest elsewhere, often sidestepping U.S. environmental regulations. For giant banks, multinational corporations and credit card companies that routinely transfer electronic cash back and forth over national boundaries, local economic self-reliance amounts to an act of heresy, a chink in the global economy’s armor.

Tim Mitchell, project manager of the Valley Trade Connection, a nonprofit barter network and local currency project in Massachusetts, says that spending locally, even when the money is regular greenbacks, has major regional benefits. He cites studies showing that “a dollar traded at a locally owned store is usually spent between six and 15 times before it leaves the community.” The shopkeeper pays a clerk, who pays his landlord, who pays her chiropractor, who buys a newspaper ad. “From $1,” says Mitchell, “you create $5 to $14 in value within that community. But when that same dollar is spent at a national chain store, 80 cents of it leaves town immediately—to pay executive salaries, distant manufacturers and importers, and truckers.”

“Local currencies,” says Paul Glover, the writer and community economist from Ithaca, New York who is credited for reviving local money, “exist to expand participants’ economic possibilities. Money was the missing link, preventing good things from happening. If we waited around for government or bankers to provide that money, we’d wait for a long time.” As renegade economist Hazel Henderson puts it, “Local barter systems and local currencies flourish when a country is managing its affairs inappropriately.”

Glover created Ithaca Hours in 1991 by approaching local businesses with the offer of two free Ithaca Hours (worth $20) if they accepted the currency for payment at their store. Businesses that remain active receive an additional two Hours every eight months. The initial group of 90 tradespeople who agreed to accept the currency has grown to over 1,200, and millions of Ithaca Hours dollars have circulated. Many Ithacans receive their entire salary in Ithaca Hours—using it to pay their mortgage or rent, food and plumbing bills. Glover’s prototype has become a model for other towns and regions throughout the world.

Currently, 30 U.S. cities and towns issue local currency, including Madison, Wisconsin, Santa Barbara, California and Brooklyn, New York. It’s perfectly legal, and even has a long and varied history. The U.S. didn’t have a national currency until the Civil War. And during the Depression, local currency kept many a community going. The Internal Revenue Service has no objection to local currencies, as long as they’re pegged to the value of U.S. dollars. According to the Tax Equity Act of 1982, barter income has to be reported to the government annually, using Form 1099B. Barters conducted to help with business expenses are tax-deductible.

MARSHALL GLICKMAN is the author of the forthcoming Holistic Money: Integrating Financial Well-Being With a Genuine Life and Better World (Ballantine Books/Random House).