Zelizer’s Theory of Money and the Case of Local Currencies

Abstract: In this paper I consider Zelizer’s theory of money in a market setting. Do people create and use market money to express social values? Local currencies, which circulate in competition with national currencies in local economies around the world, provide the case studies. I survey the research literature on local currencies and find important limits on Zelizer’s theory for market money. While people create and use local currencies for both economic and non-economic reasons, most people stop using them when economic benefits are not realized. Sustained use of local currencies is uncommon. The few successes are limited in scope, and such successes cannot simply be credited to commitment based on social values. I briefly discuss policy implications of this finding for community currency as a development alternative.

Author: Michael S. Evans

Keywords: development, community, alternative, economics, exchange, values

Notice: This is the author’s original manuscript prior to first publication in Environment and Planning A, 41(5):1026-1041, 2009, doi:10.1068/a4144 by Pion Ltd, London (www.pion.co.uk). For quoting or citing, please refer to the published version.

1 Introduction

In this paper I consider Viviana Zelizer’s (1994) theory that people create new forms of money to express social values. While Zelizer claims that her theory holds for all money, her empirical work focuses on monies such as food stamps and gift certificates that do not circulate in a market setting. Yet most monetary transactions in the world involve some form of market money. While Zelizer’s theory seems convincing, and while it remains an important contribution to the sociological theory of money, there remains a substantial gap between theory and evidence.

The research question is: Does her theory hold for market monies? To answer this question, I survey existing empirical studies of local currency systems around the world. I find that people often join local currency systems because of perceived economic advantages, but usually drop out quickly because the benefits are not realized. Sustained use of local currencies is rare and most local currencies become defunct soon after introduction. Though participants claim social values motivations, ongoing participation often reflects an advantageous economic status rather than level of commitment to social values. Finally, survival may be more linked to a careful alignment, not opposition, of economic benefit and social values. The case of local currencies suggests serious limits on Zelizer’s perspective when applied to market money.

First I discuss two major perspectives on money: the “money changes values” perspective common to such diverse theorists as Menger, Keynes, Simmel, Marx, and Polanyi; and the “values change money” theory of Zelizer. I note the limits of this theoretical binary for explaining empirical complexity, then introduce local currencies as an empirical case for investigating Zelizer’s theory. After a brief discussion of data and methods, I proceed to analysis and discussion of four sets of evidence: formation narratives, opinion surveys, economic reports, and survival rates.

To be clear at the outset, this paper does not present a theoretical alternative, nor does it attempt to arbitrate among the many diverse threads of thinking on money. Many classical and contemporary sociologists offer widely varying theories of money, its role, and its meaning. While I present two dominant perspectives on money and identify the common thread within each of these perspectives, I recognize the internal diversity and complex fractal character of each perspective. Where appropriate, I also engage alternative perspectives, such as Dodd’s (1994) “monetary networks” theory. Nevertheless, this is an empirical paper focused on answering a specific research question. It is not a comprehensive map of monetary theory, a statement of what money “really is,” or an attempt to construct a general theory of money (see instead Dodd, 2005; Gilbert, 2005; Ingham, 2004; Ingham, 2006; Lapavitsas, 2005).

2 Background: Theories of Money

In this section I talk about two main perspectives on money: the “money changes values” perspective common to many different classical theories from economics and sociology, and the “values change money” perspective from Zelizer. I use the technical term “fungibility,” which means “fully interchangeable,” to describe the most important property of money: its ability to be exchanged freely for other things, such as goods, services, or other money. From the “money changes values” perspective, market utility determines the fungibility of money. From Zelizer’s perspective, social values determine the fungibility of money.

2.1 Money changes values: a common thread in classical theory

The central claim of the “money changes values” perspective on money is that market utility determines fungibility. In this view, money emerged first as the most saleable commodity, then as the symbol of that commodity (Menger, 1892). This makes intuitive sense. A cattle owner might want to exchange for barley, but the barley trader may have no use for cows. In order to trade, the cattle owner and the barley trader have to find something that they both desire in order to consummate the exchange. So, for example, the cattle owner might exchange his cows for gold, then offer that gold to the barley trader. Over longer periods of time and thousands of transactions among thousands of traders, the market will converge on the most saleable commodity (gold, in this hypothetical case) as the standard for exchange. Put more simply, “market utility” means that the commodity most useful for trade becomes money.

This basic example illustrates three key claims present in market utility theories of money. First, the more places you can use money to trade, the more people will desire to use that money for trade, and the more successful it will be (Jones, 1976). Second, choices between different kinds of money (eg gold vs. silver, or gold vs. banknotes) might matter at first, but over time one form wins out.{1} Third, as a corollary to the second point, if new forms arise and survive, it is because they offer economic advantages (Humphrey, Pulley and Vesala, 1996; Santomero and Seater, 1996). These three claims represent the core of classical economic theory of money.

The sociological implication of this theory is that distinctive social values are a threat to the fungibility of money. For example, in one region, the common money might be woven beads, hand-crafted by trained artisans who are respected for their skill and artistry. In another, the most saleable commodity might be wooden tokens that are consecrated through a special religious ceremony. When representatives from these two distinct regions meet to trade, neither woven beads nor wooden tokens will suffice to consummate trade. Instead, they must find a form of money that is value-neutral in order to exchange. Social values, such as the appreciation of artisanship or the significance of religious blessing, must be abandoned in order to achieve economic success.

Because of money’s ability to remove social values from exchange, classical sociologists saw it as an active homogenizing force in society, eliminating social complexities that threaten its fungibility. Marx called money the “radical leveller” that “extinguishes all distinctions” and eliminates “every qualitative difference between commodities” (1990:229). For Georg Simmel, money “results in a universal objectification of transactions [and] in an elimination of all personal nuances and tendencies,” causing the “loosening of family ties” and distancing both from other people and from material objects (1990: 476-477). For Karl Polanyi, money played a key role in the “great transformation” of a diverse society with economic components to a society where the market economy system predominantly defines the scope of social relations (Polanyi, 1944; 1957). Classical sociologists thus saw money as powerful but ambiguous in its effects. While money could provide economic benefit as “the absolute means and thus…the unifying point of innumerable sequences of purposes” (Simmel, 1990:236), it could also be a destructive force in society.

I summarize these multiple economic and sociological perspectives on money in the phrase “money changes values.” In this view, money’s fungibility depends on its market utility. Money emerges through market activity as the common reference point for exchange. In order to facilitate and sustain trade among actors with different social values, money becomes value-neutral. Finally, as money becomes more desirable, it acts as a homogenizing force, compelling people to abandon distinctive social values and participate in standardized trade.

2.2 Zelizer’s view: values change money

Viviana Zelizer presents a theory of money that directly challenges existing general theories of money. In her book The Social Meaning of Money, Zelizer proposes that money does not in fact transform values, and that fungibility is not dependent on market utility. Rather, social values transform money, and fungibility depends on social meaning.

The idea that money responds to social values is not entirely new. Other sociologists have criticized classical theories of money by demonstrating that people make choices with money that are not utilitarian. Talcott Parsons suggested that people make choices with money based on values, even if this is sometimes less efficient in achieving their goals (1963:38-42). Thorstein Veblen (1899) argued that people buy things simply to display their ability to buy things, a process he called “conspicuous consumption.” Pierre Bourdieu (1984) demonstrated that people make choices about consumption in order to create, reinforce, or imitate membership in a particular social class. And Nigel Dodd (1994:160) has noted that the source of money (such as gambling winnings vs. wages) often affects how that money is spent.

While Zelizer would agree with these points, her claim is substantially stronger. People do not just make choices with money based on values. They create new forms of money to create more choices. More money, not less, is the normal response to social complexity. People create new forms and categories of money based on social meaning and specific values. So instead of money homogenizing social relationships, people multiply money in response to heterogeneity of social relations.

Historically, Zelizer points out, multiple monies have always been the rule rather than the exception. To establish a national currency in the United States, for example, the government had to “remove foreign currencies, tax thousands of state-issued paper currencies out of existence, outlaw an extensive production of private coinage, and suppress an extraordinary range of counterfeit monies” (Zelizer, 1999:195). Establishing a national currency certainly eliminated some forms of money. But the underlying social complexity did not disappear. People continued to create and sustain new monies, such as food stamps, “summer vacation money,” and gift certificates, to express their social values.

In Zelizer’s view, money multiplies in two basic ways. First, “more money” can mean new kinds of physical currencies or tokens, such as food stamps or gift certificates. In the case of government aid to the poor, it might be considered irresponsible to give away cash without accounting for how it is spent. Food stamps provide an alternative money that limits where (and on which items) the quantity of money can be spent, while still providing the equivalent of cash in terms of spending power (Zelizer, 1994:194-195). In another case, it might be considered ostentatious or impersonal to give cash as a gift. Giving a gift certificate, however, demonstrates that the giver has put some thought into the gift, while still providing purchasing flexibility to the receiver (Zelizer, 1994:115-117).

Second, money can multiply through separation into distinct, non-fungible categories. Zelizer calls this process “earmarking.” An example of “earmarking” in the household is “summer vacation money,” which in theory could be used to buy groceries or gasoline, but in practice represents an untouchable quantity that can only be spent on family vacation expenses (Zelizer, 1994:39-40). Another example is “pin money,” the “supplementary income earned by wives” taking in sewing, selling preserved foods, or raising poultry (Zelizer, 1994:61-63). Such money was not considered to be part of the household funds, and was spent on treats or special events, such as concerts or chocolates, rather than household expenses.

Zelizer’s point is that fungibility of money is granted or suspended based on changes in social values and meaning, not based on market utility (Zelizer, 2005a). A dollar of “pin money” was not the same as a dollar of a husband’s income, nor was a dollar of “summer vacation money” the same as a dollar of grocery money. A dollar of cash, while identical in quantity to a dollar’s worth of food stamps, could not negotiate the social challenges of government aid to the poor, nor could it provide the same combination of social meaning and spending flexibility as a carefully chosen gift certificate. This vision of money provides a stark contrast to a theory of money based on market utility.

I summarize Zelizer’s theory in the phrase “values change money.” In this view, social meaning determines the fungibility of money. Money emerges in response to social complexity, as people find new ways to express their values by creating new money. This money can be physically distinct, or categorically distinct, but the common feature is that it expresses particular social values. Finally, money has always been, and will always be, multiplying in response to social values.

3 The Research Problem: Does Zelizer’s Theory Work for Market Money?

Zelizer provides compelling historical and contemporary empirical evidence to support the “values change money” theory. Because this evidence is so compelling, Zelizer’s theory figures prominently in sociological thinking on money (Fine and Lapavitsas, 2000). There is, however, a gap between her theoretical claim and her empirical evidence. All of Zelizer’s empirical examples of multiplied money are non-market monies, such as food stamps, “summer vacation money,” gift certificates, and “pin money,” that do not circulate in a market setting. Zelizer does not study examples of market money such as consumer credit, savings bonds, or alternative currency systems, a fact that she directly acknowledges to be true (1994: 204-208). Yet she explicitly claims that “money multiplies everywhere, including competitive markets” (1994:206), even though her work does not provide an empirical basis for this claim.

We might dismiss this gap as a formal but not substantive problem, if non-market monies were the standard for economic activity. But the majority of economic transactions in the world occur in market settings, with market money. People buy goods and services with national currencies, exchange one currency for another when traveling to other countries, and both incur and pay debt in market money. Put in starkest terms, the gap between theory and evidence contains most of the world’s monetary transactions. Yet Zelizer’s theory remains untested for market money.

One reason for this lack of empirical evaluation is that the binary of “values change money” and “money changes values” does not map neatly onto empirical cases in market settings. People use different money for a variety of reasons with a variety of outcomes. To go beyond the simple binary, analysts of monetary systems often find it more useful to think about “monetary networks” (Dodd, 1994) or “circuits of value” (Lee et al., 2004). For Nigel Dodd (1994), “monetary networks” are as much about exchanging information about time, place, and social expectations as they are about storing value or enforcing rules of exchange. The question for Dodd is not whether values change money or money changes values, but rather to what extent different qualitative features of money (such as its embeddedness in spatially-anchored frames of reference, or its potential to communicate judgements about value, see also Lee et al., 2004) are salient in a given monetary system. From a “monetary networks” perspective, both the classical theory and Zelizer’s theory are, in a basic sense, right. But they miss the point. Both economic and social values motivations are intertwined throughout all dimensions of monetary networks, so it makes little sense to revert to a prior binary.

Put another way, the “monetary networks” perspective draws attention to the question of value, not just values. This speaks to a broader set of arguments that engage how all forms of social relations, not just those centered around money, contain practices that produce, evaluate, and measure value (see Lee, 2006). Central to these arguments are the idea that value does not derive simply from economic or social values winning out in a given context, but from the constitutive process of negotiating multiple values that are always present. As Zelizer (2005b) notes, financial concerns interpenetrate even the most intimate of social exchanges related to sex, death, and family relations. More importantly, what counts as economic or social values is often a point of contention and negotiation in the “ordinary economy”, not only at ground level for those participating in the creation of value, but also for academic disciplines seeking jurisdiction over particular domains of problems and solutions (Lee, 2006). By drawing attention away from the prior binary and focusing instead on how particular qualitative features of money become important in a particular set of social relations, the “monetary networks” perspective provides a way to link broader arguments about social relations of value to the empirical analysis of money.

Because of this attention to abstract (and possibly universal) qualities of money, “monetary networks” and similar theories are especially valuable in the comparison and evaluation of monetary systems (e.g. Lee et al., 2004). But it is worth noting that Zelizer is not attempting to evaluate or compare monetary systems. Zelizer’s primary concern is why people do one thing rather than another, and what happens when they do. Why do people start or participate in new (market) money? Are social values motivations sufficient to change money, or do economic features of money inevitably dominate how money is created and used?

Though Zelizer’s work does not directly employ the “monetary networks” perspective or its evaluative framework, Zelizer’s questions are largely compatible with broader arguments about social relations of value. Put differently, the questions might be, why do people engage in one set of monetary practices rather than another? Why do people create new monetary practices? What reasons do they give to describe their engagement in these practices? How do distinctions between economic and social motivations map onto these relations? And most importantly, are these monetary practices successful in sustaining social relations of value, if only at a survival level?

To evaluate Zelizer’s theory using a broad range of data, I examine empirical evidence from local currencies, which circulate along with national currencies in several cities worldwide. Local currencies are the resurrection of privately issued money. They vary greatly in form across the world, with some local currencies using a physical currency (bill, token, cheque) to accomplish transactions, while others exist solely as debit and credit entries in a ledger or electronic database. Local currencies are typically, though not always, pegged to the national currency, both for reasons of convenience in conversion and to comply with legal requirements. In most countries they are subject to tax governance much like the national currency, making them not legal tender but ‘‘‘common tender’: commonly accepted as payment for debts without coercion of legal means” (Lietaer, in Dykema, 2003).

There are three good reasons to use local currencies as an analytical site for Zelizer’s theory of money. First, local currencies are market money, circulating side-by-side with national currencies. Second, there is a wide range of data available on local currency systems worldwide, including ethnographic accounts, participant surveys, how-to guides for starting your own currency system, and first-person narratives. Third, there are potentially many different motivations involved in creating and using local currency. Local currencies can offer technical advantages such as an uncontrolled money supply (no scarcity), incentives to spend rather than save (no interest earned or paid) and, in certain places, tax relief (Cahn and Rowe, 1992). They also offer an opportunity to create and use money that is locally rather than remotely controlled, allowing the expression of values that are important in a local social context.

In the remainder of this paper I analyze the data from local currencies. I follow a similar strategy to Williams et al. (2001) in classifying reasons for participating in local currency systems by social values and economic motivations, then looking at important variations and exceptions. Based on detailed case studies of local currency systems, I expect that local currency data will show combinations of these motivations at work. Peter North (2005), for example, sees local currency systems as a process of “localizing structuration”, where the scale of economic relationships and social values are in constant negotiation. Ethnographic accounts also highlight how local currencies such as Ithaca HOURs provide “new articulations of value and information” (Maurer, 2005:163). Instead of expecting opposition, we should expect to see different combinations of these motivations in action.

I note again that the point is here is not to reinforce the binary of “money changes values” and “values change money”, since it is obvious from a theoretical (e.g. “monetary networks”) and empirical perspectives that such a binary is inadequate to capture complexity on the ground. Rather, the point is to use complex empirical data across local currency systems to find the limits of Zelizer’s theory for market money. I will briefly explain the data sources before proceeding to the analysis.

4 Data and Methods

I compiled data on local currencies from a variety of sources. To be clear, my work involved assembling and making sense of existing published case studies, not direct investigation of any particular local currency system. I had two primary goals in compiling source data. First, the data set had to provide some insight into patterns of activity across local currency systems, rather than detail a specific currency system. Fortunately, case studies are geographically and economically diverse, ranging from more established economies with strong national currencies, such as England (Aldridge and Patterson, 2002; Caldwell, 2000; NEF, 2003; North, 1999; Seyfang, 2001a; 2001b; 2003), New Zealand (North, 2002), Germany (Schroeder, 2002), USA (Collom, 2007; Jacob et al, 2004; Maurer, 2003), Canada (Dobson, 1993), Australia (Ingleby, 1998; Liesch and Birch, 2000), and Scotland (Pacione, 1997), to economies whose national currencies have experienced serious disruption, such as Argentina (DeMeulenaere, 2000; Pearson, 2003), Hungary (North, 2004), Mexico (DeMeulenaere and Lopezllera-Mendez, 1999), and Thailand (Pichponga and Salverda, 2001; Pichponga and Khlangpukhiaw, 2002).

Second, data had to provide insight into patterns of creation, as well as patterns of participation. This distinction is important, since people may use a local currency for reasons detached from its intended purpose. Even if someone started a local currency to gain economic benefits, for example, people might use the local currency because it expresses social values they support. Data on creation comes primarily from first-person accounts and how-to manuals for creating local currrency systems (eg Cahn and Rowe, 1992; Linton and Soutar, 1994; Glover, 2002). These narratives reveal why and how people choose to create a new money in the first place. Data on participation comes primarily from surveys of people who use local currency systems (eg Jacob et al, 2004; Liesch and Birch, 2000; Schroeder, 2002), and from ethnographic accounts of participants (eg Maurer, 2003; North, 2004; Pearson, 2003). Such data includes information on why people join, how much economic benefit they receive, why they continue to participate and, sometimes, why they leave.

The challenge of the data is that almost every account, ethnography, and survey tells a slightly different story, because scholars and activists have used local currencies as sites for answering many different kinds of questions (see Schumacher, 1973; Solomon, 1996; Pacione, 1997; Bowring, 1998; Helleiner, 2000; North, 2002), without regard for commensurability with other studies. Thus an “economic motivation” or a “social values motivation,” for example, is not identified in the same way in every data source. Because I am asking simple questions of complex data, I have made decisions about wording and coding that may not do justice to the intent of the original studies.

5 Analysis

In this section I analyze the data from local currencies in light of the two perspectives on money I have already outlined. I examine four distinct types of data: formation narratives, opinion surveys, economic reports, and survival rates. I find that formation narratives and opinion surveys show an impenetrable mixture of economic and social values motivations. Economic reports and survival rates indicate significant limits of the Zelizer perspective in understanding market money.

5.1 Formation narratives

Looking at data on local currency formation, I find that people create local currencies both to pursue economic gain and to express social values. The original LETS{2} in Courtenay, British Columbia, formed as “a grassroots response to the negative local impacts of global capitalism” (Pacione, 1997:1181), where the creators explicitly claim that “[t]he value of money and the value of people are totally different things” and that “[c]onventional money, because of its scarcity, distorts valuations.” In a local currency system, they claim, “we are much more likely to value others at their true worth” (Linton and Soutar, 1994). In the case of the London Time Bank, the expressed goal is to create “an approach that enlists the time and talents of ‘problem people’ as a way of breaking the cycle of need and dependency” (NEF, 2003). Other explicit goals of local currency systems include “reorienting identity” (Helleiner, 2000:266), “increas[ing] trade in non-tradables” (Schraven, 2000), and creating “mutual aid networks” (North, 2004:27).

In Winnipeg, Manitoba, Ross Dobson founded LETSWIN as a thesis project for his Master of City Planning degree in 1987, claiming that LETS provided a “more moral, practical, democratic and socially responsible means of facilitating economic activity” that “could provide independent, self-created, self-managed and self-directed employment for any community” (Dobson, 1993:92). Paul Glover, founder of the Ithaca HOURs system in Ithaca, New York, “started a money system with a regional boundary dedicated to the expansion of commerce that considers ecology and social justice” (Glover, in Block, 1998). In the UK, the Time Bank system “links people up to share their skills and help so that it is mutually beneficial [b]ut its main emphasis is in the social sphere – linking people together and building community – not in the economic sphere” (Time Banks, 2005).

LETSWIN, Ithaca HOURS, and Time Bank, like many other local currency systems, were founded both to realize local economic benefits and promote ideas of social justice while building community. This sense of purpose permeates the creative process of local currency development across a broad range of systems. Creators of local currency systems have explicit commitments beyond simply providing economic alternatives based solely on economic factors. The non-economic commitments that partially drive the creation of local currency systems lead to the designation of local currencies as “moral money” (Lee, 1996), as “morally alternative, rather than multiple parallel, currencies” (Lee et al., 2004), or as the foundations of “moral geographies of money” (Thrift and Leyshon, 1999). To many of the creators of currency systems, local currencies are not value-free. On the contrary, these currencies embody a different set of moral values than those represented by existing forms of money. However, it is clear that both economic and social values motivations are involved.

5.2 Opinion surveys

The data also appear ambiguous with regard to participation in local currencies, based solely on member opinion surveys. For example, Liesch and Birch’s 1994 survey of 371 Australian LETS members examined motivations, benefits, and limitations of LETSystem participation using a 5-point Likert scale. The highest-scoring motivations were “LETS help to build a stronger community” and “LETS encourage local initiative,” which suggests that economic considerations are either not as important as non-economic considerations, or are considered as one part of other, more broadly stated motivations. Yet when the survey engaged specific benefits and limitations of LETS, the highest-scoring responses were stated in economic terms. “I feel more generous with my LETS units than with cash dollars” and “In the LETS, I can have interest-free credit” scored highest for benefits, while the highest-scoring limitations of LETS were “LETS units cannot be used to pay tax” and “There is a limited range of goods and services available in the LETS” (Liesch and Birch, 2000).

Findings from surveys of 109 participants in Manchester (UK) LETS by C. C. Williams (1996) support the idea that people have commitments to specific social outcomes, but often join local currency systems to obtain specific economic benefits. In this study, 81.5 percent of all members cited economic reasons among their motivations. 47.6 percent of all members cited only economic motivations and no other factors, a number that rose to 55.6 percent for members earning below £5000 per year. In contrast, slightly less than half of all members cited community-building as a motivation, while social equity and environmental motivations were mentioned by only 18.4 percent and 16.6 percent of respondents respectively (Williams, 1996:1404).

In many cases, the distinction between economic advantages and social values as motivating factors is even more ambiguous. In North Herts UK, LETS participants cited the desire to “provide goods and services” (90 percent) and to “obtain goods unable to do for self” (88 percent), but also cited the desire to “promote a more equal society” (75 percent) and “meet new people” (69 percent) as motivations for joining the North Herts LETS (Caldwell, 2000). This trend is also reflected in studies of the Tianguis Tlaloc system in Mexico City, where DeMeulenaere and Lopezllera-Mendez found that participants see the local currency system “increasing the efficiency, simplicity and lowering the cost per transaction” and at the same time “emphasiz[ing] ecology and respect for the environment” (1999:76). Ithaca HOURS members rated almost equally the importance of supporting local merchants (strongly agree and agree combined 89.1 percent) and helping people (combined 88 percent) (Jacob et al, 2004:50,52). In King’s Lynn and West Norfolk LETS (KwinLETS), 75 percent of members “agreed or strongly agreed with the statement that LETS was a practical expression of an economy based on fairer and more socially just principles than the conventional economy” (Seyfang, 2001b:588-589). And in an unidentified American Time Bank system, members cited in nearly equal proportions the desires to “expand your purchasing power through an alternative currency” and “act on your personal values, convictions, or beliefs” (Collom, 2007).

5.3 Economic reports

Based on formation narrative and opinion surveys, both economic benefits and social values seem to be important motivators in local currency participation. Turning to studies of economic outcomes, however, I find that even though people may be joining local currency systems for economic benefits, they do not realize many of these benefits, either in relative or absolute terms, through participation. In Hounslow (UK) LETS, 89 percent of participants agreed with the statement “I see my involvement in Hounslow LETS as an alternative way of creating work for myself” yet no one (0 percent) agreed that “I am satisfied with my current level of trading” (Aldridge and Patterson, 2002). In a survey of the KwinLETS local currency system, 31 percent of respondents reported that “needs could not always be met” and 36 percent reported that “their skills were not sufficiently in demand” (Seyfang, 2001a:993).

In more absolute terms, the individual economic impact of LETS exchange is extremely low. For the Ithaca HOURS system in 2003, participants on average spent $350 and earned $300 during the year, representing less than 1 percent of average income (Jacob et al., 2004:48). As of 1998, the mean trade per person for the Wellington Green Dollar Exchange was only G$141 (North, 2002:489), well below the level of state welfare support it was intended to replace. For Manchester LETS, members in the year 1996 earned on average £131.66, or approximately 1.1 percent of household income (Williams, 1996:1405). In Hounslow LETS, the average yearly turnover per member is approximately £64.50 (Aldridge and Patterson, 2002), while members of the West Glasgow LETS experienced an average yearly turnover of £81.5 at the time of last sampling (Pacione, 1997:1194). For participants in KwinLETS in 1996, annual turnover per member averaged £145 (Seyfang, 2001b). Compared to average income levels in these local regions, the measurable economic benefit is trivial.{3}

An important exception to the pattern of unrealized economic benefits is the case of barter networks in Argentina (North, 2007:149-73; Pearson, 2003). During periods of national currency crisis, primarily from 1997 to 2003, large networks such as RGT and RTS provided alternative currencies in the form of barter credit notes and periodic local trading markets. At their peak, these systems provided basic access to food and necessities for hundreds of thousands of Argentines (North, 2007: 153). But it is clear that these benefits did not compare to benefits under a stable national currency regime. North (2007:165) characterizes the barter markets as “second-rate survival mechanisms for many…or anarchic free-for alls at worst,” while Pearson (2003: 225) summarizes her ethnographic findings by claiming that participants were “primarily there out of economic need rather than ideological solidarity.” Most importantly, with the return of more stable national currency, studies suggest that Argentina’s local currencies no longer provide significant economic benefits. North quotes one local coordinator as saying that participants “aren’t producing and are not bringing any products, but simply coming to the market with any old rubbish from their houses.” (North, 2007:168)

The idea that economic benefits are often not realized in local currency systems is reinforced by the exit polling of participants who choose to discontinue their participation. Schroeder’s study of the decline of Talente Tauschring Hannover (TTH), a modified German LETS, surveyed those who left the system, finding among the obvious reasons for departure (such as moving out of the region) more explicit disappointments with economic outcomes. Specifically, some departing members used the system for a single purpose or service and then quit, while others could not match their desires with goods and services provided by other participants (Schroeder, 2002). In a similar situation across several local currency systems in Hungary, North found that, for example, “while young people joined, they did not exchange services” and that “the services Hungarians wanted, access to jobs, contacts, business support, were often not available” (2004:26-27).

Finally, participants often indicate satisfaction with the local currency system while acknowledging that they are receiving little or no economic benefit. In North Herts LETS, 28 percent of respondents had no income from LETS participation, and 42 percent said that “there was nothing in the directory that they required,” yet roughly 60% indicated that they were either very satisfied or fairly satisfied (the top two categories) with North Herts LETS (Caldwell, 2000). In the Ithaca HOURS system, only 41 percent of respondents agreed or strongly agreed that the local currency system provided access to goods and services, while double that number (84 percent) saw participation in HOURS as improving their quality of life (Jacob et al., 2004). A similar pattern occurs in Australian LETSystems, where the strength of response on “The LETS allows me to have a better lifestyle” outweighs the strength of response to “There is a limited range of goods and services available in the LETS” (Liesch and Birch, 2000). In their survey of UK LETS, Williams et al. (2001) also note satisfaction despite low economic benefits, and suggest that it reflects a socioeconomic division among participants, in which the affluent cite social values reasons and the less affluent cite economic reasons for participating.

Local currencies tend not to provide promised economic benefits, and most participants simply stop using local currency when it does not provide these benefits. However, a subset of participants continue to use local currency even when it does not provide anticipated economic benefits, often citing social values motivations for doing so. This may reflect their position in the market rather than an activist commitment.

5.4 Survival rates

I turn now to data on local currency survival. However else one might define success, at the basic level a monetary system, like other “circuits of value”, must reproduce to be considered successful (Lee, 2006:416). Data on the survival rates of local currency systems are difficult to compile. There are two primary reasons for this. First, it is difficult to track and measure currency that people no longer use, so historical data sources are sparse and hard to find. Second, for obvious reasons, most scholars and activists study working systems. Nevertheless, existing evidence supports some basic conclusions about local currency survival.

First, even before accounting for survival rates, local currencies are relatively uncommon. Worldwide, it is difficult to estimate how many total local currencies exist. Turmel (2003) lists approximately 2700 local currencies worldwide. But a random check of thirty web addresses from this directory returned only one successful link to a local currency, suggesting that this number reflects all systems ever encountered, rather than active systems. LETS-Linkup (Taris, 2007), another online directory, lists more than 1500 systems, but fewer than 30 percent of links tested were still live (with several of these defunct) and the system appears not to have been updated for several years. LETSlink UK claims over 1000 systems operating worldwide (LETSlink UK, 2005), while Time Dollars USA claims 77 systems worldwide, excluding the 80 Time Banks in UK (Time Dollar USA, 2005). A more recent database, ComplementaryCurrency.org, contains information on 155 active systems worldwide (DeMeulenaere, 2007).

Second, local currencies have a low survival rate. In the only systematic study of local currency survival, Collom (2005) found that 82 local currencies arose in the United States from 1991 to 2004,{4} but only 17 (or 20.7 percent) of those systems remained active as of 2004. Sometimes systems are shut down for legal or regulatory reasons (eg the Bia system in Pichpongsa and Khlangpukhiaw 2002 or the Oaxaca Tianguis Tlaloc in DeMeulenaere, 2000). Also common is a catastrophic failure due to turnover of key administrative personnel (Aldridge and Patterson, 2002). But certainly many local currency systems tend to disintegrate over time as people stop using the local currency (eg Pacione, 1997). Historically, it appears that new local currency creation surges as people try out particular forms of local currency (eg HOURs and LETS in the 1990s, Time Banks in 2000s), or because of a failure of national currencies (eg RGT and RTS in Argentina), but that these systems tend to die out once the initial enthusiasm dampens or the crisis passes.

Finally, even surviving local currencies have relatively low levels of participation. The level of participation is the most significant contributor to the survival of local currency systems according to Williams (1996:1401), who suggests that 50 members is a “critical mass” for the survival of LETS, based on his analysis of “contracting” LETS systems in the United Kingdom. Nearly all studies suggest that local currency systems survive around a small number of committed activists (eg Aldridge and Patterson, 2002; Jacob et al., 2004). Data on local currencies in the US, Canada, and Mexico indicates that the largest systems, Ithaca HOURs and Equal Dollars, do not have more than 850 participants each, and even these are on the decline (Jacob et al., 2004). A few European systems claim more members, such as RES in Belgium, claiming 4500 members, or Chiemgauer in Germany, claiming 1000 members (DeMeulenaere, 2007). Most systems have 50 to 200 members, including businesses (Schumacher Society, 2005). In the UK, approximately 80 Time Bank systems operate with a total of 6900 participants (Time Banks 2007). In general, local currencies are relatively uncommon, unlikely to survive, and either remain small or experience rapid decline after an initial surge of interest. Survival data suggests that sustained use of local currencies is both rare and highly limited.

6 Discussion

It is clear that people have both economic benefit and social values at stake in creating and participating in local currency systems. Creators and users explicitly articulate these objectives in narrative accounts and opinions surveys. From the “money changes values” perspective, new forms of money arise when they provide technical advantages and therefore economic benefit. From Zelizer’s “values change money” perspective, new forms of money arise when people want to express social values. Either (or both) of these predictions can find support from formation narratives and opinion surveys.

Yet economic reports from local currencies indicate that those who seek economic benefits do not often realize them. In general, local currencies are poor performers in the money market. At the micro level, most people stop using local currency when it fails to deliver significant economic benefits. At the macro level, local currencies are relatively uncommon, and survival rates are low. Like less saleable commodities, local currencies are simply pushed out of the market in favor of more saleable and more tradeable forms of money, such as national currency.

But not all local currencies are eliminated from the money market. At the micro level, a significant subset of people continue to participate in local currency systems even though they have not realized significant economic benefit. At the macro level, a small but significant percentage of systems survive despite their low overall economic impact. To the extent that these local currencies are durable, they seem to be durable because people are motivated by social values to continue participating, which seems to support Zelizer’s “values change money” perspective.

But it is clear from the case of local currencies that the Zelizer theory of “values change money” has important limitations when applied to market money. First, even the most committed social activists cannot sustain market money without a basic level of economic benefit. Certainly a commitment to social values on the part of a few committed activists drives participation in many local currencies (e.g. Williams, 1996). Recent studies (Collom 2005, North 2007) engage social movements perspectives to analyze local currencies for this reason. But looking across local currencies, it appears that some minimum level of economic benefit is required to sustain a local currency, along with the legal, regulatory, and administrative infrastructure to support it. Without any economic benefits, systems fail completely, irrespective of social values motivations.

Second, in a market system, the power of social values motivations partly depends on one’s economic position in the market as a whole. As Williams et al. (2001) observed, those who stay involved regardless of economic benefit may cite both social and economic reasons for participating, but many such participants are sufficiently affluent that failure to realize economic benefit basically does not matter. They can afford to stay committed (e.g. in time and transport, see Williams et al., 2001: 38) while those who are less affluent (but perhaps hold the same values) must move on to other opportunities once local currencies fail to provide economic benefits. So one might have social values motivations for participating in local currencies, but be unable to follow through on those motivations because of one’s economic position in the market.

Third, the success of market money may depend on alignment, not opposition, of economic benefits and social values. At a general level, as Lee (2006) has noted, social relations of value can only be sustained by successfully negotiating an ever-present multiplicity of values (of all sorts) to create value. More specifically, as Peter North (2005:224) has suggested, the mix of motivations in local currencies may reflect a process of “localizing structuration”, in which the survival of local currencies depends on an appropriate alignment of economic scale with the “moral scale” (North, 2005:222) of the local community. Economic demands require an attention to both “the needs and the quality” of the local trading system. So to the extent that local currency systems fail to align their economic relationships with local values and issues (and, contra Zelizer, their values and issues to economic relationships), they fail.

7 Conclusion

People create and use local currencies for reasons that appear to support both the “money changes values” and the Zelizer “values change money” perspectives. In most cases, local currency is pushed out of the market as an unsatisfactory market alternative. But in a limited subset of cases that have low economic impact, local currency systems survive in the money market despite low levels of participation and lack of substantial economic benefits. In these cases, commitment to social values apparently drives ongoing participation, as Zelizer predicts.

However, the simple “values change money” perspective has at least three significant limits. First, unlike with non-market monies such as “pin money”, market monies must offer some minimum threshold of economic benefit to survive. Second, participation based on social values may depend more on market position, in terms of affluence, rather than motivation to support particular values. Third, market success for money systems may depend on aligning, rather than opposing, social values and economic relationships. For these reasons, Zelizer’s theory does not adequately explain market money.

An important policy implication of these findings (see also North, 2007; Seyfang, 2000; Williams et al., 2001) is that attempts to create local currencies as durable economic alternatives to a strong national currency system are unlikely to succeed, however well-intentioned. As illustrated best by the Argentine case, local currencies are most successful in the absence of other market money, such as national currencies. Local currencies are not particularly robust competitors in the money market. However, it is worth considering (see also Lee, 2006; North, 2005) that an understanding of market monies as oppositions of economic and social values motivations may miss the possibility for sustained development of smaller-scale, prefigurative money systems that are useful for imagining possible, if local, futures.


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{1}In the ideal form, this happens through market activity (White, 1984). Practically, this sometimes happens through state fiat, as states standardize on a particular form of money, often national currency, to facilitate payment and debt settlement (Keynes, 1930; Wray, 1998).

{2}LETS, or Local Exchange Trading System, also abbreviated LETSystem, is one common form of local currency. Other common forms are HOURs, Time Dollars, and Time Bank systems. The differences in names reflect slightly different structural emphases, such as tokens vs. electronic currency, and rules about scarcity and interest. In LETS, transaction amounts are reported to a central electronic tracking system. Participants can carry a negative balance. In HOURs, paper notes are exchanged, just as with dollars or yen. In Time Dollar and Time Bank systems, participants earn credit for each hour of time spent doing work for other participants.

{3}The comparison to average income does not address the significance of this level of benefit for participants who have little to no income.

{4}This is not an exhaustive survey, as it was limited to local currencies based on paper notes, and then could only track those systems that left evidence of their existence in national directories or local currency websites. However, it is the most comprehensive survey to date of available data.

© Michael S. Evans 2008-2019