Berkshares out of Great Barrington once again made the national stage when the PBS News Hour recently sent a crew for two days to cover the organization. It is not the first time Berkshares has made the national news -- they have been covered nationally by ABC and Fox. The reason for the national attention is that Berkshares has actually created their own money -- which has really got me thinking about the subject of money.
Suppose I wanted to make a currency, and I called it the "Del Gallo Denarius." So I go to Crane and have them start printing them. I don't back the Del Gallo Denarius with anything -- I just declare it to be money. I ask the public to start using the Del Gallo Denarius as a form of currency.
Sounds silly to have a currency backed by nothing?
A trivia question for the reader: What is the United States currency backed with? A) gold B) silver C) gold and silver or D) a blend of metals and commodity futures.
Okay, it's a trick question, but I find most people fall for it. The correct answer is none of the above. United States currency is backed only by "the faith in the U.S.government," whatever that means. In the sense that the U.S. dollar is backed by nothing other than a vague promise not to print too much of the stuff, the U.S. dollar is similar to the Del Gallo Denarius. In fact, most of the world's currency is no longer backed by a precious commodity or any commodity at all. It's all based on acceptance, habit and trust.
A big focus on the word "local" and "decentralized" needs to be made here.
The local currency of Berkshares is nothing new. While it is hard to imagine, a central currency was not always the case. According to the Schumacher Center for New Economics (the brain trust behind Berkshares): "The customs of borrowing and lending and money -- printing grew up over generations in towns and rural communities to form what we now call our banking system." A nationalized paper dollar did not come about until 1863.
After the close of the Second United States Bank, all banks were state chartered from 1837-1862; there were no "national banks" in this period to even issue a federal note (i.e., a national dollar). For most of the history of our country, whether even to have a national central bank was a hotly debated question.
Even in the early years of the 20th century, according to the Schumacher Center, some banks issued their own local currency. These local banks would publish their own notes, often (if not usually) "backed" by gold or a promise to pay coins. These bank notes, in effect, became a form of paper currency, because people knew that any bearer could take the note to a bank and demand they be redeemed in whatever backed the note.
Then in 1862, the federal government got into the act of making bank notes, and made "Federal Notes" wherein you could take a Federal Note (dollar) and bring it to a national bank and redeem it for real gold. (Before that, federal currency was all coins.)
This became the basis of what we think of as paper money today -- the U.S. dollar. Eventually, foreign countries started backing their currency not with gold, but U.S. dollars, which in turn could be exchanged for gold at a Federal Bank. But in 1971, Richard Nixon and Congress did away with the "gold standard" fearing an international run on America's gold deposits. After 1971, one could not redeem U.S. dollars for gold.
Essentially, we have "fiat money," fiat being Latin for "let it be so." The reason the U.S. dollar continues to have value after 1971 is by the awesome force of habit (the owner of the variety store did not know the difference) and the general faith and trust that government will not print too much money. Still, money "backed" by U.S. dollars has precedent in other currencies in the world.
When I first heard of Berkshares the idea seemed a little gimmicky. Berkshares were the brainchild of the Schumacher Center. They had Crane print up one million in Berkshares and arranged for local banks to distribute them.
It is an alternative currency. The idea is that when you bring $95 in U.S. currency to a bank (all are in South County) you get $100 of Berkshares currency which can be used in participating businesses in lieu of U.S. dollars (thus incentivizing the use of Berkshares). Using the same exchange rate, if I bring $100 of Berkshares to the participating bank, I can receive $95 of U.S. dollars back. Important to me, I am not stuck with Berkshares if I want out.
According to a telephone conversation I had with Berkshares Coordinator Alice Maggio, one million physical Berkshares were printed by Crane and distributed to banks. They look like a currency, but with local figures such a local Mohican Indian ($1), WEB Du Bois ($5), Herman Melville ($20) and Normal Rockwell ($50). Like regular money, of these Berkshares, $130,000 in Berkshares is somewhere out there outside the doors of the banks. Like regular money, the Berkshares get redeposited and reissued.
To date, $4.3 million in Berkshares have been issued by banks and are supporting the local economy -- a good thing worthy of support.
The fact that I can redeem Berkshares for U.S. currency at a bank allows me to have faith and I would accept Berkshares in payment. That is why my law office accepts them as payment.
Pittsfield-based lawyer Rinaldo Del Gallo III is a
frequent contributor to the Transcript.