Warrant Dollars, Regional Money, and Time Credits:

The Case for Complementary Currencies and the Need for Public

Discussion and Debate

Arthur Warmoth, Ph.D.


We need a scenario that starts with a clear explanation of the cause of the recession.  The immediate cause is a sudden contraction of the supply of money in circulation. Once this is clearly understood, the value of complementary currencies  (1) is easy to understand.  Historically, this contraction has been cyclical (although under a more appropriate system for managing the money supply it need not be).


John Maynard Keynes’ explanation was simply that a recession/depression occurs when the intention to save exceed the intention to invest. Thus normal spending on investment—purchases (ultimately wages, salaries, and economic rents) to produce goods and services that will generate new wealth in the future—ceases.  This leads to a collapse of aggregate demand that spreads to the market for the current consumption of private and pubic goods and services.  In short, a recession is a vicious spiral in which a shrinking of investment spending leads to insufficient liquidity, which leads to contraction of the market for the ordinary goods and services of everyday life, which leads to a declining tax base, which leads to reduced public spending, which accelerates the downward spiral.


This relationship is summarized in the great macroeconomic equation (Fig. 1).  The requisite immediate response is to increase the money supply to a level where the market economy can provide sufficient employment for most folks to be able to produce and consume the basic necessities of ordinary life.  In the short run, the appropriate response is to pump up aggregate demand, which is what a stimulus package is supposed to do. (2) If government crates new liquidity by purchasing public goods and services it has the salutary secondary effect of minimizing the loss of essential safety net services and the destruction of the social capital represented by public employees’ knowledge, skills, and institutional memory.


Income = Expense

W + S + T = C + I + G

The market economy:

Wages (income to the factors of production) = Consumption (purchases)

(This part of the equation is Say's Law)

Savings = Investment

Taxes = Government spending

Figure 1. The Macroeconomic Tautology



As we have argued elsewhere, (3) the Registered Warrants currently being issued by the State of California could provide the requisite stimulus, especially if payments made for goods and services include a warrant component proportional to the projected budget shortfall, rather than making some payments entirely in warrants and others entirely in legal tender.  Local governments could also contribute to economic stabilization by participating in a regional currency system such as GoLocal Rewards and a regional Time Bank.


However, stabilization is only the first step.  There needs to be a plan for recovery.  As the Great Macroeconomic Tautology indicates, it is also necessary to restore the balance between savings and investment and between government income and expenditures.  The former requires identifying horizons for productive investment, rather than, as in the lead up to the crisis, depending on what Robert Reich called “paper entrepreneurialism.”  The generic strategy for this is to invest in a sustainable future, and the Obama administration’s prioritizing spending on green energy, education, and health care meets this criterion.  At the local level, organizations including the GoLocal Cooperative and the Sustainable Enterprise Conference and Network are taking a leadership role in the creation of a sustainable regional market economy.


Reconciling government income and expenditures will require democratic debate of constitutional proportions.  A healthy market economy can only go so far in establishing the basis for a sustainable commons, which includes not only the sustainable use of natural resources but also a socially just economy oriented toward quality of life rather than toward materialistic consumption.  A sustainable economy will also require public policies that allocate sufficient natural and, primarily, human resources to the arenas of education, health care, basic economic security guaranteeing right livelihood and dignified retirement, and public safety, in short the areas of economic activity that are necessary to secure the right to “Life Liberty, and the pursuit of Happiness.”  These public policies need to be appropriate to the radically new and rapidly changing environment of the age of information, communication, and biomedical technology.  Achieving these policies will require more than intelligent and compassionate leaders.  It will require well-informed and compassionate citizens.  This will require a period of intense conversation and debate, as well as a significant pubic investment in interdisciplinary research and education, an investment for which we are institutionally and culturally poorly prepared.  Stabilizing the economy, which can be achieved by the massive injection of sustainable liquidity in forms such as registered warrants and mutual credit system agreements, is only the first step.  But it is the first step in a journey in which Sonoma County, Sonoma State, and the North Bay region have the resources to exercise leadership.  In addition to economic stimulus, we need to advocate the public dialogue that is necessary to redeem the promise of California as a leader in scientific, technical, social, and cultural innovation.



(1)   The presence of large amounts of toxic assets lead to this unfortunate imbalance mainly in two ways.  The banking system cannot accurately estimate its actual reserves, as many of the assets on its books are actually worthless.  Thus the banking system cannot create sufficient new money.  At the same time, the contraction of the supply of new money and the uncertain value of assets in circulation leads people that have money to invest to refrain from doing so due to the excessive unpredictability of returns.

(2)   Whether the stimulus package has to be financed by government borrowing is an interesting question.  It is seen as a necessity because the banking system has a monopoly on the creation of new money, primarily in the form of new bank accounts based on loans.  Historically, as in the case of the Great Depression and World War II, it has been possible to finance extraordinary expenditures (economic stimulus and war) by borrowing.  That is why the leisure classes can amass such obscene amounts of wealth.  However, it is not necessary, as has been demonstrated by, for example, the depression currency in Wörgl, Austria, which spent new money into circulation by spending on public works.  The WIR system that was developed in Switzerland, also during the depression, has demonstrated the viability of mutual credit systems as an alternative way to create money.  Recently, the circulation of WIR has exceeded the equivalent of two billion U.S. dollars a year.  

(3)   Close to Home column, Santa Rosa Press Democrat, July 2, 2009.

Appendix: Matt Miller’s Framework


Matt Miller in The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity (New York: Times Books /Henry Holt, 2009) offers a useful framework for thinking about the transformation in public policy that is needed to adapt to globalization and the need for the sustainable use of natural resources.  


Six Dead Ideas (pp. 8-9):


Š      The Kids Will Earn More than We Do.  Broadly rising incomes have been considered an American birthright. This pattern of generations advance is not at risk for as much as half the population

Š      Free Trade Is “Good” (No Matter How Many People Get Hurt).  Though millions of people may be hurt by foreign competition, we’re told, the overall gains from free trade so outweigh any downside that it is folly to question its ultimate advantages.

Š      Your Company Should Take Care of You. Business (not government) must fund and manage much of our health and pension benefits, this idea holds, or we risk becoming socialist.

Š      Taxes Hurt the Economy (and They’re Always Too High). The truth is that taxes are going up no matter who is in power in the next decade, and the economy will be fine.  We won’t turn into France or Sweden.

Š      Schools Are a Local Matter. Americans need more skills to maintain our living standards as developing economies rise up to compete with us. America also spends more on schools than nearly every other wealthy nation—with worse results. Yet our unique model of “local control” and funding schools remains sacrosanct.

Š      Money Follows Merit. The most cherished illusion of today’s educated class is tat market capitalism is a meritocracy—that is, a system in which people basically end up, in economic terms, where they deserve to be. (Pp. 8-9)



Tomorrow’s Destined Ideas (The list is on p. 155, the summaries are paraphrases of the ideas in the relevant chapters.):


Š      Only government can save business

o      Reregulation

o      Health care

o      Pensions

o      Reduce negative publicity from shifting costs to workers

o      Preserve & support consumer buying power (living wage)


Š      Only business can save liberalism

o      Positive effects of global trade on global poverty; need for labor standards

o      Efficiency in education and health care; “more for less” innovation

o      “Citizen CEOs”


Š      Only higher taxes can save the economy (and the planet)

o      Health care and pensions will take government from 20 to 30% of GDP by 2030

o      “Tax work and business less while taxing consumption and carbon more.”

o      VAT

o      Carbon Tax


Š      Only the  (lower) upper class can save us from inequality

o      Lower upper class includes professionals (professors, doctors, lawyers, engineers, architects, middle managers)

o      Reform requires systemic knowledge of politics and economics

o      Lower uppers were leaders of the early 20th century progressive reform movement

o      Then & now: lower upper discontent with excesses of upper uppers


Š      Only better living can save sagging paychecks

o      Smaller paychecks a result of global economic integration

o      Technological innovation lowers price of manufactured goods

o      New technologies: medicine, information, materials, communication, transport

o      Shift from material consumption to a knowledge and relationship-based economy


Š      Only a dose of “nationalization” can save local schools

o      U.S, system of local control is unique among industrial nations

o      National standards & financing are necessary to preserve our standard of living

o      Basic funding standards, targeted investment in improvement

o      Federal buy-down of state/local taxes

o      National standards would free local teachers and administrators


Š      Only lessons from abroad can save American ideals.

o      Look at the global leaders for benchmarks

o      Teacher education: Singapore, Finland, U.K.

o      School Choice: Sweden, Netherlands

o      Labor market “flexicurity”: Denmark

o      Market-based universal health care: Switzerland. Netherlands

o      Free or affordable higher education

o      National economic development strategy