WSJ on Funny Money

by: Tim Iacono

There's a fascinating story in the weekend edition of the Wall Street Journal detailing the history of "funny money" in the U.S., the most recent addition to that select group being the IOUs still being issued in California.

To creditors of the state of California who got paid in IOUs instead of money, take it from historians -- things could be worse. You could be getting clamshells. Or chunks of plywood.

During the Great Depression, hundreds of communities as strapped for cash as California is today circulated their own temporary currencies. An estimated $1 billion in this scrip was issued by towns and counties, not to mention corporations, school boards, newspapers and a few wealthy individuals. Most promissory notes looked like paper currency, but scrip was also printed on leather, metal, fish-skin parchment and, in Tenino, Wash., on slabs of two-ply Sitka Spruce.

The first of many photos that accompany the story is that of a 10-cent clamshell issued by the Crescent City Chamber of Commerce, said to be worth about $500 today.

When we were in Washington D.C. a couple years ago, we came across a 50 cent clamshell issued in Pismo Beach as shown below.
IMAGE There's no telling how much this clamshell would be worth today, however, one thing is quite certain - its value is far greater than the purchasing power of 50 cents in 1933 U.S. currency, the equivalent of about five cents today after taking inflation into account.

Of course, if you had 50 copper pennies from the 1930s, they'd be worth about 82 cents, but the U.S. government has long since stopped making pennies out of copper.

Quarters, formerly made out of silver, are now 91 percent copper and pennies are mostly zinc. At some point, no doubt, they'll start making quarters out of zinc and so on, and so on.

Back to the story...

In Hood River, Ore., Hal's Tire Service printed $1 bills on scraps of old tires, briefly giving the rubber check a good name.

Today, collectors treasure remnants of those desperate times: a green-and-gold "sauerkraut note" from Minneapolis; a warrant, beautifully printed with an engraving of a clipper ship, from Cape May County, N.J. Some imagine filling out their collection with Schwarzenegger scrip, circa 2009.

"Every piece tells a story," says Neil Shafer, author of the "Standard Catalog of Depression Scrip of the United States," published in 1984. "It represents a piece of social history."

Since California ran out of cash early this month, it has issued more than 194,000 IOUs, with a total value of $1.03 billion. They are redeemable in U.S. dollars on Oct. 2, or sooner if the state comes up with the money. The legislature on Friday approved a plan to close a $24 billion budget gap, but officials say it could still take a few weeks to analyze the state's cash situation and resume giving creditors checks instead of promises.

California IOUs differ from Depression-era scrip in a key respect: They are made out to individual creditors for specific amounts. Scrip in the 1930s was designed to circulate like currency and usually issued in standard denominations: 25 cents, $1, $5.

Issuance exploded in early 1933, as banks in city after city suspended operations in the face of runs on their teller windows, severely restricting the amount of money in circulation. On March 6, President Franklin D. Roosevelt shut down nearly all transactions in a "bank holiday," even as he prodded the Federal Reserve to hurry up and print more currency. Some banks reopened within days, but others remained shut for weeks. People and businesses ran out of cash.

There's much more at the Journal and don't miss the slideshow, the California IOUs showing up as image 19 of 19.