The 1936 Alberta Prosperity Certificates
Mark Herpel
April 19, 2008
During downward economic cycles, towns, cities and communities have been known to issue local scrip, community currency and certificates designed to help local populations deal with shortages, lack of funds and ´slow times´. The local paper is used just like fiat money and circulated alongside the nationally issued counterpart.
In 1936 during the great depression, the Social Credit Government, led by Alberta´s William Aberhart, began to issue local currency style notes called "prosperity certificates."
The notes were in denominations of $1 and were distributed as pay to relief workers, legislators and Cabinet members. Printed on the back of each note was a grid of 104 small squares. Each space showed the date and every little square represented one week. In order keep the currency what they called "fresh", each week the holders of the certificate needed to buy and place that one cent stamp on the back of the certificate. A valid certificate had stamps placed on the back each week up to the current date.
Similar to contemporary local currencies, the success of this operation depended on constant circulation of the notes and not hoarding. For your reward, if you accepted the certificates and then re-used it right, you avoided paying for the stamp. The stamp requirement was a way to increase the velocity of certificate spending and discourage hoarding.
It did not take long for problems to develop with the new local currency.
When it first began circulating among retail users, there was an issue with merchants providing change for a purchase, when only partial certificate value was used. In the beginning, if change was required some merchants gave actual hard money. As the program evolved, other merchants were known to only give change in credit slips and some even required the entire certificate to be used or it could not be accepted.
Each week as that stamp date approached, the holders would spend their certificate in order not to be obligated for the purchase of that one cent stamp. Ultimately, almost all of the notes ended up in the possession of the final wholesalers. Consequently, it was now their task to buy stamps for all the certificates!
Another big problem for the supply chain, was that wholesalers could not use the certificate outside of the Province to purchase goods. This set of problems created quite a road block for the new style of money and soon most merchants stopped accepting them for retail purchases and would only allow the sales tax to be paid with a certificate. Since the government accepted them as payment for tax receipts merchants collected tax using certificates and passed them on to the government.
There was one more big problem looming on the horizon and that was Gresham´s Law. As the certificates began greater circulation, no one wanted to spend their hard currency anymore, they were saving it. Everyone opted to first spend their prosperity certificates. In line with Gresham´s Law, the bad money (certificates) were being used and the good money (hard money) was being saved.
While the original plan was for the provincial treasurer to redeem each note after two years with the 104 stamps attached, in order to keep the cash and goods flowing, Premier Aberhart began promising to redeem part of the certificates´ value each month in cash.
Prosperity certificates, soon became known as "funny money" and the Alberta Government finally abandoned them in April 1937. At that time it was reported that out of the $500,000 in notes which were issued only $12,000 were still in circulation.
The idea of the weekly stamp may have sounded good, however, in 1936 the Edmonton Chamber of Commerce called the certificates "a heavy and discriminatory taxation scheme." If you do the math, the certificate holder was actually paying the government 52% a year interest on their average weekly certificate holdings. It was not long before most Prosperity Certificates ended up each week in the church collection plate. Original Source for this article: http://calgarydollars.ca
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