A History of Scrip   William Fugera

      At one time in the typical coal company town, US coin and currency were not in good supply.  In fact, during the heyday of these towns scrip circulated more freely than US currency.  Eleanor Roosevelt, during one of her humanitarian crusades in the mid-thirties, attacked the use of scrip by coal companies as an evil thing.

       Nothing in the constitution barred private manufacture of coin, and through the first half of the nineteenth century congress did not act against private coinage.  Any contractor could issue his notes and coins and circulate them so far as a market would take them.

       Private transportation companies-canals, turnpike companies, and railroads issued significant amounts of such currency between 1820 and 1875. Munical and state governments also did likewise.

       Both coal and lumber enterprises had to be organized in the vicinity of their resources.  They were often located in isolated areas with low population densities, far from commercial centers.  Coal producing areas were hilly or mountainous areas. The main street for a coal mining community was often the railroad tracks.

       Coal mining entrepreneurs, therefore, had unique challenges to contend with in organizing their enterprises.  Their common problem was what is known today as a lack of infrastructure: no streets, no churches, no schools, no residences, no utilities, and no banks or financial intermediaries.  The specialized industries that might otherwise have provided these services were dissuaded from doing so by the high start up costs and the uncertainties of dealing with low income communities that might be there today and gone tomorrow.  Alternatively, the coal mining companies could deal with such conditions because they were in a better strategic position to change uncalculable uncertainties into calculable risks.  Mining companies, therefore, built residences, churches, schools, and water works, and opened company stores.  In so doing, they became both buyers of labor from and sellers of commodities to the coal miners and their households.  This kind of organization inspired the use of scrip in lieu of ordinary money.

        Scrip has become a generic term for the issue of a localized medium of exchange that is redeemable for goods or services sold by the issuer.  Originally printed on cards or scraps of paper, scrip evolved into metallic tokens with many of the physical attributes of official coins.  Scrip in the very beginning was more in the nature of a trade credit or demand deposit at the single local general store.  Ledger credit scrip, however, gave way to scrip coupon books, which eliminated the tedious bookkeeping chores that were incident to over the counter credit – transactions that must be followed by ledger entries.

        The use of scrip not only required an issuer - the mining company - and a demander - the miner - it also required a supplying industry.  The institutions that supplied coupon scrip were companies already in business printing tickets, tokens, and metal tags for various other kinds of enterprises.  They advertised extensively in mining catalogues during the first half of the twentieth century touting the advantages of their own scrip systems.

       The Allison Company of Indianapolis, for example, noted that when one of its coupon books was issued to an employee, he signs for it on the form provided on the first leaf of the book, which the store keeper tears out and retains for the company time keeper, who deducts the amount from the man’s next time-check.  Then when the employee buys goods from the company store, he pays in coupons, just as he would pay in cash.  The coupon book is a medium of exchange between the company employees and the company store.  Other scrip producing ticket companies emphasized the safety of the scrip coupon system in coal mining communities where little or no police protection was available.

       The Arcus Ticket Company of Chicago advertised a list of advantages of scrip for both the employer and employee, one of which for the employer was the fostering of employee good-will by eliminating misunderstandings on charge accounts.  The advantages to the employee included keeping the head of the house better informed as to the purchases made by his family from day to day.  This frequently put a check on extravagance and debt.  Local scrip of this type was very similar to modern day traveler’s checks.

       The transaction costs of coupon scrip eventually encouraged the increased use of metal scrip.  This medium became cheaper overall than coupon scrip, in spite of metal’s higher initial costs, largely due to the invention and development of the cash register after 1880.  Pantographic machines also were instrumental in reducing the unit costs of metal tokens.  Instead of receiving cash, the scrip issuing cash registers paid out metal tokens, made a record of the pay out and to whom it had gone, and kept a grand total of the amount issued.  The scrip registers would eject a specified dollar amount of scrip when a lever like that on a slot machine was pulled.

       In a 1927 advertisement, the Osborne Register Company (ORCO) of Cincinnati pictured a 10 year old child who, in a demonstration, issued $600 worth of metal scrip in various amounts to 200 hypothetical employees in 55 minutes, implying an average emission of $3 per employee every 16.5 seconds.

      The economics of scrip issue, as with all exchange between economic agents, required that both the issuer (the Coal Company) and the acceptor (the employee) benefit from the transaction.  The company necessarily had contact with the outside world.  It bought machinery and other resources and sold coal in a national market.  All these activities required the use of standard money.  Scrip was used essentially as a working balance of money with which the coal operator could make advances to his employees between paydays. It was issued at the request of the miner and it was redeemable in standard money on the next payday.  The amounts were usually small, five or ten dollars, or even less.  To the worker it amounted to an interest free loan that he could get with almost no effort. It enabled him to buy ordinary household goods at the company store. 

       To those workers who had gone out and got drunk on the previous weekend, or who had suffered some kind of household emergency, scrip was a blessing only measurable by the cost of its common alternative.  Its alternative in a conventional urban setting without scrip was the pawn shop, loan shark, or installment peddler. An industrial worker in the same unfortunate position in, say, Detroit, Pittsburgh, or Chicago, had access to money between paydays only by borrowing against his household capital at a pawn shop where he paid exorbitant interest rates if he reclaimed his pawned goods.

        The scrip system could be abused in such a way that a discount would also appear in some scrip transactions. Since the company store did not sell liquor - for the obvious reason that its sale would encourage absenteeism and worker inefficiency - workers would at times obtain scrip from the company clerk and sell it for conventional currency to buy liquor. The bootlegger or other liquor vendor, whose shop was not likely in the neighborhood of the company store, faced significant costs in redeeming the scrip for conventional money, thus giving rise to a discount. In spite of the obvious advantages of the scrip system to both worker and mine owner, scrip, the company store and the company town have been universally bemeaned.

       While critical of the scrip system, all accounts of its use acknowledge, first, that it was issued at the behest of the miner; second, that its issue cost the miner nothing; and, third, that it was redeemable in standard money on payday.  The dogma of scrip’s critics is that the company store, in which the scrip had to be spent, raised prices and exploited the defenseless miner. Prices were four to seven percent higher, but so were costs.  The advantage of scrip issue to the mine operator was that it was one worker perquisite he could offer to attract labor into a somewhat unattractive environment.  He already offered housing and mercantile services; so by issuing scrip against future wages he also provided commercial credit with virtually no interest charges to the borrowers.  The practice, indeed, was so widespread that it can only be viewed as a traditional perquisite of the trade.  A company that did not offer the scrip privilege would have been at a competitive disadvantage.  The mine operator thus became a quasi-banker.

       His cost for metal scrip during 1920s was from less than 1 cent to 5 cents a unit for scrip tokens of simple design made in aluminum.  In brass or nickel silver and with scalloped edges and more intricate designs, costs could run as high as 11 cents a piece.  All these values are unit costs in thousand unit lots, and are from advertisements of several different scrip manufactures between 1925 and 1940.  Scrip sales information from the Ingle Company sales journal of 1928 reveals that the average denomination issued was about .25 cents.

       Since the average cost per token was only about 3 cents and could have been even less, an investment by the coal company bank in 5,000 pieces cost it about $150 for the scrip coin and perhaps $100 more for a scrip issuing machine. To carry out this same banking function with regular U. S. Currency would have required an investment in cash alone of $ 1,250, as well as substantially greater security costs to protect the money.

       One observer noted, “The mining company could pay almost its entire payroll in company scrip, disturbing only a few dollars of actual working capital.”  Paying out in scrip gave workers some additional claims on the working capital of the company stores.  The monetary economy of using scrip was in part offset by higher costs of merchandising goods.  The difference between the payment system costs of scrip and of real money was a form of seigniorage revenue the coal mine operator realized and shared with his employees: they received interest free loans.  He was able to offer a fringe benefit that tended to reduce what would have been a higher working capital requirement.

       While Scrip was usually specialized to one company in a particular community, many coal-mining companies had mines in different regions.  Their scrip was good in all the different locations where their mines operated.  As the scrip using communities gradually came to experience more extensive commercial relations with each other, their localized scrips became interchangeable.  Even some independent stores accepted coal company scrip.

       Given the laws against the private printing or coining of money by the ACTS of 1862 and 1864, one may wonder how scrip could have been legally issued and used.  The key is the word ‘intended’ in the laws.  The courts ruled that scrip was not intended to circulate as money: first, because it was redeemable only in merchandise until payday; second, because it resembled money only superficially and was clearly distinguishable from standard money.

       The coin under the court scrutiny was a standard 50-cent piece.  Any token that was redeemable in lawful money on demand was construed to be illegal, and whether the token in question was coin or pasteboard did not matter.

       The extent of scrip use has many temporal, geographical, and industrial dimensions.  Its most notable occurrence in the twentieth century was in the coal mining regions of West Virginia, in part because the state government passed a wide open scrip law some time before 1925.  However, it was used extensively in other states as well.  The Tennessee Coal and Iron and Railway Company, for example, ordered 547,500 pieces between 1933 and 1937 from the Ingle Schierloh Company of Dayton. Ohio.  Another source lists 20,000 coal company stores in the United States, Canada, and Mexico all of which used scrip between 1903 and 1958.  Numismatic records indicate that scrip was also used extensively in several other industries-fishing canneries, agriculture (to pay crop pickers), fruit canneries, logging and lumbering companies, and paper companies.

       Trantow’s index lists over 1,100 companies that issued scrip currency in 40 states.)  One scrip numismatist cites a Chicago newspaper of 1845 that regularly quoted the discounted prices of coal scrip, city scrip, canal scrip, railroad scrip, Michigan scrip, Indiana state scrip and Indiana land scrip as well as the notes of private and chartered banks.  Private businesses issuing such scrip numbered in the thousands. The use of paper scrip was much wider than the use of coin scrip.  Only a small amount of the paper has survived, therefore the extent of scrip use must have been much greater than the vestiges in current metallic collections would indicate.

       The study of historic scrip issue has significant implications.  First, no one had any incentive to leave scrip behind for monetary researchers to count or to analyze.  Users of such currency would not regard it as a store of value for any time longer than the period between paydays.  Suppliers, to whom the scrip was an outstanding demand obligation, would redeem it first if they liquidated, merged, or closed down their enterprises.  In addition everyone who used it and benefited from it was aware of its questionable legality.  Archival records of is outstanding quantities, therefore, are almost nonexistent.

       The coal mining scrip episode adds to the total scrip experience for a number of reasons.  First, it lasted for over 50 years, so it was not just a temporary happenstance.  Second, it appeared in a wide range of independent communities.  In West Virginia alone, almost 900 coal companies employing about 120,000 miners issued scrip in one form or another.  In other areas of Appalachia - southern Virginia, eastern Kentucky, eastern Tennessee and southwestern Pennsylvania - the experience was similar. Third, scrip’s tenure was not dependent on the previous existence of standard legal tender money. True, the coal company was bound to redeem the scrip on payday, but this guarantee was only a flourish that enabled scrip issuers to avoid violating the proscriptive laws against the issue of private moneys.  As it was, many children living in coal mining communities did not see a dollar of real money until they grew up and left the area.

       A fourth important result of the scrip system was its reflective emphasis on the returns to the capital structure of the payments system.  In the scrip system, the money was supplied endogenously: the coal company banks, the borrowing miners, and the scrip suppliers were all parts of an economy of private ownership.  Scrip money was not dependent on any outside money, but was produced under the same conditions and incentives as any other common commodity.  The mining companies rather than the workers produced the scrip because in working without wages until payday, the workers were implicitly extending credit to the company.  Scrip issue was a means of clearing this debt before the regular payday.

       Both the companies and the workers shared in the seigniorage returns from scrip – the difference between the face value of the coins and what it cost to produce them.  While the scrip system was small scale and had a low profile, the government could ignore it because it posed no threat to the government’s monopoly over the production of money.

William Fugera, submitted 6/05