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Introduction to WIR
Report by Erick Hansch
Erick B.
Hansch was a colleague of Robert Swann
and Ralph Borsodi at the International
Independence Institute. One of the
projects of the Institute was the launch
of a currency called "The Constant" in
Exeter, New Hampshire in 1972. Borsodi,
an economist, was in his 90's at the
time and decided to issue the currency
as a one year experiment to prove it
could be done, rather than just writing
another book.
The
Institute was also the vehicle for
launching the community land trust
movement in this country. Erick Hansch
was one of the authors with Bob Swann
of The Community Land Trust: a
Guide to a New System of Land Tenure in
America
published in 1972.
In 1974
the Institute hosted E. F. Schumacher's
historic trip to this country. Swann
and Schumacher formed a close alliance
as a result.
Erick
Hansch, Ralph Borsodi, and E. F.
Schumacher all died within a month of
each other in 1977. Bob Swann continued
working with the ideas of his friends
and mentors and in 1980 founded the E.F.
Schumacher Society (www.smallisbeautiful.org)
in Great Barrington, Massachusetts which
has been a leader in study and
application of local currencies and
community land trusts.
Erick
Hansch had a gift for languages. In
addition to English he spoke Chinese,
German, and Spanish. He traveled to
Basel, Switzerland to study the WIR
program that had been in operation since
the 1930s. His unfinished typed report
is in the archives of the E. F.
Schumacher Library. Thanks to the good
work of volunteers, it has been entered
into electronic format and we are
pleased to share it with you here. We
have left his notes for the unfinished
Part 3 because they indicate the
direction of his further research.
---- Susan Witt
Initial Results of WIR
Research in Switzerland - Fall
1971 by Erick Hansch
Part 1
In August, 1971, during a
stay of several weeks in Switzerland, I
had lengthy interviews with managing
personnel of the WIR-Cooperative, both
in the Zuerich and Basel offices, the
latter being the headquarters of the
Wirtschaftsring (meaning: Economic Ring,
using the first three letters as
acronym; also, the German word 'wir'
means 'we').
WIR is a cooperative
association of small to medium size,
independent (grass roots) Swiss
businesses for the purpose of mobilizing
their own credit potentialities, i.e.,
without using commercial banks as
intermediaries, to facilitate business
transactions within their own circle.
This arrangement prevents, or at least
inhibits, the outflow of capital and
profits to the large chain stores,
department stores, stock corporations,
etc. WIR credit can be described as
supplementary, low-cost credit, but has
had also the fully intended result
of increasing the business volume of
their members. As a self-help measure,
it appears to have been successful in
large measure in protecting the small,
independent businessman against the
constantly increasing pressure from
large, financially strong competitors.
The WIR Cooperative has been
in existence and uninterrupted operation
since 1934, when a small band of
independent small to medium size
businessmen, mostly from the northern
German speaking region of Switzerland,
joined together to form this 'internal
credit' organization. They were beset
by severe problems resulting from the
then prevailing depression and shortage
of credit, as well as the strong
competition of the larger businesses and
corporations, all fighting for the
dwindling markets.
Leadership was assumed by
Professor Dr. Werner Zimmermann, who had
initiated in 1931 a venture of modest
home construction supported by mutual
financial help among a small circle of
trusted friends. In spite of some
hardships this venture had turned out
quite well, and Dr. Zimmermann turned
his thoughts toward the wider
implications of self-help among the
struggling businessmen.
The early history of the
WIR-efforts had also some depressing,
even tragic in a sense, experiences.
So, when Werner Zimmermann and Paul Enz,
another of the co-founders of WIR, went
together on a second trip to Denmark and
Norway, where they had contacted earlier
a group trying to organize cashless
barter trade, with the support of
department stores, politicians and
leading personalities, they found the
offices of this organization closed by
the authorities under pressure from
opposing interests.
The Swiss circle of their
friends were now all the more determined
to go ahead with their plans. Their
motto was: 'Free exchange of goods and
services, without exploitation of our
fellowmen, and without government
coercion.'
In their minds, high
interest charges were one of the more
apprehensive aspects of exploitation,
and they sought to avoid it. As Werner
Zimmermann puts it: "The attempt at the
practical realization of this motto can
take one of two directions: some will
talk and write about these aims and
demand their implementation. This is
politics. Parties and newspapers get
into the act with a high amount of
decibels. But the practical results and
benefits for people and humankind are
mostly very meager. Some others will
say to themselves: 'Why not start doing
something myself which I find is the
right thing to do. And I happen to
think it best for all concerned to make
honest trades, and to do this with
like-minded people. In this way, we
will be of mutual help.'"
A few data will give a brief
run-down of the organizational start of
WIR and the rapid spread of the idea.
The statistical material is from the
WIR-Pionier (WIR Pioneer), 25th
anniversary edition in 1959. The WIR-Pioneir
is the official monthly publication sent
to every member and participant.
- Founding of the WIR Cooperative
on October 16, 1934, in Zuerich.
The first group of cooperators
consisted of 16 persons with a total
paid-in cooperative capital of SFr.
42,000 (average per person
SFr.2625.- Ed.).
- Already on November 1, the first
issue of the WIR-News (WIR-Nachrichten)
came out. Initiation fee was set at
Fr.5.-. and the required minimum
amount of a share of Fr. 25.- could
immediately be used for credit
transactions with other members.
- In 1935, local WIR-groups were
set up in Basel, Bern, Zuerich,
Winterthur, Biel and Derendingen.
That year also saw the first edition
of the Classified Directory. During
the 1st and 2nd of August, 1936, the
first WIR-convention was held at the
Vierwaldstaetter See.
- 1939 to 1942 was a period of
reorganization. As personal
comments by WIR-personnel indicated,
it was a critical time for the
organization, and an appeal was made
to the members to subscribe
additional capital for the
emergency. The prospects were dim,
but additional capital was signed
for about Fr.250,000, mostly from
loyal members, and the organization
pulled through.
- There were 900 participants in
1945; transactions in WIR credit
were Fr. 717,000. The number of
participants stayed below 1000 until
1949 when it began to climb
rapidly. The stagnation during the
preceding years had to do with the
shortage of goods during the war.
- In 1958, there were between
11,000 and 12,000 participants, and
transactions in WIR credit had
climbed to Fr.53 million.
(Estimating conservatively 40% WIR
in all transactions as an average
rate, the total turn-over in goods
and services involving WIR would be
over Fr.130 million, Ed.)
- There were over 18,000
participants in 1970, and WIR credit
transactions run to over Fr. 180
million. Figuring about 50% WIR
participation (as indicated by the
president of the executive
committee, Mr. F. Hubschmid, in the
Business Report for that year), the
total value of goods and services
involved can be assumed at over
Fr.360 million.
The present structure of the
WIR Cooperative is such that of about
18,000 participants (in 1970) in the
credit operation, only a comparatively
small number (761) are active members of
the cooperative with paid-in shares
(Fr.802,000) and voting rights in the
general assembly. From the available
material it is not clear whether this
division into co-op members and
participants had been in existence from
the start, although there are
indications that this was the case.
The form and amount of dues
and their collection, as well as of the
booking charges, were changed from time
to time. At present, there is a
one-time charge of 1% (the lowest for
the entire period of existence) of all
credit entries made to a WIR credit
account. These charges are billed
quarterly and are payable in cash, while
the yearly dues of Fr.12.- are being
deducted in WIR from the account
balances. There is no initiation fee.
Participants receive without
additional charge the classified
directory listing participating firms by
articles, with geographical subdivision
in each article. The directory also
lists the percentages which the
participants have obligated themselves
to accept in WIR during the current
year; this rate may be changed from year
to year. Participants also receive free
a copy of the monthly magazine WIR-Pioneir
(WIR Pioneer), which beside articles of
general interest to businessmen, carries
a large amount of ads by participants.
These ads in some cases list
WIR-percentages higher than those in the
directory as specials for certain months
to attract business during an otherwise
stagnant period.
Also free of extra charge
are the pads of booking order forms
which participants receive as needed.
These are similar to bank checks. Their
different function will be explained
later.
Some of the participants in
the WIR-credit system do not want to be
listed in the directory, but are
encouraged to do so, and quite a few do
so later on.
New WIR are being created by
any participant applying for additional
credit over the amount already in his
WIR credit account. Reasons for such
applications may be the planned
acquisition of more costly articles like
furniture or large electrical
appliances, also cars, or even houses.
A Credit Approval Committee
must pass on these applications, and
sufficient security must be available as
collateral. The present management is
of the opinion, based on past
experience, that an optimum ratio of
WIR-credit outstanding to total WIR
turn-over should not vary substantially
from a proportion of 1:3. There is at
present a limitation put on paid-in
capital of Fr.250.- per co-op member.
Share capital now receives 12% interest
p.a.
Transactions among WIR
participants are quite simple. To join
as a participant, a businessman need
only declare his intention to accept WIR
booking orders as partial or total
payment in any transaction with other
participants. The percentages of WIR
are listed in the classified directory,
as mentioned, and pricewise
WIR-participants are not treated
differently from other customers. Each
participant has a set of booking order
forms, similar to the conventional bank
checks, with the imprint of name,
address and account number. In making
purchases from another participating
member, the buyer will give to the
seller such a booking order after having
written in the amount for whatever the
seller has obligated himself to accept.
From a cursory inspection of the
directory, many participants are willing
to accept 100% in WIR. (A rough
estimate revealed also that there are at
least 2000 different articles listed in
the directory, from excavators to
electrical appliances to laundries to
voice teachers.)
In contrast to regular bank
checks, WIR booking orders are not
transferable by endorsement, the main
reason being that this would lead to
avoidance of the 1% booking charge. The
income from this charge is used to
defray WIR-office administrative
overhead expense.
Upon application of a
businessman to participate, a WIR-field
representative will make a preliminary
investigation as to reputation,
character, business acumen, etc. The
WIR Co-op is subscribing to a credit
bureau and obtains information on the
applicant, which, with the field report,
is submitted to an Admissions Committee
of three members. When accepted, the
new participant can accept WIR booking
orders in payment, and send them in to
the WIR head-office in Basel for credit
to his WIR account. He can then dispose
of this credit similarly by making
purchases from other participating
members, either for his business, or for
private use and consumption.
Beside the head-office in
Basel, there are four regional offices,
each with one or two field
representatives. But only the
head-office in Basel functions as
bookkeeping central. The regional
offices are only the contact points for
participating members and new
applicants. There are at present a
total of 35 employees including business
management.
According to indications by
the business manager, Mr. E. Stutz,
present bookkeeping machines (4) are
heavily loaded, and the installations of
more advanced types and a computer are
contemplated. With an average of 50
transactions per year per participant,
total booking entries (debit and credit)
approach 2,000,000 annually.
A move to larger quarters
had also been planned, but a temporary
freeze by the Swiss government put on
the construction of new office buildings
(because of a glut on the market) has
delayed the execution.
There is also a budget for a
promotional campaign to get new
participants. The curve showing
membership growth has been flattening
out somewhat since 1969.
This is the first report on
WIR. The various problems and questions
encountered in the operations will be
dealt with in a subsequent paper.
After reviewing the
situation with which we first became
acquainted in the summer of 1969, we are
more than ever convinced that not only
is the WIR-system an entirely sound one,
but fulfills a great need for the
protection and furtherance of small
businesses in the credit field, on the
basis of the self-help concept.
With all the good I can see
in the WIR-system, there is one
reservation I personally have about the
way it operates at present, and that is
that availability of credit is not
selective in terms of directly
stimulating and facilitating new
production.
Initial
Results of WIR Research in Switzerland
February 21, 1972 by Erick Hansch
Part 2
In the first part of the
report on WIR it was stated that "WIR is
a cooperative, non-profit association of
independent small to medium size Swiss
businessmen organized for the purpose of
mobilizing their own credit
potentialities for at least part of
their credit needs, and doing so without
recourse to commercial banks as
intermediaries, in order to facilitate
business transactions within their own
circle." It should perhaps be added:
"
and to keep the additional business in
its own circle of small merchants."
The method used to mobilize
this supplemental credit is unique, WIR
being the only organization so far that
has developed a practical way to do
this, with 36 years of experience behind
it.
At first, in the early 30's,
the originating concept was no more than
a matter of mutual trust among a
comparatively small number of local,
independent businessmen. They thought
they could transact business among
themselves with a system of chits
similar to IOU's that would cover at
least part of the price of any
transaction, the balance being settled
in the conventional way, i.e., by cash
or check on a checking account with
commercial bank. These IOU's could then
circulate among them in place of
currency. This concept, however, was
quickly formalized and
institutionalized. An IOU does not have
any collateral backing, but is accepted
purely on personal trust. It was soon
found that in order to bring about wider
acceptance of these chits, and also to
comply with existing banking laws also
to avoid financial losses collateral
was essential.
One would probably think in
this connection of conventional credit
unions. However, the underlying concept
of the WIR system is different. A
credit union requires the actual
deposits by their members in cash, and
its operation is similar to that of
savings and loan institutions. In
either case, operational expenses will
be defrayed out of the difference
between the interest charged to
borrowers and that allowed to investors.
In the WIR system, no actual
deposits are made by the participants,
and therefore no "loans" in the usual
sense are made. (The difference between
'participants' in the WIR credit system,
and members of the WIR Cooperative has
been set out in the first part of this
report.) If a participant applies for
WIR credit, he must be able to put up
collateral in the form of bank or postal
savings books, bonds, securities, life
insurance policies, mortgages, etc.
These papers are left in the hands of
the WIR office for safekeeping and in
escrow. The WIR participant can
continue to draw interest on his
investment or savings and keep his
insurance protection in force.
Throughout this paper and
other reports to follow, the term "WIR",
besides designating the credit
organization itself, is often used, in
conformity with observed practice in the
relevant literature and in conversation
with WIR personnel, to denote the
purchasing medium which is employed
among participants of the WIR system.
For the unit of this purchasing medium,
the Swiss franc is also used, and with
collateral in Swiss francs to back it,
it can generally be considered as being
of par value with the Swiss franc. A
certain qualification of this statement
will become apparent in the further
discussion of the WIR operation.
To recapitulate briefly the
transactions:
The present operation of the
WIR credit organization is such that any
businessman wanting to join as
participant, will declare his intention
and willingness to accept a certain
percentage of WIR in the form of WIR
booking orders from other WIR
participants in any regular business
transaction. In calculating the WIR
part, no difficulty arises since the WIR
purchasing medium is also designated in
Swiss francs, as was already mentioned.
To make the transaction
between WIR-buyer and WIR-seller
clearer, an example may be given:
WIR participant A wants to
buy a suit from a men's clothing store
whose owner B is also a WIR
participant. A found the store by
consulting the WIR classified directory,
which also gives the percentage
acceptance of WIR for this store, as
stipulated by the owner. The suit which
A chose, is priced at Sfr. 400. Since
the directory listed the WIR acceptance
as 40% for this store, A will give B a
WIR booking order for 40%, or Sfr. 160,
and pay the balance of Sfr. 240 in cash
or regular bank check. B sends this
booking order to the WIR head office in
Basel, where his WIR-account is credited
with Sfr. 160; besides, a charge is
entered for 1% of Sfr. 160, or Sfr.
1.60. This latter item will appear on
B's quarterly bill from the WIR office,
and has to be settled in cash (or check
on a commercial bank).
B can now use his credit of
Sfr. 160 on his WIR credit account to
make similar payments to other WIR
participants (merchants, tradesmen,
etc.). In other words, these WIR
amounts (not the WIR booking orders!)
keep circulating among WIR
participants. At each new transaction a
new booking order is to be made out.
The percentages of WIR
acceptance shown in the WIR directory
are minimum rates. Larger percentages
can be accepted, of course, and this is
often advertised for certain months
(slack periods, vacation times,
Christmas specials, etc.) in the WIR-Pionier,
the official monthly WIR publication
sent to every participant.
It will now be endeavored to
answer the question in greater detail:
How does WIR credit come into existence,
and how does it continue to do so?
A WIR participant (merchant,
tradesman, etc.) may want to purchase a
certain object of relatively high cost:
furniture, a piano, some inventory for
his business, a car, maybe even a
house. He does not have enough credit
in his WIR account to make the
transaction. He can apply for
additional credit if he can offer
collateral, or in the case of a house,
give a second mortgage to WIR. Second
mortgages are a source of WIR credit of
considerable magnitude. Banks and other
financing institutions are usually not
interested in second mortgages. First
mortgages will generally take care of
only about 60% of the total value, and
there is often an inconvenient gap
between a prospective builder's own
resources and the first mortgage. This
gap can be filled with a certain ease by
the issue of WIR credit, at only 1%
interest per annum. Also, repayment of
up to 90% of this WIR credit on the
second mortgage can be made in WIR, the
balance in cash (Swiss francs).
Amortization of the second mortgage is
required by WIR to be made within ten
years.
Obviously, this second
mortgage business is not in competition
with commercial banks or savings and
loan institutions. On the other hand, a
number of first mortgages become
possible only by virtue of having this
low-cost, convenient WIR second mortgage
available, thus making additional
business possible for the banks and
other financial institutions.
The WIR management tries to
keep a fairly stable, approximate ratio
of 1:3 between the total amount of WIR
credit granted and outstanding, and the
total turn-over in WIR credit during a
year. Experience seems to have
validated this ratio as being the best
suited to maintain an optimum flow of
WIR among participants. An inspection
of the WIR financial statements for the
years 1967 to 1970 bears this out.
Concerning the participation
of employees of WIR participants in WIR
transactions, Swiss law prescribes the
payment of wages in legal tender.
However, special agreements between
employers and employees could arrange
for employees to "buy" some WIR or
change part of their wages into WIR. It
is here surmised what may be going on in
actual practice in this respect. It
could happen that the employer has more
WIR than he can use in his business or
in personal consumption, and he might
offer WIR to his employees at a
discount. The rationale for being able
to offer a discount on WIR is that the
additional part of the business due to
WIR did not require the usual
advertising and other sales promotion
expense, nor a high interest rate on
credit.
However, discounting WIR is
frowned upon by the WIR organization,
especially when it is publicized by ads
soliciting such conversions, because
this fact has been used eagerly by
opponents of the WIR system to discredit
WIR in the eyes of the public, the
argument being that WIR bring with them
a certain loss of purchasing power.
The figures for 1970 show
the following picture: 18,000
participants transacted a total WIR
credit turn-over of about Sfr. 180
million. With an average of roughly 50%
acceptance in WIR, the total business
involving WIR comes to Sfr. 360 million,
or an average of about Sfr. 20,000 per
participant. While it may be true that
not all of this business must be
considered additional since some of it
might have been done anyway a large
part was done simply because of
availability of WIR from previous
transactions. Also the share of WIR
business with some participants may have
been less than Sfr. 20,000, in other
cases it will have been more, perhaps
significantly more to make a big
difference with a small merchant or
tradesman. And only in a few cases will
it have detracted from profitability
so for instance when a participant had
been tempted to take in more WIR than he
could foresee to use.
In case of closing out of a
WIR credit account by a participant, the
WIR cooperative is not legally bound (by
Swiss law) to liquidate the credit
balance in cash. It may, of course, be
drawn down by credit attrition.
The WIR central office is
Basel offers a mailing service to WIR
participants, either to cover the entire
list of around 18,000, or a partial list
selected geographically. The cost can
be paid in WIR, the postage must be paid
in cash. Of course, the material and
envelopes, or folded cards, etc., are
supplied by the advertiser.
A subsequent report will
deal with some of the problems and
difficulties experienced in the WIR
system.
Notes Part 3
of WIR report:
- Limits to utilization of WIR by
choice of items and services
available
- WIR directory (classified)
published yearly and sent free to
participants
- Directory lists great variety of
articles and services (give
examples)
- Most entries in directory give
two rates of WIR acceptance: labor
and sale (Verkauf). The meaning is
obviously the sale of merchandise.
- Stipulation that amounts over
Sfr. 1000 in WIR in any one
transaction require individual
agreements
- Hotel rates are different
according to season
- The amount of WIR utilizable in
the case of second mortgages may in
some instances be limited by the
extent to which contractors and
suppliers of building etc. materials
are willing to accept WIR. Also
there may be a waiting period
involved if WIR management feels
that the prudent limit of credit
extension has been reached for the
time being.
- WIR booking orders (b.o.'s) are
in some respects like checks, in
others not
- Main difference is that they
cannot be passed on to creditors by
endorsement. Reason: avoidance of
credit charge. Subterfuge: omission
of name of recipient on b.o.; will
be filled in by last recipient
before mailing b.o. to head office.
- WIR head office checks b.o.'s
made out in different inks,
handwritings, or perhaps being
incomplete, etc. Checks back with
participant who sent it in. If it
is found that one of the pre-signers
was not a participant, efforts are
made to have him sign up with WIR.
- Examples of listings in
directory:
Chimney sweep
(226)
Architects (10)
Transporting
corpses (276)
Electrical appliances (143)
Wool blankets
(540) Bakeries
(37)
Attorneys
(3)
Contact lenses (249)
Matchbook
advertising (550)
Cosmetics (250)
Cultured pearls
(550)
Office machines
(97)
(from WIR directory 1970/71)
WIR Cooperative, Basel, Switzerland
- Are the legal steps spelled out
including liquidating collateral?
- What happens when a participant
wants to make a deposit or
withdrawal from his savings account,
for which he has deposited his
savings book with WIR in escrow?
- Is a procedure set up for
arbitration in case of dispute?
- What criteria are used for
admitting participants?
- For what reasons can a
participant be expelled from WIR?
- Are certain transactions
excluded perhaps the purchase of
land? Downpayment?
- What is the WIR organizational
structure?
- Who belongs to the executive
committee? When are meetings held
of that committee, when meetings of
the general membership?
- What control have bank
inspectors over the transactions of
the organization?
- When did the provision become
law that made WIR booking orders
irrevocable?
- What part of the total
outstanding credit is covered by
mortgages (2nd mortgages)?
- Where is the cut-off line
between small and large businesses?
- What part of WIR credit is used
for consumption, what part for
production?
- Are computers being used?
- How to raise the start-up costs?
- How is surplus being used?
- What is the meaning of a
participant's collateral in legal
terms? Can it be liquidated? How
will the proceeds be allocated?
- Would WIR be interested in
introducing an innovative system
such as the "constant"?
- What are the restrictions on
businesses of the same kind in any
one town?
This report may be circulated
acknowledging the source as:
E. F. Schumacher Society
140 Jug End Road
Great Barrington, MA 01230 USA
http://www.smallisbeautiful.org
Link to this article:
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