Larkin Merchandise Bonds: A successful Depression-era scrip

The Larkin Company began in 1875 as a small soap factory in Buffalo, N.Y. Pioneering marketing strategies like factory-direct sales, mail order and multi-level marketing, the company grew from sales of $220,000 in 1892 to over $15 million by 1906. By the 1920’s, Larkin was a household name with branch showrooms throughout the eastern half of the United States. Its product line had expanded from a few soap products to packaged foods, pottery, glassware, leather, furniture and other household items. It even operated gasoline stations.

When FDR declared a “bank holiday” in 1933 as an emergency measure to combat widespread bank runs, the Larkin Company answered with its own currency. $36,000 worth of “Larkin Merchandise” bonds were first used to pay Larkin’s employees and then spent into circulation into the economy. The bonds were redeemable for goods or services at any Larkin location.

The bonds became an alternative currency. They were not only accepted by Larkin customers who intended to redeem them directly for Larkin products. They were also accepted by other businesses as payment for their own products, due to the confidence that they would in turn be accepted by others.

The Larkin bonds provide a microcosmic look at fiat currencies like the U.S. dollar. Larkin’s bonds weren’t redeemable for anything specific, like a bar of Larkin’s soap or a specific piece of furniture it manufactured. It was merely redeemable for whatever merchandise the company had on hand when the buyer entered the store. That meant that those accepting the currency did so out of confidence that Larkin would have products available for purchase with them. Had Larkin gone out of business, the bonds would have been worthless.

In this respect, Larkin bonds were similar to the U.S. dollar or any other sovereign fiat currency. The currency units are accepted solely on the confidence that the issuing nation will produce sufficient goods and services to redeem them. The U.S. dollar isn’t redeemable for any specific product, as it was when it could be redeemed for 1/20th of an ounce of gold. But legal tender laws make it redeemable for “all debts, public and private” in the United States. As long as the U.S. economy is producing something, there will be something to trade U.S. dollars for, just as Larkin bonds were redeemable for something as long as the company’s doors were open.

The differences between the two provide the reason why Larkin’s bonds were relatively successful and the U.S. dollar is failing. First, Larkin issued a limited amount of the bonds and did not intend to issue any more. The $36,000 in Larkin bonds were intended to keep sales flowing during a temporary shortage of U.S. dollars. That means that the number of bonds relative to the products available for purchase within Larkin’s “economy” was relatively stable. In fact, when the currency crisis subsided, Larkin began retiring the bonds, making those remaining even stronger as fewer of them remained in circulation in relation to the available goods and services they could buy.