Content: Stamp Scrip (by Irving Fisher, 1933)
CHAPTER VIII
BEYOND THE CITY HORIZON
THE country as a whole is suffering not only from a reduced volume of
business but also from a reduced price level on which that volume is transacted.
Stamp Scrip has already proved that, in any or all localities, it can increase
the volume of business; but, if confined to localities, it cannot raise the
price level; for if prices try to go up in a locality, buyers will promptly
forsake that locality. An increased volume of business at the same low price
level is, of course, good as far as it goes; but the lowered price level is
really the crux of the depression; and it cannot be budged till the new buying
(through the new means of buying) is nation-wide.
There should, therefore,
be a nation-wide application of Stamp Scrip - still in quantities as small,
proportionately to the size of the nation, as it is in the localities now using
it; and still to function only as an emergency supply-substituting for other
circulation which has deserted-withdrawing when the deserter returns to the
service.
Those private barter exchanges which are considering a hook-up of
such exchanges all over the country could effect their purpose far more easily
by the use of a uniform method of Stamp Scrip, than by any scheme of
miscellaneous bartering agencies and methods.(1) I go further into this question
in an appendix especially designed for the consideration of those who are now
sponsoring the barter movement.
I hope, too, that the states and the United
States will embrace the scrip movement and thereby reduce it to uniformity.
These larger governmental units can also, through their own "personal" use of
the scrip, get some of the more limited advantages which first interested the
small localities. For (just like the towns), the states and the United States
have public works; they have payrolls; they have budgets; they have tax
problems; - and the national tax problem is one of the obstacles to recovery,
depleting the buying power of the consumer in order to balance the budget.
But it is chiefly in order to jet the scrip spread over a maximum territory
in the minimum time that the states and the nation should intervene; so that not
merely local volumes of trade may grow, but the country's price level rise.
Otherwise, we must wait for this movement to spread by the slow process of
town-to-town contagion. I, for one, intend to do all I can to foster that
contagion; but each state might well monopolize Stamp Scrip and offer some of it
to each town in the state as a bonus with each apportionment of Uncle Sam's
largesse under the Reconstruction Finance Corporation - provided the town will
get the necessary local pledges and also attend to putting the scrip into the
local circulation and to selling the stamps locally.
Or better still, Uncle
Sum himself should offer to help each state to help its towns in accordance with
Senator Bankhead's and Congressman Pettengill's excellent plan.(2) The great
goal now is an elevation of the price level.
CRITIC: Now you're talking
inflation.
ANSWER: Not inflation but reflation.
CRITIC: What is
reflation?
Reflation may be defined as that degree of controlled inflation
which is needed to compensate for recent, fast, and big deflation. Reflation is
not inflation starting from the threshold and aiming at the sky - it is
inflation starting at the bottom of the pit and aiming back at the threshold. It
is a corrective process, like the turns of the steering wheel that keep you on
the road. Most of the historic cases of inflation, however, have not been
corrective - they have started at the threshold and aimed at the sky. They have
been "get-rich-quick" devices and have made depressions instead of curing them.
Nobody has pitched into such inflations more hotly than the present writer. (3)
Nevertheless, it is pitiful how people are enslaved by words that have solve bad
associations. If you call anything any kind of "flation," some people will see
"get-rich-quick" written all over it, because they don't stop to think that a
thing may be good or bad according to where it starts - and aims.
But I
would like to review briefly the series of remedies applied up to now to
overcome the depression, so as to see just where Stamp Scrip comes into the
scheme of things.
Mr. Hoover's relief program was very promisingly based
both on debt scaling and monetary reflation; and the reflation was (as it should
be) the chief item.
I. Non-Monetary Parts of the Hoover Program
(1) Intergovernmental moratorium and intergovernmental debt relief; (2)
planning of public works; (3) a council to deal with unemployment and plan
production.
II. Monetary and More Basic Ports
II. (1) Anti-deflation by the Federal Reserve (through rediscount and
open-market operations), (2) Glass-Steagall act making it easier for member
banks to get loans from Reserve banks and for Reserve banks to issue notes on
bond security, "freeing" gold; (3) amendments of Federal Reserve act to bring
more banks within its benefits; (4) national credit corporation to unfreeze back
assets and relieve depositors; (5) railroad pool to help in paying railroad
bonds; (6) committees of bankers and others to set unemployed bank reserves to
work; (7) Reconstruction Finance Corporation to lend banks and other business
including farmers and throw out congealed assets; (8) Home Loan Banks; (9)
Anti-hoarding campaign.
Thus the chief proposal was to supply fresh credit
to the depleted business world.
The direct recipients of the new credit were
to be banks and their depositors, railroads, business-men, home-builders and
farmers.
All this was called by various names, and ostensibly it was merely
help for a selected list of private interests. But observe that its aggregate
effect (if those interests could borrow), must be the reflation of credit as a
general currency, so as to compensate in some degree for the 21% loss in the
volume of that currency and the 61% loss in its turnover. This reflation would
raise the prise level, and thus restore net assets (on the average) so as to
stop bankruptcies, and renew profits (on the average) so as to give business the
wherewithal to re-employ labor.
And the best feature of the Hoover program
of reflation was quite parallel to the remarkable stabilization program of
Sweden. This was the so-called "anti-deflation" policy of our twelve central
banks known as the Federal Reserve Banks. In the first place, these Federal
Reserve Banks eased their "rediscount rates" to their "Member Banks," thus
enabling the latter to ease their own lending rates. In the second place, the 12
Federal Reserve Banks helped the Member Banks to enlarge their reserves which
determined their lawful authority to lend to business. This enlargement of
member reserves was accomplished through the so-called Open Market Operations
for the 12 Reserve Banks. That is, in the open market, these 12 central banks
purchased bonds from the Member Banks, and then retained the purchase money and
credited it to the Member Banks as a reserve, on which the Member Banks could
then base a more extensive lending policy to the depleted business world.
The creation of such reserves by Member Banks is sometimes called "pumping
credit" into them.
Beginning in April 1932, the pumping went on at an
average rate of 100 million dollars per week, and proceeded until more than a
billion dollars had been "pumped in," making available as member reserves about
20 per cent more reserve than at the peak of 1929. To some degree the remedy
worked. In fact, it made a very promising start, beginning in June and
continuing until around the middle of September. The price level rose and during
that period, according to Hoover's campaign speeches a million men were
reemployed.
Yet now both the price level and the unemployment are worse than
ever. As compared with 1926, the dollar which the unhappy debtor must pay today
has become $1.80; and unemployment, though not accurately ascertainable, is
estimated at about 12 million men in January 1933 as compared with about 2
million four years earlier.
What caused this reversal of a good start?
Partly, no doubt, it was the national election, with its uncertainty and its
campaign of fear. Business stopped using the credit facilities that had been
"pumped into" the member banks, and the Federal Reserve Banks stopped pumping it
in. Whether Mr. Hoover's program would have failed in any event, I am not
prepared to say. But it had one loophole which, if it was not inevitably bound
to defeat the plan, was certainly hound to delay its effects. The trouble as I
now interpret it was this: the whole thing was conceived for the producer, not
for the consumer. It tried to finance production before there was any
consumption to make the financing worth while. At this writing, we seem to be in
the grip of a tragic deadlock. Credit is ready and waiting for business to
borrow, but business will not borrow till customers walk in, and customers will
not walk in till business supplies some of the buying power in the shape of
wages, and also some of the buying courage in the shape of jobs without strings.
In short, business will not act till the consumer does, and the consumer will
not and cannot till business does - or until some other aid reaches the
consumer. All that has reached him so far has been admonition and preaching; yet
his hard cash is as short as the producer's - (short of bulk 21 per cent and
short of speed 61 per cent). Preaching does not help that, and until something
does help it - (something right in the consumer's actual pocket) - the financing
of the producer not only fails; in some ways, it actually makes the consumer's
plight worse - through taxation. It decreases the consumer's purchasing power,
burdens the taxpayers, increases the Government debts and merely enables the
destitute to exist. In short it delays recovery.
This is precisely where
Stamp Scrip comes in - to give buying power to the consumer, and supply the
compulsion to use it.
It is worth emphasizing that this compulsion will not
only discourage the individual from hoarding cash but also discourage the banks
from hoarding cash - "to keep liquid," as they prefer to express it.
(1) See Appendix.
(2) Senator Bankhead's proposed legislation will be
found later along with a part of the good-natured and open-minded discussion
which took place to the Senate Chamber on that occasion.
(3) In my " Why is
the Dollar Shrinking?" 1914; "Stabilizing the Dollar," 1920; "The Money
Illusion," 1928; "Booms and Depressions," 1932.