Flipping the Scrip
December 9th, 2008 by Nick SaintMegan McArdle points to a small Milwaukee community that is considering issuing scrip - locally produced currency - as possible evidence of failure at the Fed:
Scrip was not uncommon in the early 20th century in company towns, where unscrupulous owners used scrip to force people to buy from their stores, rather than the new competition from Montgomery Ward. Or so it was always explained to me. But during the depression, quite a bit of it sprang up during the bank holiday, when no one could get their hands on US currency. The various scrips made a fascinating study in monetary policy, and free banking; some of them had classic hyperinflations, others ran into institutional reputational problems. Many of them had interesting features designed to vastly accelerate the velocity of the money. There are some accounts of miraculous turnarounds in depressed areas based on successful scrip. (Unfortunately, many of those accounts come via the purveyors of the scrip).
But scrip certainly seems to back the notion that the Great Depression was rooted in monetary contraction; money has to be pretty short before people start trying to mint their own. If more scrip plans get going, that will tell us something about the success of Bernanke’s attempts at monetary expansion. When you push on a string, you produce scrip.
Scary stuff. But reading the article she links to, I think it’s pretty clear she’s reading this wrong:
The move would encourage residents to support locally owned businesses, under the assumption national brands won’t take what to them would amount to Monopoly money.
“This promotes local economic strength and community self-reliance,” wrote one of the organizers, Sura Faraj, in a recent entry on her blog. “Other benefits include more community involvement and pride, patronage of local businesses (those that participate), and ultimately the reduction of traffic emissions.”
There isn’t any suggestion in there that these people are having a hard time getting their hands on greenbacks. It’s not clear that they are even corrupt. The charitable interpretation is that they are incredibly stupid. Basically, the idea is to create trade protections at the local level. But, since fake tarriffs would be too difficult to enforce, they’re going to create a de facto embargo against themselves.
Times are bad and getting worse, but comparing this to the depression practice seems more than a bit dramatic. Hard economic times may encourage people to try some poorly thought out financial schemes (though the good economic times we’re leaving aren’t in a position to cast stones), but we’re hardly at the point of printing out Monopoly money. Yet.
