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Content: Stamp Scrip (by Irving Fisher, 1933)




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.