Another bit of Depression nostalgia makes its way back into the real economy: apparently, a few neighborhoods are starting to flirt with scrip, aka local currency.
I've blogged before about the tendency for groups to manufacture money out of whatever happens to be closest to hand. Considering how long the human animal evolved, even in tribal groups, without money, this apparently universal tendency among those who have been exposed to money is kind of an inspiring testament.
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.
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Neat idea, but I sense it falling apart once the IRS decides to look for tax dodgers in that community.
My Dad grew up during the great depression (born in 1920). He never mentioned script at all, and I doubt he ever used it. What I do remember though was he and friends that grew up during the same period would use favors a lot "I won't take your money, lets just say you owe me one", even 60+ years after the Great Depression.
He had his own business and obviously cared about money, but I think there is a side to every business owner that realizes money is a tool. Real value is in actual goods and services that money helps buy. If you can get those goods and services by trading favors, you're just as well off as getting them by working for dollars and paying cash (possibly better off if you consider favors are less likely to be targeted by the IRS than actual cash is).
"money has to be pretty short before people start trying to mint their own."
Not necessarily. I seem to recall experiments in small towns using scrip in recent years, before the current crisis. The reason the towns used scrip wasn't because of a lack of access to U.S. dollars, but to keep more business in town, since the scrip could only be spent there.
Hasn't every (left-wing) college town in the country tried this? I think you're over-reading to find a connection to our current difficulties.
Scrip is big with the Jewish schools in the DC, Baltimore, and New York areas. The scrip can only be used at the verious participating stores (mostly kosher grocery stores). Not being either a student or a parent, I haven't put in the time to understand the economic incentive here, but it might be an interesting model. I know that in this context it's been around for the past couple of decades.
Paul Krugman had a fascinating article on his experience with scrip (specifically, a baby-sitting co-op in which he participated and which used a form of scrip as a payment system). He wrote an essay about it in Slate.
Google 'local currency' or 'community currency'. Calgary Dollars have been in circulation here since the early 1990s, and I know that other cities have similar community scrips in place (New York, Tokyo, London, etc). There's nothing inherently progressive or libertarian about them, although most of the groups that print the currencies have some sort of agenda. They're just ways of trying to keep economic activity local.
Nelson is correct- the IRS and state revenue departments will frown on the use of scrip on more than a token scale unless there is a system of converting to dollars to calculate income and sales taxes.
But Megan is correct- scrip offers real life laboratories for monetary studies. As for company town scrip, I would offer this interpretation- scrip was used so that the companies could tax the employees, not so that they would shop in the company stores. The stores were set up to collect the tax and to give value to the scrip.
In my neck of the woods, folks are bartering. Trading needed skills and commodities instead of cash, and frequently doing it off the books. Love how it levels out the value of people's time. Someone might offer to come shovel our driveway in exchange for a music lessons, for instance. Nice way to do business.
I seem to recall something about company towns being built in the middle of nowhere (primarily for access to natural resources). The company provided stores and housing for practical reasons. The employees needed housing and everyday goods that otherwise wouldn't be available at the time the factory was built and needed some way to get them. If the company could reduce its total costs by paying employees in script good at the company store, instead of dollars, so much the better.
As time went on, the need for the company store and company provided housing diminished.
David, what you're referring to is called scrip, but isn't the same thing. It's basically just buying gift certificates through the school and the school gets a cut. It's more like using an Amazon Affiliate link than scrip.
The northern neighbors have been doing it on a broad scale for years -- see also, Canadian Tire Money.
As friends above note, local currencies crop up all over the place pretty well regardless of the phase of the business cycle; and never get very important. Some formal advice I gave about them still seems to hold: "They do little harm, so there are no good grounds for discouraging them. They do little good, so there are no adequate grounds for encouraging them."
The case that fascinates me (from time to time), and should interest libertarians, is the one where a scrip had a perfect opening, but did not appear. Back in 1978, all the banks in Ireland were on strike and closed for about six months. What circulated were personally drawn and usually multiply endorsed cheques. Were these cheques more trustworthy than formal scrip? Why?
Check this out:
Prisons and POW camps use tins of mackerel as private currency.
http://www.marginalrevolution.com/marginalrevolution/2008/10/the-economic-or.html
Craigslist makes a huge chunk of barter obsolete. In effect, that level of information sharing is equivalent to a liquidity injection.
Scrip wasn't merely used in "company towns"... it was used all across North America during settlement to cope with the problem of maintaining commerce during the routine financial panics of the unregulated banking era, mercantilism during the time of bullion standards, and general isolation from financial and business centers.
http://en.wikipedia.org/wiki/Early_Canadian_banking_system
Ithaca Hours are the most famous local currency, which are legal coz they're directly convertible to USD.
http://en.wikipedia.org/wiki/Ithaca_Hours
Disney dollars are somewhat similar. Much of the historic scrip was issued by general stores, or as stuff like pub tokens or subway tokens.