What do we do if there's a Crash?
Town & Country Planning,
November 2001
It was a nervous moment watching the New York stock market
open for trading after being closed for a week, following the tragedy
of September 11.
Witnessing the markets dive down inexorably, and wondering if there was
any bottom that could be sustained, was like a distant memory of October
1929, when - according to whether or not you believe Winston Chuirchill,
who was there at the time - the millionaires jumping to their deaths blotted
out the sun.
It's strange how much market crashes and plane crashes seem in this sense
to look inextricably entangled. The implications of both for cities and
towns around the UK are serious - especially since we have been through
a long boom without much of it trickling down to the inner cities.
By coincidence, I was reading a book from 1933 by the greatest economist
of that age, apart from Keynes, Professor Irving Fisher of Yale - who
had himself lost about $10 million in the 1929 crash.
Now we may not have an economic collapse like the one following 1929.
Sadly, bombing Afghanistan is as much about defending the markets as anything
else - and if you don't believe me, read the American investment magazines.
But reading Fisher reminded me that there can be a partial way out for
communities around the UK if the economic clouds really do gather.
When communities run short of cash, they start swapping the things they
need. Then they start issuing their own credit to keep the wheels of local
economies turning. Fisher watched as some of the most active exchange
organisations in the USA started printing their warehouse receipts in
money denominations.
Within months, about 300 communities were printing their own negative
interest money, which lost value every month to encourage circulation.
Tenino in Washington state even minted their own wooden coins. The most
common notes were known as 'stamp scrip', after the stamps you had to
put on them to keep their value every Wednesday,
Then on 4 March 1933, it was all over. President Roosevelt - advised that
the monetary system was in danger - outlawed any more scrip systems, and
gave the existing ones a short time to wind themselves up. Though, as
he did so, he also created the conditions for a final flurry of activity.
Fearing a complete collapse of the American banking system, he closed
all the banks - and across the country, communities and companies had
to provide some kind of alternative to money.
'Sound' economists have traditionally disapproved of this chaos, almost
as much as they disapproved of the 'greenback' notes the federal government
issued during the Civil War. But actually, as Galbraith explained, it
served the pioneering West very well by making capital available, turning
it into farms and businesses and eventually into sound economic success.
"Then as still," he wrote, "what is called sound economics
is very often what mirrors the needs of the respectably affluent."
And so it was in 1933. By the end of that year, half of all the banks
in the USA had failed, and Congress was clamouring for more money in circulation:
"I care not what kind - silver, copper, brass, gold or paper,"
said one senator from Oklahoma.
But Roosevelt, who famously declared that day in March that "we have
nothing to fear but fear itself", was also trying to reassure the
fears of his 'sound money' bankers and economists. As a result, local
money disappeared for two or three generations or so - until now.
But Fisher had by then nailed his colours firmly to the mast, and published
his own book on the subject of DIY money, called Stamp Scrip - urging
communities to issue their own - and it's now extremely difficult to get
hold of copies.
This is what he wrote on the subject: "Charles Zylstram the enterprising
man who first introduced Stamp Scrip to America (in a small western town)
tells this story. A travelling salesman stopped at a hotel and handed
the clerk a hundred dollar bill to be put in the safe, saying he would
call for it in twenty-four hours.
"The clerk, whose name was A, owed $100 to B and clandestinely he
used this bill for the liquidation of his debt, thinking that before the
expiration of 24 hours he could collect $100 from his own debtor, whose
name was Z.
"So this 100 dollar bill went to B, who, greatly surprised, used
it to pay his own 100 dollar debt to one C, who (equally surprised) .
. . and so on, and so on, all the way down to Z, who, with much pleasure,
returned the bill to A, the clerk, who, in the morning, restored it to
the salesman. And then did A, the clerk, stand petrified with horror to
see the salesman light a cigar with it.
" 'Counterfeit,' said the salesman, 'a fake gift from a crazy friend'."
The point, of course, is that it doesn't matter what the medium of exchange
is, as long as there is one. The story may soon turn out to be just as
relevant as it was then.
