Content: Stamp Scrip (by Irving Fisher, 1933)
CHAPTER IX
PRIMING THE PUMP
MY GRANDMOTHERS PUMP
AT my grandmother's country house, fifty and more years ago, you quenched
your thirst at the spout of an oldfashioned wooden pump. To compel this huge
creature to pour out its crystal treasure was no easy task for a small boy. It
always involved a preliminary period of exercising the lofty handle, and
sometimes quite without results, until an older person pointed out a bucket
which stood near with a small side-supply of water. It was kept on hand for just
such emergencies. Then the small boy would run to the side-supply scoop up a
dipperful, climb upon any convenient object and empty the clipper into the open
top of the pump. When he returned to his exertions they were no longer in vain.
One scoop of side-supply had connected the big subterranean supply with the
means of jerking it out of hiding. The strategy was called "priming the pump."
This done, there was no further use for the side-supply.
Such is the office
of Stamp Scrip - to prime the pump, which has thus far been unable to connect
the great supply of credit currency with the thristy world. The small scoop of
water is the customer walking with his stamp scrip. To affect not merely local
production but the country's pricelevel however, Stamp Scrip must be applied all
over the country. Then it will retire automatically - a result already provided
for in its terms - it will retire by not being renewed.
SENATOR BANKHEAD TRIES TO CATCH UP WITH SWEDEN
Reflation and stabilization are worked on the same principles - chiefly
credit control; but reflation is a more radical application. Sweden did not try
to reflate, but her stabilization has kept her price level steady since
September 1931, while America's price level, since that same date, has kept
foundering worse and worse. Yet many of us (ignorant, I fear, of Sweden's case)
are still denouncing all reflationary principles as too radical. Evidently we
need some reflationary force more radical than Sweden applied. But not without
safeguards.
Even Sweden has a safeguard. Indeed, the safeguard is an
integral part of the whole reflation-stabilization method. The safeguard
consists of the average price of all commodities, the index number of prices.
This index number and the level to which we want to raise and maintain our
American price level are duly provided for in Senator Bankhead's proposed
legislation. His goal for the price level is four-fifths of the price level of
1926. This, in the Senator's opinion, will give to both debtors and creditors a
practical average of justice, and will restore the rank and file of business
debtors to a degree of activity. At that precise point (four-fifths of the price
level of 1926) Stamp Scrip is to retire. Thus, instead of threatening us with
uncontrolled inflation, Stamp Scrip would improve the control by enabling it to
operate faster.
There are also some of us who believe Stamp Scrip to be more
than a temporary auxiliary currency for the present emergency, believing that
(if its volume and stampintervals were regulated according to varying
conditions) it would be the best regulator of monetary speed, which is the most
baffling factor in stabilizing the price level.
I close this little volume with a report of some of the goodnatured and open-minded give-and-take which occurred between Senator Bankhead and his colleagues when he introduced his and Congressman Pettengill's proposed stamp scrip legislation.(1) I quote here:
"MR. BANKHEAD. Mr. President, the Bible says, 'The love of money is the root
of all evil.' I think that statement may safely be paraphrased at this time by
saying that a lack of money is the cause of most of our present troubles. We
hear at all times nowadays discussion of the money question. We know the very
great and difficult problems that are confronting our country, growing out of
our situation with reference to money. Bank credits since 1929 have contracted
in the neighborhood of $13,000,000,000, and are daily growing smaller and
smaller. Nearly every day information comes to us about the condition of banks
in the various sections of the country. It is not my purpose, Mr. President, to
make any statement here that will tend in any way to aggravate the situation or
to increase the state of alarm that so widely exists throughout the country, but
we do know, without going into detail, the money condition in this country.
"We have now a theoretical circulation of as much as or more money
outstanding from the Treasury than we had in 1929; but Mr. President, we are
confronted with the unfortunate situation that $300,000,000 of that circulation,
as estimated by the Federal Reserve Board, is in foreign countries; that
$100,000,000 of it has been lost; and that more than $2,000,000,000, in my
opinion, is being hoarded; so that we are really without a sufficient
circulating medium in actual use.
"So far as the hoarded money is concerned,
it might as well be idle in the vaults of the Treasury and not be outstanding .
. . . We shall either have to take some positive, affirmative action on that
subject, or decide that we will go through the painful, distressing,
heart-breaking process of complete liquidation in this country.
"If we are
going to liquidate, why not let liquidation go on now and take its regular
course? If we are going to let the farmers lose their farms, if we are going to
let the town people lose their homes, if we are going to let bank after bank
continue to fail, if liquidation is to be the ultimate result, why not abolish
the Reconstruction Finance Corporation? Why not quit pouring money into various
institutions like pouring water into a rat hole? Why further involve the credit
of the nation and further burden the taxpayers of this country if it is merely
to be used as a braking process to let the liquidation take place slower and
slower?
"Mr. President, if there is to be liquidation, I want to point out
to the gentlemen who are coming here and telling us to balance the Budget and to
save the old standard - and I favor both if it is possible to do so - that if
liquidation goes to its ultimate end, not only will the farmers and the small
business men in this country be liquidated, but inevitably the cities, the
States, the counties, and the Government itself will be liquidated; and the time
will come when it will be impossible to collect enough taxes from the taxpayers
of this country, after having lost their property, to pay the interest or the
sinking fund upon the bonds of our cities, counties, States, and the United
States.
"That is exactly what we are heading for, unless, through some
intervention, through some plan or measure which might be devised by Congress or
by some international action, there comes about a restoration of business, an
increase in commodity prices, a renewal of the employment of those now upon the
unemployed list . . . .
"Mr. SHIPSTEAD. The Senator, of course, is aware of
the fact that what he is now saying is blasphemy to the worshippers of the
golden calf.
"MR. BANKEAD. Yes, I think the Senator realizes that, from the
way I have talked.
"It is not my purpose, however, to assail the gold
standard. I hope it may be maintained. I hope that consistently with humanity it
may be maintained; but, Mr. President, I am more concerned in saving our social
fabric. I am more concerned in saving our representative form of government. I
am more concerned in preserving respect for the law and obedience to the law. I
am more concerned in avoiding resistance by force to our Government than I am in
maintaining a standard which, since it first was used, has acted like a drunken
man. It has staggered, it has stumbled, it has fallen from time to time, and has
proven itself to be, instead of a measure of value, nothing but a . . .
[measure] of weight. But . . . the gold standard is not involved here . . . .
"Mr. President, I have heard the statement made frequently that the trouble
is not the lack of a sufficient circulating currency . . . . It is said that the
trouble is a lack of velocity in circulation of the currency, and that is true.
Nobody doubts that there is a paralysis in the matter of circulation. The
velocity has almost disappeared. It is contended that that lack of velocity in
the circulation of money is the main trouble. Then I point out to those
interested in the subject that, if that is the sore spot in our present currency
system, here is a plan which would absolutely remove and eliminate that
objection and that difficulty.
"I am proposing the issuance of money which,
when it gets into circulation, amounting to a billion dollars, will turn over
two or three times every week, and pass from hand to hand in the purchase of
goods, in the payment of debts, in the pay of taxes, in the payment of pay
rolls, in the payment for public works . . . . It may turn over five or more
times a week . . .
"MR. REYNOLDS,.. . . How are we to compel John Jones to
accept, as Payment of a $500 debt, that which I have purchased for only $10?
"MR. BANKHEAD. The Senator will not have gotten it fur $10.
"MR.
REYNOLDS. I paid 2 cents for each of the stamps.
"MR. BANKHEAD. But the
Senator paid to get the money, besides the stamps.
"MR. RAYNOLDS. What, in
addition?
"MR. BANKHEAD. How did the Senator get the money?
"MR.
REYNOLDS. As I understand it, under the Senator's measure I secure these money
certificates at the post office.
"MR. BANKHEAD. No. That is where the
Senator is in error
"MR. REYNOLDS. I should like to have the Senator advise
me.
"MR. BANKHEAD. The plan contemplates the use of half of this money and
its distribution, for emergency unemployment relief, for giving employment in
any form of public works that are available, in the purchase of goods, food,
clothing, and other necessary supplies. In other words, half of it is to go out
in distribution through exactly the same channels, for exactly the same
purposes, through exactly the same agencies, as provided in the Costigan-La
Follette bill for the distribution of the $500,000,000 provided in that measure.
"The other half is to be made available to the governors of the respective
States on the basis of population, the allotment of a State to be turned over to
the governor upon his application for use by him, either by allotment to
counties or municipalities for public works construction, such as roads,
sewerage, and matters of that kind, or for distribution otherwise as provided in
the Costigan-La Follette bill, the object all the way through being, of course,
that the money is to be used as far as possible to give employment, so that it
can be earned as payment for services rendered.
"Therefore if my friend the
Senator from North Carolina had 500 of these bills, it would have been necessary
for him to have acquired them, as he is not upon the unemployment list - and I
know he is employed (dealing with office hunters from his home). If he were on
the unemployed list, he would not have as many as 500 dollar bills, and whatever
number he did have, he would get them in a legitimate way, and not primarily as
a gift. But when they pass on out through this unemployment relief program, when
they get into the hands either of the merchants who sell supplies to the
unemployed, or when they get into the hands of laborers who do work upon
public-works programs which are contemplated here, into whosesoever hands they
get, they will then go to the stores in the purchase of goods, they will go from
the merchant to the jobber, from the jobber to the wholesaler, from the
wholesaler to the manufacturer, and the manufacturer will buy raw materials . .
. .
"The plan is intended solely to operate to check in some way the
constant decline of prices and contraction of credit, to serve, if you please,
as a temporary self-liquidating plan, and not as a permanent plan in our
currency system. If it has any benefit, if it furnishes a medium of circulation
for the purchase of the necessities of life and for the payment of debts, then I
submit it is reasonable to assume that a new confidence will be established. If
prices are stopped in their constant decline and perhaps started upward, people
will main begin to buy with the money that they have, because we all know they
postpone purchases so long as it looks like prices may continue to decline . . .
.
"MR. VANDENBERG. I have studied most sympathetically the entire
proposition for some time and I have come to the conclusion that it is
thoroughly practical, for instance, within a municipal unit on the basis of
municipal offices and dealing with municipal pay rolls, and so forth . . . .
"MR. REYNOLDS. Let us assume . . . that with . . . 500 certificates in my
hand, 26 stamps being affixed to each one, I am not indebted to a single soul on
earth; what am I going to do with those certificates?
"MR. BANKHEAD. I will
say, in the first place, that if the Senator is so fortunate as that, he could
well afford to lose them, but he would be in a lonesome company. [Laughter]
However, the Senator could buy something with them.
"MR. REYNOLDS. But
suppose I am not desirous of making any purchases?
"MR. BANKHEAD Well, does
not the Senator eat?
"MR. REYNOLDS. Very seldom. [Laughter]
"MR.
BANKHEAD. Well, if the Senator is that kind of an animal, I cannot place him.
[Laughter]
"MR. REYNOLDS. Mr. President, I am interested in the Senator's
proposal, and I am directing these inquiries to him because I want to be fully
advised in regard to the matter. I think the suggestion has a great deal of
merit, to be perfectly frank -
"MR. BAINKHEAD. In that spirit I will be glad
to answer any question which the Senator may submit . . . .
"MR. REYNOLDS. I
grant that the certificates would have served a very meritorious cause by reason
of the fact that there would have been paid an indebtedness of $500 twenty-six
different times. That is true, is it not?
"MR. BANKHEAD. Yes; and I am glad
the Senator brought out that point . . . .
"MR. REYNOLDS. I wish to say that
I think in the Senator's plan there is a great deal of merit, and I want to
repeat that I am directing these inquiries to him because I am initially
interested in his plan."
In the course of the foregoing discussion, Senator
Bankhead made some kind allusions (here omitted) to the author of the present
little book. I should like, therefore, to take the liberty of answering one of
the difficulties which were raised by the Senator's colleagues: At any time
before the expiration of the scrip, the holder who can think of nothing to buy
with it is entirely free to seek the investment market or the bank. These have
hundreds of ways for continuing the circulation of the stamp currency.
(1) Senator Bankhead's proposed legislation will be found in the Appendix,
also Congressman Pettengill's speech in the House of Representatives.