Brendan Greeley is an interesting Financial Times journalist, allegedly in the process of writing "a book about the dollar" (join the fray: there's, like, five of them coming out next year...). I usually read his stuff, even though I rarely agree with him.
Recounting the Hawarden, Iowa, episode during the Great Depression of issuing scrips—made-up, emergency money issued (and "backed") by the town itself, Greeley writes:
As the historian Rebecca Spang has argued, money doesn’t just have quantities, it has qualities. To say that money is created is to assign it a kind of magic, ignoring the work it takes to keep it moving from hand to hand.
The city of Hawarden paid out its scrip as a stimulus, to men gravelling the road from Central Avenue to the cemetery for example. Then, each time someone passed a scrip note over a counter as payment, the note had to have a new 3 cent stamp stuck to its backside. The city sold the stamps, and after 36 purchases, the city had $1.08 in an account to redeem the scrip and pay for overheads. That December, the Des Moines Register reported that each scrip note had changed hands 10 times on average.
Moreover: "The historian Claude Million has argued that scrip can either serve a social goal or can fill a money hole in a crisis. By this standard Hawarden’s scrip succeeded."
This is partly true: too little money, or in the wrong denominations, can mess up mutually beneficial trades of real goods and services that otherwise would have taken place (#752441). To use the analogy I've invoked before at MONEY CLASSes (#809392), if the bridge is congested (or, you know, half the lanes have fallen into the river) then fewer people will be able to cross into the city/make their commute etc. Issuing scrips can in certain instances be equivalent to temporarily expanding the number of lanes available.
Much like MMT in general, Greeley uses true examples in the service of mistaken beliefs:
"We are conditioned now to think of inflation as the only mistake with money, but historically deflation has been just as devastating."
There's a famous (in economics circles, anyway) paper from 2004 by Andrew Atkeson and Patrick Kehoe—
"Deflation and Depression: Is There an Empirical Link?"—that concludes that there is no link whatsoever between deflation and depression. Economists' knee-jerk reaction (="oh, falling prices = mayhem, we're all about to die!") is an America-only and Great Depression-only story. When the authors looked at a hundred years of depressions across 17 countries, there was "virtually no evidence of such a link."
The only connection is the Great Depression itself, where the money supply shrank suddenly, prices collapsed, real output fell for years, and we saw the highest unemployment that America ever witnessed.
No wonder economists as a profession are damaged from this harrowing episode.
Anyway, he concludes the FT article by saying that scrips work as an additional financial instrument:
It’s a financial instrument, embedded in almost a century of local habit. It works the way all successful money does: through custom and reliable administration that gives a familiar sense of comfort until you come to rely on it, without even thinking about it.
Not sure I'm sold on this idea that money works on custom and reliable admin. Considered broadly, I guess bitcoin qualifies: it's a custom to learn to use it and thus accept it in trade; the program and the code itself can count as an "administration."
Anyways, Merry Christmas reading, you ~econ stackers!
non-paywalled access to the FT article here: https://archive.md/Y3roS