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Tuesday, February 24, 2015

Irving Fisher and Stamp Script

In the last chapter [Postal Banking, Stamp Scripts and fixing our economic system] I used Monbiot's article ["A maverick currency scheme from the 1930s could save the Greek economy"] on the subject to introduce the notion of Stamp Scripts and a bit of it's history and successful application. In Austria, Stamp Scripts were squashed by the famous Austrian School economist Von Mises, who lated damned the author of the concept, Silvio Gessel, with faint praise. Irving Fisher was also mentioned in Monbiot's article. And it turns out he literally wrote the book on Stamp Scripts and Booms and Busts.

I've learned that it's not so much that the winner writes history, it's that the powerful do their best to bury it. This applies to the lessons of the great depression. Including both those learned and those suppressed and not learned. One of the great unsung heroes of the Great Depression was Irving Fisher, who belongs as much on the list of reformers and practical economists as does Keynes. If we want to get out of the system of boom and bust created by our perverse economics, we need to start with him. One reason his writings have disappeared is that like Smedley Butler's book "War is a Racket" the money business is a racket that causes our booms and busts. That has to change!. But in this article I'm going to focus on Stamp Scripts, which is more than a palliative means to fight the depressions created by bad money, is also a means to prevent money from going bad.

If you talk to an elitist, an Austrian, a Neo-Classical economist, or a conservative "bad money" is anything but Gold. To the conservative Gold is sacred and money is sacred, as long as it is their own money. But if you talk to someone like Fisher you find this expression:

"If proof were needed that overproduction is not the cause of the depression, barter is the proof - or some of the proof. It shows goods not over-produced but dead-locked for want of a circulating transfer-belt called "money." Many a dealer sits down in puzzled exasperation, as he sees about him a market wanting his goods, and well stocked with other goods which he wants and with able-bodied and willing workers, but without work and therefore without buying power. Says A, "I could use some of B's goods; but I have no cash to pay for them until someone with cash walks in here!" Says B, "I could buy some of C's goods, but I've no cash to do it with till someone with cash walks in here." Says the job hunter, "I'd gladly take my wages in trade if I could work them out with A and B and C who among them sell the entire range of what my family must eat and wear and burn for fuel - but neither A nor B nor C has need of me - much less could the three of them divide me up." Then D comes on the scene, and says, "I could use that man! - if he'd really take his pay in trade; but he says he can't play a trombone and that's all I've got for him." []

A stamp script is a credit instrument. It is a note that says after a set time the script is to be redeemed for an equivalent amount of money by the issuer. Further it requires a tax stamp for each week it is in circulation, and is null and void unless the tax is paid up to date for the day it is due. So there is a premium on holding onto the currency. It is only legal tender if it is paid up to date. Fisher describes the operation in:


In Chapter 4 he describes the various experiments using Stamp Script and their successes in Austria []. In Chapter 5 he describes how it worked in various towns in the United States []. In Chapter 6 he describes the organization and execution. He suggested it be done by a municipal Government. [] I have my own ideas on this, but they are pretty close to what he describes in chapter 8 []

In Chapter 9 he proposes why it should have been a national program, and how it should operate nationally:

"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."

If John Turmel's observations are correct, the money supply doesn't so much inflate money as charging interest on issuing notes. The stamps could add some inflation, but nowhere near what happens when banks make loans based on an arbitrary pretense of reserves. A stamp script is a note that retires itself. It doesn't inflate permanently, though it will reflate. As Fisher noted:

"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."

But if we don't return to a faulty reserve currency then Stamp Script doesn't have to retire. The fact that it needs simply reflects the currency centralization created by our privateering banks. Money goes to the Headquarters and to the wealthiest people in the world who essentially hoard it as a commodity. It doesn't stay in local circulation. In his day it was the same.

"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."

As it is Stamp Scripts have tended to be temporary. When money is available and easy to get, who needs to pay a stamp every week? But for local government, the ability to pay bills right away, and enable people to pay for things based on their income and credit -- without paying usury -- is just as necessary now as it was during the great depression.

Irving Fisher included "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.":

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.

And Mr Bankhead continued:

"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."

Hoarded money is the US term for what Keynes called in more fancy language a "liquidity trap."

"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?"

Bankhead was being rhetorical. But the thing about a Depression, is that unchecked it can result in a "failed state", or a complete collapse of an economy. So he continued:

""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."

In short our money is built on a wealth of goods, institutions, homes and prosperity, not the other way around. Those with wealth forget that.

"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 . . . . " []

Sounds like now. Of course the same effect as they were proposing could be accomplished by using treasury money to pay people. But the goal of a stamp script is to provide temporary notes. I would suggest that stamp script be used for "future contracts" type notes; someone is to get paid next month, pay the with the script with the due date being payday. More importantly since the Constitution prohibits states and municipalities from having their own money the Federal Government should provide treasury services to States and municipalities so that they don't get treated badly by the wealthy.

Further Reading
Hard to read/poor translation:
More on Stamp Scripts:
A Biography of Gesell:
Related Articles:
Our Officers earn themselves a "black spot" -- piracy in Business Government
The Great Deformation -- Introduction to the "Good Money" debate
The only trickle down I see, are them marking my feet
Long Con Swindle of America, legalizing swindles through corrupt politics --
Money isn’t a Bubble or a Ponzi Scheme (or Shouldn’t be)
"Coddling" the Giant Oligarchic Companies
Satan's Usury, John Turmel and some basic observation about our Banking system
Postal Banking, Stamp Scripts and fixing our economic system

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