Cooking the Books 1: Free money for everyone?
There’s nothing like a slump for currency crank ideas to flourish. The contradiction between unused resources and unmet needs is so glaring that the solution seems to be to give people more money to spend (whereas it’s to produce just for use, not for sale, so making money redundant).
One such theory, popular in the last Great Depression of the 1930s, was “Social Credit”, as expounded by Major Douglas (1879-1952). This was a proposal for the State to take over the role of the banks in supposedly creating purchasing power and using the profits that would otherwise have gone to the banks to pay all citizens a “social dividend”. As this is based on the idea that banks can “create credit” out of nothing by a mere stroke of the pen, which the current credit crunch has exploded, this is not so popular this time.
Another such theory was that of Silvio Gesell (1862-1930). Basing himself on the experience of the Great Depression of the 1880s (yes, there’s been more than one), his proposal to get people to spend was that currency notes should gradually devalue if they were not spent within a given time. He was to be the Finance Minister in the short-lived Munich Soviet of 1919. Keynes, who had a soft spot for currency cranks, wrote: “I believe that the future will learn more from the spirit of Gesell than from that of Marx” (General Theory, p. 355)
Though probably more influenced by the vouchers issued by the chain stores than by Gesell, the economic journalist Simon Jenkins has been plugging a similar idea in his regular column in the Guardian. He wants the government to give consumers “three-month spending coupons, say of £300 a month.” He thinks this giving people vouchers they have to spend within three months is a better way of getting people to spend than cutting taxes or increasing benefits which they could save.
An extra £300 a month to spend for everybody! A party could win an election by promising that. The proposal is feasible but, if it ever comes in, it won’t be at that level, as can be seen from Taiwan. According to the Taipei Times (19 December):
“Every citizen and foreign spouse qualifying for the voucher will receive six red-colored vouchers with a face value of NT$500 each and three coffee-colored NT$200 vouchers in a ‘lucky envelope’ with ‘Happy New Year’ in Chinese characters on it to symbolize auspiciousness. The government will distribute the NT$3,600 in consumer vouchers on Jan. 18, one week ahead of the Lunar New Year to boost spending.” (http://www.taipeitimes.com/News/taiwan/archives/2008/12/19/2003431492).
At the time of writing 3600 Taiwan dollars is worth £74. As the vouchers have to be spent by the end of September, that’s about £8 a month (rather less than £300) or £2 a week. Wow!
All these more or less cranky proposals are based on the mistaken assumption that a country can avoid a slump by increasing spending. Let’s have some common sense from Marx:
“It is sheer tautology to say that crises are caused by the scarcity of effective consumption, or of effective consumers. The capitalist system does not know any other modes of consumption than effective ones, except that of sub forma pauperis or of the swindler. That commodities are unsaleable means only that no effective purchasers have been found for them, i.e., consumers (since commodities are bought in the final analysis for productive or individual consumption). But if one were to attempt to give this tautology the semblance of a profounder justification by saying that the working-class receives too small a portion of its own product and the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working-class actually gets a larger share of that part of the annual product which is intended for consumption. From the point of view of these advocates of sound and “simple” (!) common sense, such a period should rather remove the crisis.” (Capital, Vol II, Chapter 20, section 4).