Wednesday, September 12, 2007 09/12/07-Depression Dollars

In today's excerpt--as the Great Depression spreads, some local communities try to cope by printing their own money:

"One late summer day in 1931 in Salt Lake City, the money ran out. Not just the money in the banks, and not just the money in the town coffers--the money the citizens had to spend. Locals reached into their own pockets and, finding nothing, began to trade work and objects. Barbers traded shaves and haircuts for onions and Idaho potatoes ... The money drought that America was suffering from had a technical name: deflation. Deflation means that the currency was becoming more valuable every day, rarer and scarcer. ... Today we know the Treasury and the Federal Reserve might have done much to alleviate the deflation problem of the early 1930s. They could have ... taken what we call countercyclical action. ... But in the early 1930s the Fed and its member banks lacked tools and knowledge. They did the opposite of countercyclical action. They acted pro-cyclically--tightening and tightening in the face of a downturn. ...

"[As government action failed to stem the crises] American towns and neighborhoods rallied one more time. ... Salt Lake City had now gone further than barter. The townspeople had banded together and created a group ... that made its own money. They had given their unit the reverberating name of the vallar. Citizens could work to earn vallars. They came in different denominations: V5, V10, V15, V20, and V25. They then in turn could use those vallars to buy and sell oil, soap, coal, food, furniture, meals at a restaurant, and even medical treatment. ...

"Ventura, California, Minneapolis, and Yellow Springs, Ohio, were all also making some form of scrip. ... In Arizona ... the legislature, by a special act, ordained a state scrip, to be issued in denominations up to $20. ... In areas near the border, Mexican pesos began to trade at a premium; the peso, at least for a moment, had become another form of American money. ... The Lane Bryant Store issued money in Indianapolis ... By Spring there would be some 150 barter and/or scrip systems in operation in thirty states. ...

"Still, trading in kind, especially when one did not live on a farm, did not feel like progress. Even vallars could not keep mortgage holders from losing their homes. People were beginning to realize that the problem was simply not something they could solve in the neighborhood, or even in the state. The hour of the vallar was merely that--an hour."

Amity Shlaes, The Forgotten Man, Harper Collins, Copyright 2007 by Amity Shlaes, pp. 105- 139.


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