Friday, April 12, 2013

Baptist Bucks, or a Study in Fiat Currency

 NOTE: My  dear friend Douglas Pelsang made the connection that makes this  post possible. He's  brilliant as usual.

A  couple of years back, our church had  a promotional contest within the  congregation.. The church would be issuing these little   pieces of play money called 'Baptist Bucks' over the length of the contest.   The  bucks were festooned with  pictures of the pastor's family in place of dead presidents, and  would be doled out for perforrming various activities during the course of the promotion. For example, you  got  1 BB for coming to church, 5  for bringing a visitor, etc.  At the end of the promotional period an auction of donated items would be held  and you could  purchase these donated items with your funny money.  All in all it was a very successful promotion and we all wound up with  just fistfuls of Baptist Bucks and  a large variety of  items to spend them on.  A good time was had by all.
  Now here's the interesting part, which I honestly  didn't catch at first. This money had a lot in common with   fiat currency. It wasn't backed  by anything.  They literally made as many as  they could print and they were  centrally issued by a man in our church with a  briefcase full of 'cash'.   we  handcuffed the briefcase to his wrist, but we were just being silly.    There was no way for the printer to anticipate how much he needed to print because her was no way to  gauge the  demand for the currency. Also there was no market mechanism to determine how many Bucks you would receive for an activity, those prices were set by a  central decision.  You could not negotiate that your visitor was worth  6 BB's, that just wasn't how it worked.  At least at first. Since  it wasn't real money, and it was all in good fun, you could finagle the system a bit and get more than you were supposed to, especially towards the end of the  contest when the  banker was trying to get all these bills into circulation lest they go to waste. We were awash in  Baptist Bucks by the time the auction came around.
  Then the auction time came.  The prices started out low, and more or less modeled what the  auctioned item would be worth in  Federal Reserve notes, but as the evening  wore on,  the prices  skyrocketed. People had  fistfuls of cash that had cost them almost nothing to accumulate and everybody  knew that after tonight, the bills would be  of no use as a currency. therefore it behooved the individual holders of the bills to dump them as  quick as they could. A bicycle that had been purchased for $200 went  for  4 times that amount in Baptist Bucks. it became  impossible to gauge  what you should   pay for anything. all you knew is  that everybody else was throwing money around, so if you want the item, you'd better throw it around too.  As the  list of  available items got  shorter and shorter, people were  bidding just for the sake of  bidding.   I think we  'bought' some  hideous paper fan thing for $200 in  Baptist Bucks, and  my son bought this  atrocious   robotic dinosaur thing that didn't even work for  well over a hundred. All that mattered was that you  get this money out of your hands before the end of the auction;i.e before the collapse.
  When the smoke cleared we had all  had a good time. But we also  had purchased a bunch of stuff we didn't need, and some of us still had   unused currency in our hands. I still have a  bill or two somewhere.
  I think the parallels are obvious, but there was one major difference between our promotional activity and the  activities currently   engaged in by the Fed; nobody went hungry, nobody lost their house, nobody' gas  tripled in  price.   Thjere were no riots in the streets, no  empty store shelves. When it was all said and done, we had a good laugh at how silly we had been and went to our homes, content that something like that could never happen to the  US dollar.

  Or could it?
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