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?