The shoebox shortage: part II of the Britham series

In the little village of Britham, all is not well.

It seems that a group of youths with more money than sense - and a liking for kite-flying - borrowed large quantities of shoeboxes from the bank, promising to make lots of money with them. What they actually did was cut them into pieces and attach them in orderly sequences to the tails of their kites. They then went up to the top of the hill overlooking the village to fly their kites. But on one particularly windy day, lots of the kites slipped from their owners' grasp and sailed up into the sky, never to be seen again.

Now the local bank is short of shoeboxes, and the local paper reports that they are turning down people who want loans. The town is up in arms. Business is grinding to a halt and people are losing their jobs because of the lack of shoeboxes. The local mayor decides to do something. 

Next to Britham's Printers is an equally stately-looking building with a sign outside saying "Britham's Boxes". The mayor sends his deputy to ask them if they produce shoeboxes.

He goes into the shop. Lounging at the counter is the manager of Britham's Printers, whose printing presses had rescued the bank when it ran out of money.

"Is this your place too?" asks the deputy mayor.

"Yes", says the print shop manager. "I run both businesses. My name's Merlin, by the way. What can I do for you?"

"The bank has run out of shoeboxes. Those pesky youths have lost lots of them. Can you provide some more?"

"Hmm. I'd rather not provide the bank with shoeboxes directly - even printing money for them upsets people. But there is something I can do."

He takes the deputy mayor through the door at the back of the shop. Behind the shop is a HUGE warehouse. In one corner is an enormous pile of card. Next to it is a large number of tubes of glue. And in the opposite corner is a small pile of pretty silk purses of various colours, each with a golden clasp. The print shop manager points at them.

"I need more of those. But the shop that sells them has a policy of only selling to little old ladies, and the little old ladies - well, I don't know what they do with them, but I reckon they stuff them under their mattresses. So I'm struggling to get them.  Now, if I could provide those old ladies with card and glue in return for their silk purses, they could make shoeboxes and you could pay them to borrow their shoeboxes."

"That sounds complicated," says the deputy mayor doubtfully, wondering why on earth a print shop and box manufacturer would want silk purses.

"Honest, trust me, it'll work. My best people have worked this out", replies Merlin.

The following day, every little old lady in Britham is offered card and glue to make shoeboxes for the bank, in return for parting with their silk purses. The takeup is surprisingly good and before long there is a queue of little old ladies with shoeboxes waiting outside the bank. The box manufacturer's pile of silk purses is already halfway to the ceiling.

But the people of Britham still can't get shoeboxes from the bank. The "pesky youths" experience has made the bank manager extremely wary of lending shoeboxes to anyone under the age of 60 - at least that's what the local newspaper says. Although there don't seem to be many people going into the bank these days, except little old ladies with shoeboxes.....

The deputy mayor visits the bank manager to impress on him that he MUST lend his shoeboxes to local businesses. The bank manager promises to do his best, though he complains that they don't seem to want to borrow. He sends out flyers to all the local businesses offering loans. But nothing much improves. The supply of shoeboxes remains restricted, fewer and fewer goods are sold and people take to growing their own food. Meanwhile the pile of silk purses grows ever bigger, as does the pile of shoeboxes at the bank.

Mystified by the lack of lending, the deputy mayor decides to visit some local businesses to find out more. Some of them moan that banks charge too much. But others simply say "we don't want to", without offering an explanation. Just as the deputy mayor is leaving one of them, the door to the warehouse opens and he catches a glimpse of the contents. It is stacked from floor to ceiling with shoeboxes. And he remembers seeing a similar stack of shoeboxes in his uncle's shed yesterday when he went round for tea. He didn't think anything of it at the time, but.... the thought hits him that maybe everyone is hoarding shoeboxes, and that's why there seems to be a shortage of shoeboxes.....in which case making more shoeboxes only gives people more shoeboxes to hoard, doesn't it? 

The next day, outside the bank there is an angry man with a placard reading "END THE SHOEBOX SWINDLE! STOP BANKS CREATING SHOEBOXES!" On the other side of the street there is another angry man with a placard reading "END THE SHOEBOX SWINDLE! FILL SHOEBOXES WITH GOLD!"  And there is an article in the local newspaper arguing that the current shortage of shoeboxes is all because the only way people can get shoeboxes is if banks lend them, and banks aren't lending. It suggests that Britham's Boxes should create shoeboxes itself and give them directly to people and businesses to "get the economy moving".  That evening, a scholarly gentleman gives a talk to the Chamber of Commerce in which he argues that the problem is actually that far too many shoeboxes have been produced by the banks, and the solution is for all shoeboxes to be created only by Britham's Boxes. 

The Salvation Army opens a soup kitchen at the local working men's club - which is full of disgruntled people who are unable to find work. The churches hold jumble sales to raise the money to pay their ministers. The high street looks like a ghost town as more and more shops and businesses close. People dig up their flowerbeds and lawns to grow vegetables, and turn rabbit hutches into hen coops. The streets are clogged with bicycles and pedestrians as people stop using cars.

And all the while the shoeboxes stack up in the banks, the businesses and the garden sheds of Britham.


Related posts:

The shoebox swindle
Do we really care who creates money?
The paradox of thrift

Comments

  1. Leaflets ! (flyers=American)

    ReplyDelete
  2. Yes, it is a lack of demand of the people of your beautifull Britham for the stuff the businesses sell. No sales no need for investments. Why did they stop buying? Well the house prices went down, so nobody wants to sell or buy a house as it could be cheaper tomorrow (or not) and no moving means no movers, no builders, etc. So income is going down, taxes are going up so the state does not have to lend even more, hence incomes are even going further down etc.
    So the Mayor of Britham needs to find a way out: He creates the Britham's Guilder (BG) and everybody in town receives 200 BG. And every month they have to go to the town hall and pay 10BG back unless they do no have have any BG left. (Yes, the Mayor knows what you have been buying or selling!) They people of Britham started to buy stuff with their BG as quickly as possible: next month they would have less to spend. Businesses started to invest again as they could not keep up with the demand......

    ReplyDelete
    Replies
    1. But Wil, the Mayor does not know at an individual level what people have been buying or selling. You are in effect suggesting incremental taxation to retrieve money that is not spent within a given time - but how would you know it had been spent?

      Actually taxes are falling as well, of course - taxes fall as incomes fall anyway, but also if people stop spending then indirect taxation also falls. It's quite a nasty death spiral.

      Keynes' solution to the paradox of thrift (which is what this is) is spending by the Government to compensate for the spending that is not being done by the private sector. So the Mayor needs to shell out some £ to rebuild the local school, repair the roads, plant flowering tubs all the way along the high street....Politically this is not easy to do when tax revenues are falling, because it increases public sector deficits.

      Delete
    2. Ah, but here comes the digital age: no cash only virtual money. Like a debit- or credit card or airmiles card. But alas no digital age at Britham.
      Increasing public sector deficits is only possible if Britham is not having the possibilty to print money themselves. But if they do, they only have to print it and spend it. It's debt free (and interest free) money. That's why it's important that the creation of money is in the hands of the Mayor of Britham not the bank.

      Delete
    3. Britham can print money. It has a printer - we will find out my next post who owns it. Money creation is not dependent on computers. After all, what you call "money" (and I would prefer to call "cash") is only another type of box.

      Money creation is not cost-free. The more money you print the less it is worth. That's why it is important that no more money is printed than people need. Think it through, Wil. The problem with having all money creation in the hands of the Mayor is that he doesn't have enough information. He doesn't know how much to print or who to give it to, and he has no way of obtaining that information without talking to every single person in the village to find out what their needs are. How on earth is he going to know how much money to print?

      Delete
    4. "The more money you print the less it is worth." sounds to be true overall, but it is'nt. As long as there are more goods available than people are able to buy. As a shopkeeper in Britham with a lot of stock I would love to sell at the same price. But if the goods are becoming scarce I'll raise the prices unless I'm able to buy more from the manufacturer. So inflation only starts to occur when employees are becoming scarce: then they want more money leading to higher prices=inflation.
      And the mayor has indeed a problem if he is not at the same time able to see into the pockets of the people. But if he is the only one who administrates the BF he does know how many BF everyone in Britham has. Like Airmiles who are the only ones who know my balance in Airmiles. But hoarding airmiles is easy unless they expire!

      Delete
    5. Typo: BF -> BG Britham Guilder

      Delete
    6. Frances claims, “Money creation is not cost-free. The more money you print the less it is worth.” Not true if the amount created is enough to raise demand and employment, but not so much as to exacerbate inflation too much.

      Next: “The problem with having all money creation in the hands of the Mayor is that he doesn't have enough information” Oh yes? So why do we put the decision as to how much stimulus to implement into the hands of the BoE Monetary Policy Committee? They’re effectively a committee of mayors aren’t they? Personally I’m in favour of the amount of money printing / stimulus being in hands of that sort of committee, as are a large majority of economists.

      “He doesn't know how much to print or who to give it to, and he has no way of obtaining that information without talking to every single person in the village to find out what their needs are.” Yes he does have “way of obtaining that information”: he just looks at inflation, unemployment and likely future movements in inflation, as does the MPC.

      Delete
  3. Mr (Dr?) Friedman's solution to the same paradox was to throw money out of a helicopter, so people can buy what they will. Outside of Britham, the electronic infrastructure allows us to virtualise the helicopter and also to decide how much money goes where. Does Britham have an internet?

    ReplyDelete
    Replies
    1. Mr Friedman's solution does not address the hoarding problem. People can hoard money distributed from helicopters just as easily as any other kind of money. Question is, why are they hoarding?

      Britham is a computer-free zone.

      Delete
  4. It's not the ordinary people who are hoarding money. They do not have any money to hoard as they are jobless. That's why Steve Keen proposition to distribute via the bank to the people a sum that they can use to spend unless they have a loan.

    ReplyDelete
    Replies
    1. Yes, that's the usual assumption. But actually much hoarding is done by ordinary people. Yes, if they lose their jobs they are forced to draw on them, but if they HAVEN'T lost their jobs (in a village where unemployment is rising) they save like crazy. You would, if you thought you might lose your job any minute, wouldn't you? As I said to Peter, you need to think about why they are hoarding and address those issues(there may be more than one reason). It isn't correct to assume that the only people who hoard are rich.

      Delete
    2. "much hoarding is done by ordinary people" How much is much? Many have even a negative balance that's why private debt got so terribly out of control and Steve Keen could predict from the level of private debt that this recession would be a depression like in 1930's.

      Delete
    3. You are assuming that all Britham residents have debts. That's not necessarily the case. In fact if their sheds are full of shoeboxes it would be a reasonable assumption that they DON'T have debts. Please remember this is a fictional scenario!

      Britham's businesses are also hoarding.

      Delete
  5. Ah, yes well than all is well after all if they still have piles of shoeboxes ;-)

    ReplyDelete
    Replies
    1. Unfortunately not. If everyone is hoarding and no-one is spending, the economy grinds to a halt - money (including shoeboxes, which are simply another form of money) stops circulating.

      Delete
    2. Absolutely, but why are they hoarding? Afraid of what? Prices will come down? Food and energy you cannot without, the rest you can postpone. The only reason to hoard is a shortage of money supply but they all have plenty....

      Delete
    3. Hoarding is always a fear of scarcity. They may have plenty at the moment, but what about the future?

      Delete
    4. But if prices would go up, would they still be hoarding cash? Hoarding cash pays off if prices are coming down, do they anticipate this? Interesting village you've created :)

      Delete
    5. That would depend to what extent they are prepared to draw on savings to pay higher prices. I'd suggest, though, that unless there are external supply shocks prices would fall rather than rise in this scenario. In fact one of the reasons they may be saving is in expectation that prices will be lower in the future.

      Delete
    6. A (japanese style of) deflation...
      Indeed bad for business but for your village where so many people are hoarding not yet a great problem.

      Delete
  6. After all, what you call "money" (and I would prefer to call "cash") is only another type of box.
    - Yep. And it does make no difference whether the underlying is a certain raw material or something else.

    Hoarding is not a problem of money. Hoarding can turn into a problem when to many people gain more 'interests' than they spend for interests included in product prices. The limit is about 1,5 Million in Austria/Germany. A problem concerning redistribution of wealth can arise from this

    The problem grows into a lot bigger one when cold inflation is used to devalue the savings on the savings account - it forces people to save more and more. Especially well-fare oriented systems don't have another option than printing and inflating in the bitter end. Mental thing - there are some drawbacks between the lies told to people - work hard every day for 50 years and be happy the last days before you die vs. earn less and help to drop the price level especially in Europe - honestly, I doubt it is possible to drop a price level in another way than monetary reform in practice from this perspective. EURO has been one of those.
    There are many reasons for hoarding - especially a false understanding of what money is in the end - independent from where the false understanding does origin from - many many fathers involved.

    Maybe I'm going little off-topic but I have read about too many myths about compound interest.
    a)
    Compound interest is not a problem but it is related to hoarding. Of course we cannot grow infinitely in general, but the exponential function of compound interest alone is something a society can handle.
    b)
    The lot bigger evil is the second exponential function, the accumulation of money in the hands of a view via charging the cost for financing the production (leveraging of equity).
    A society can mange these two exponential functions too.
    c)
    The problem is a) + b)+ a third which can be a result from both points mentioned above. Useless work (tax consultant vs. majority of fiscals, when talking about income tax) in general work and income that is dependent on a state's expenditures. Redistribution of wealth via income in best case - enormous sub efficient from the overall perspective. The key is - who does 'earn' the money the first time. In mid Europe we have 40:60 (state independent:related to state). - pharmacy does live from taxes in the end (social security).

    The current the discussion the so called 'crisis' has a lot to do with imperialism - imperialism is independent from the way money is organized. The origin of the current system is Phoenicia, as far as I remember correctly. Phoenicia set up one currency (cold coins) for the 'world' (Mediterranean Sea) in order to control the economy and stabilize their position. Afterwards the center of power moved to Rome (Rome has been chosen) and later on to Venice (after the Teutons reached Rome) - from Venice to France ('Merovingian') and later to Belgium and England, very likely due to the silver found in South America (I'm not sure about the last).

    The original US Dollar war attempt to get rid of this imperialism and the forces behind and the second attempt was Bretton-Woods.

    Money has something to do with economy not socienty. In order to suppress the enemy it was wise to destroy the enemy's 'economy' - pillery. Fei Lun in China was enormous powerful - the Mongolians have been very surprised that plundering the Chinese did not lead to breakdown of the economy.

    Fei Lun has been value neutral. One professor in Austria is working on system that takes the Fei Lun idea and is developing a system that sees money as one kind of customizable view of an interface to the society. You can also have growing carrots. No fun. Just numbers in a computer. Money is an individual's interface to a society, not more not less.

    ReplyDelete
    Replies
    1. I really don't agree with your final statement. Money is not the sum total of an individual's interface to society. The vast majority of people interact with society in many ways that do not involve money. Seeing an individual's relationship with society in purely monetary terms leads inevitably to a narrow utilitarian view of people - if they don't make a positive contribution in monetary terms then they have no value. That isn't a society I want to live in, frankly.

      Delete
  7. What a great vehicle this sort of fable telling is for improving understanding.

    (I have always thought of something similar to illustrate the way we have become (IMO) unhealthily beholden to large, well organised corporations. Thus the medieval village in which a couple of bright sparks got together and persuaded the village elders that they could best *serve their village* by concentrating only on growing apples. So the village releases them from their other duties and the first corporation is born and it is a rip roaring success - better apples for everyone at much lower costs. The moral of the story - when properly told - is that the well intentioned founders of the first corporation, with the well intentioned encouragement of the village, set out to serve the village .... not the other way around. )

    "So the Mayor needs to shell out some £ to rebuild the local school, repair the roads, plant flowering tubs all the way along the high street..Politically this is not easy to do when tax revenues are falling, because it increases public sector deficits."

    Couldn't agree more.
    One of the potential limitations of this story telling approach is that in super imposing a simple, village narrative - which has enormous benefits in terms of understanding - village debt becomes, is thought of as, a mortgage. But of course nations and even villages should be around for more than 25 years or the life expectancy of a mortgage holder.

    We need some talented politicians to explain this. And have the confidence to persuade that the time to balance the budget and reduce public debt is when the economy is doing well, not when it is in the dumpster.

    Scott Sumner and his blog http://www.themoneyillusion.com/ seems to have some specific policies in mind which seem to address the problem of how much money the system needs and how to provide the stimulus to encourage a healthy level of economic activity.

    BTW, excuse my ignorance: what are the old ladies silk purses a metaphor for?

    ReplyDelete
    Replies
    1. Silk purses....haha, I haven't written Part 3 yet. But in what do people near retirement mainly invest?

      Delete
  8. 1) Agreed, more money is only inflationary if production does not increase to mop it up.
    (Market monetarists, I'm assuming constant V, of course)

    2) There is a considerable problem with changing from a demand-led money supply to one that is determined in advance by a committee which has imperfect information.

    ReplyDelete

Post a Comment

Popular posts from this blog

Calculus for journalists

Game theory in Brexitland

Tariffs, trade and money illusion