In 1908, Henry Ford started selling the Model T, a workingman’s car that cost $825. In In 1958, the Ford Edsel — "Impressive, yes! Expensive, no!", the disatrous marketing campaign put it — cost less than $4,000. Today, a snazzy Ford Thunderbird would set you back almost ten times as much; a nice, sensible Focus would still cost you thirteen thousand dollars. Reading a nice nineteenth-century comedy of economics can be slightly perplexing — how rich was Mr. Darcy, anyhow? (Economist Brad DeLong came up with two different answers.) Science fiction writers, accustomed to setting storylines, have a related problem. In 1984, when William Gibson wrote Neuromancer, he gave his protagonist (on the run with few allies and less cash) one asset; Case just might be able to get a ticket out of town if he can find a buyer for his "three megabytes of hot RAM in the Hitachi." Today’s price for 32 megabytes of perfectly legitimate RAM is somewhere around $5. Dated technology is bad; dated prices are worse. Few things are as jarring in a story where passenger ships fly to the moon as a cup of coffee that costs a dime. Some writers create new currencies to avoid this problem. Who’s to say how much a credit, work unit, New Dollar, or piece of gold-pressed latinum is worth? Robert Heinlein occasionally took this route, but more often, he kept his terms vague (a tourist’s visit to the interstellar gates costs a few coins in Tunnel in the Sky; Johnnie simply spends all his money while on leave at Sanctuary in Starship Troopers). When he was specific, it can be hard to judge his meaning — the half-million-dollar settlement in "The Man Who Sold the Moon" would be a lot for me, but for a billionaire of today, let alone the future, wouldn’t it just be the price of doing business? Neal Stephenson’s Snow Crash had a nice solution to the problem; his characters tossed around trillion dollar bills like they were twenties, acknowledging a universal truth: inflation always wins. Frederic Jameson wrote that "inflation marks the presence of History in the First World". In the aftermath of World War I, for instance, Germany experienced hyperinflation.
It eliminated the value of all life insurance policies and all savings left in banks. When life insurance policies were paid in 1923, the value of the check was usually worth much less than the stamp used to post the letter. The hyperinflation eliminated all debts that existed prior to 1921. For example, the value of German mortgages in 1913 measured in U.S. dollars was about $10 billion; in late 1923 these mortgages were worth only one U.S. penny.
A letter that cost 20 marks to mail in early 1922 cost an astounding 320 billion marks by the end of 1923. Wages were paid daily, or even more than once a day, so that workers could go out and spend their money before it became worthless. The German example is extreme, but not unique; last year, Argentina’s financial meltdown stopped short of a similar crisis, but the country suffered hyperinflation in the 1980s, and Nicaragua experienced 64,000% inflation in 1991.
Hyperinflation is simply normal inflation on a massive scale, and like normal inflation, it is caused by money entering an economic system faster than new goods and services can absorb it. In the cases of Germany and Argentina, this happened because of massive national debts. To pay off war reparations to the French, the German Mint started printing marks like they were Monopoly money; pretty soon they became worth about as much. A little inflation can be a good thing; it spurs people to keep money circulating, and the Greenback movement of the nineteenth century was perfectly correct about inflation’s benefits to America’s farmers, as their mortgages became worth relatively less. Inflation had been almost non-existent for several decades, but after America went off the gold standard, it began to pick up.
What’s good for debtors is bad for creditors, of course, and ever since America left the gold standard, some have been agitating to go back. Paul Krugman feels this is a bad idea, if for no other reason than that it will link the world’s currencies together, meaning that the Federal Reserve will no longer be able to tweak the money supply to help accelerate or cool off the economy. A gold standard would set the dollar at a fixed exchange rate to an ounce of gold; as goldbugs are fond of pointing out, current bills are Federal Reserve Notes, backed by nothing more than the government’s promise that it will continue to back them (even pennies).
The idea of introducing some kind of private currency, especially one based on gold, has a lasting appeal to a lot of people on the right, from Jack Kemp and the others Krugman mentions to conservative economist Samuel Brittan to classical liberals like Friedrich Hayek to Ayn Rand alcolyte Murray Rothbard. The market is more efficient than the government at most things, they ask, so why not money? (Lingering feelings about FDR’s gold confiscation of 1933 surely can’t make them less nostalgic for the gold standard.) Robert Heinlein, a libertarian, offers "Hong Kong bucks" in his science fiction novel The Moon is a Harsh Mistress; the money is privately issued by a bank in New Hong Kong, and it is accepted simply because the characters trust the bank. Government scrip trades at a discount to the Hong Kong dollar. In real life, those trusting less to banks and more to higher powers can turn to "e-gold", promoted by the Darqawiyya sect of Islam.
Other than online money — whether e-gold or Ultima Online gold — aside, private currencies in America tend to be small scale and the domain of individual communities. Ithica HOURS, for instance, were created to help the barter economy in struggling upstate New York, as well as to encourage spending money locally. (It’s hard to get a Vegas cabbie to take your Ithica money.) Other communities such as Flagstaff and Lawrence are looking to follow Ithica’s example. Guides are available, although very little on the Internet will prevent simple greed from wrecking the system. Local scrip is usually denominated in hours, making the barter system a little easier, the currency a little more egalitarian, and the system a little more science fictional — work credits at last! The nineteenth century labor reformer Robert Owen seems to have anticipated this with his National Equitable Labour Exchange.
No private currency has been widely adopted in America since the National Banking Act of 1863. The idea keeps coming up, however. Economist Irving Fisher formulated Fisher’s Law (which links current expectations to future inflation), invented the Rolodex, and assured the investing public that stock prices were at a "permanent high plateau." Shortly thereafter, the crash of 1929 wiped out his Rolodex fortune. He also came up with an idea for scrip that would slowly be worth less and less. Financed by sales tax, the scrip would strongly encourage consumption. California ad men Lawrence and Willis Allen adopted Fisher’s plan as the "Thirty Dollars Every Thursday" or "Ham and Eggs" plan.
Although every reputable economist, including Fisher himself, felt that the plan was "fantastic, incredible, and dangerous," as it would introduce more scrip than money into the California economy and eventually bankrupt the state, it was tremendously popular. The 1938 ballot initiative that would have made it the law of the land probably failed only due to a scandal involving the Allens and a crooked cop. A 1939 ballot initiative was crushed after critics were able to explain the economic costs, and by 1942 the Ham and Eggs movement was dead. It had at least one lasting effects, though; a young Democratic Naval veteran running for Congress was trounced after failing to support the plan, losing the primary to a Republican. After his crushing defeat, Robert Heinlein abandoned politics and started writing to make his mortgage payments. The house was paid off in 1940; the pulps had many flaws, but at least they paid cash.