But most of these difficulties could be avoided by eliminating the stamp requirement and replacing it with scrip that automatically lost 1/12 of its face value at the end of each month, becoming worthless at the end of one year.Under this alternative, there would still be an effective tax on hoarding, thereby providing an inducement to spend.Economists from the Rational Expectations School will insist that households receiving stamped money will simply save an equivalent amount of ordinary currency, leaving total expenditure unchanged.While there may be some truth in this criticism, it misses three important considerations: 1) households that are liquidity constrained will spend whatever they can; 2) since there is no future tax liability associated with stamped money, there is no reason to save on this account; and 3) people tend to maintain separate “mental accounts” for their holdings, which is one reason why some people simultaneously hold low-interest savings accounts while maintaining high-interest credit card balances.Since a significant portion of these sales would not have occurred without the introduction of the stamped money and the accompanying “stamp tax,” the business is actually better off after the imposition of this temporary tax.To be clear, the “stamp tax” is neither a sales tax, nor a tax on transactions, but rather a tax on hoarding, which aims to increase the speed at which money circulates through the economy.The stamped-money plan is propelled by everyone’s attempt to avoid paying the “stamp tax.” In trying to avoid this tax, each citizen speeds the circulation of the stamped money, which is the program’s intended effect.
In this instance, the business pays a tax, not of (= 4% of 0), but a tax of (= 4% of ), which is a “sales tax” rate of only 0.33% on 0 of stamped-money sales.
Fisher estimated that stamped money with characteristics like those described above would circulate at least six times faster than ordinary currency circulates during times of depression.
Of course, this does not mean that business sales would increase six fold, for stamped money would comprise a small percentage of the total money stock, and some ordinary currency might be held for a longer period of time than usual following the introduction of stamped money.
But even if 0 billion in stamped money were to drive billion of ordinary currency into idle hoards, the increase in the average velocity of money would still be sufficient to the give the economy a significant boost.
Some conservative economists have complained that the stimulus checks sent out by the U. Treasury in the spring of 2008 had little effect on the economy because most households declined to spend their temporary windfall.
Since there is no future tax liability associated with stamped money, households need not increase their saving on this account.