Historical Precedent

Essentially, microcredit attempts to boost small economies out of a perpetual bad equilibrium. In this sense, microcredit is definitely not a novelty. History has seen a myriad of attempts to boost economies out of depressed states. A couple of interesting examples include:

George Berkeley

During the 18th century depression in Ireland, the philosopher George Berkeley published The Querist, a book composed solely of roughly 600 pointed questions, to demonstrate Ireland’s imminent need for a central bank (Rashid, 39). Berkeley’s queries confront many of the same issues the microcredit movement face today. Indeed, the basic premise of microcredit implicitly assumes Berkeley’s 19th query, “Whether the creating of wants be not the likeliest way to produce industry in a people?” (Rashid, 42).

More generally, The Querist’s crux was a direct response to the perpetual funk in which the Irish economy was stuck. Ireland’s inability to move out of a bad equilibrium mirrors the poverty problem that currently afflicts many countries. Today, nontraditional microcredit banks distribute loans intended to spur on economic activity in small, impoverished communities. In 18th century Ireland, Berkeley’s solution was a central bank that would essentially perform the same task. Indeed, microcredit organizations and central banks share the unique ability to manipulate the supply of money in an economy in order to promote, or, in the case of central banks, to curb, economic activity. Thus, many of the queries posed by Berkeley are dually applicable to microcredit.

Some interesting queries posed by Berkeley include:

• Whether a people can be called poor, where the common sort are well fed clothed, and lodged? (Query 2)

• Whether the drift and aim of every wise State should not be, to encourage industry in its members? (Query 3)

• Whether money be not only so far useful, as it stirreth up industry, enabling men mutually to participate the fruits of each other’s labour? (Query 5)

• Whether any nation ever was in greater want of a Bank than Ireland? (Query 201)

• Whether we may not easily avoid the inconveniences attending the paper money of New England, which were incurred by their issuing too great a quantity of notes? (Query 202)

Patrick Kelly, author of an “insightful account of Berkeley’s thought”, argues that The Querist relays the message in one of its questions that “The Irish can only be made industrious by awakening in them an appetite for a reasonable standard of living” (Rashid, 41). This point is uniquely interesting when applied to poverty in today’s world.

Scrip

Scrip is defined as “any of various documents used as evidence that the holder or bearer is entitled to receive something” (Merriam-Webster Online).

The Great Depression marked the genesis of scrip as a valid form of payment among small communities in the United States. Citizens did not want to live in a depressed state and so they essentially developed their own form of fiat currency in a vain attempt to create a better economy. No longer did small communities rely on the dollar, mainly because of its absence, but instead relied on some other commodity, such as cardboard, metal, and leather (depressionscip.com).

Silvio Gesell was a famous scrip advocate. Gesell’s book, The Natural Economic Order, developed the plan for “stamp scrip” (depressionscrip.com).

"Gesell's scrip was designed to have 52 spaces on the reverse side, one for each week of the year, and the scrip was to have the value of its stated denomination only for one week. In order for the scrip to maintain its face value, a stamp, costing two percent of the face value of the note, had to be affixed on the back, in the space allocated to that week. The stamps could be bought at the bank representing the association. This stamp device was supposed to keep the scrip from being hoarded, as people would try to spend it prior to the day the stamp had to be affixed and thus avoid the cost of the stamp" (depressionscrip.com).

During the depression, the village of Schwanenkirchen, Germany decided to adopt Gesell’s method. The whole town adopted stamp scrip as its method of economic interaction. Irving Fisher, a famous economist at Yale, later wrote the book Stamp Scrip in which he discusses the effect Gesell’s stamp scrip had in Schwanenkichen.

"The news of the town's prosperity in the midst of depression-ridden Germany spread quickly. From all over the country reporters came to see and write about the 'Miracle of Schwanenkirchen'. Even in the United States one read about it in the financial sections of most big papers. But no explanation was given as to the real cause of the miracle - that non-hoardable money was being tried out and that it was working marvelously. (Fisher, 44) (borrowed from depressionscip.com)

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