Chicken Dollars
I have been an avid reader of Gold-Eagle.com for several years now. The results have not only been enlightening but also profitable. I have enjoyed all of the authors’ contributions, from commentary about the wisdom of British Prime Minister Gordon Brown all the way to the passion of Doug McIntosh. I feel sometimes that we are guilty, however, of preaching to the choir. For that reason, I have given a series of talks about the subject and nature of money to my local Lions club. The following essay was an attempt to illustrate the workings of the Federal Reserve to fellow Lions. Since I spoke during our annual chicken dinner fundraiser, I just could not resist having a little fun.
“As you know, every year we print up a bunch of tickets for charbroiled chicken, which I would like to refer to as ‘chicken dollars’ for the purpose of this hypothetical anecdote. You see, when we trade these chicken dollars for five Federal Reserve notes, we are issuing a promise to pay in chickens. Our chicken dollars are actually backed by buyers’ full faith in our Lions club to deliver a chicken on demand.
“Let’s just say for the sake of discussion that we decide to cook every Saturday and issue the resulting charbroiled chickens for redemption. Every week, we sell 500 tickets for $2,500 dollars, and we cook 500 chickens.
“Now, what happens if we notice that not everyone collects his or her chicken dinners on the Saturday after purchasing his or her chicken dollars? After all, people go out of town, get busy, forget and so forth. Let’s say that to accommodate these circumstances, we make our chicken dollars redeemable for any Saturday with no date specified on them. I’ll bet that pretty soon, we could start selling an extra 100 tickets per week, or a total of 600 tickets, for $3,000 dollars and still only cook 500 dinners per week. The extra 100 tickets would represent a promise to pay sometime in the future. Another way to look at this would be as an interest free loan.
“After a while, since the chicken dollars did not need to be redeemed for chickens on a certain date but were good for chickens on any Saturday, we might notice that quite a few chicken dollars were outstanding and out in circulation. They might begin to be used in new ways. Perhaps the gardener cut your grass and, finding yourself short on cash, you decided to just pay him in chicken dollars. After all, each ticket is worth $5.00 (or a chicken dinner) any time he wanted to redeem them. We might find ourselves swapping chicken dollars for things like haircuts, hamburgers or even tips. These chicken dollars are now becoming a form of currency.
“This is getting pretty good now! People are now using our chicken dollars in trade, and they are redeemable on any Saturday, and we are issuing more chicken dollars than are being redeemed for chicken dinners. We are doing pretty well here!
“Now we might decide to get the Mayor involved in the club and talk him into accepting chicken dollars in payment for city sales and property taxes. If he likes the idea, our chicken dollars will become a form of legal tender (as opposed to chicken tenders).
Now things are really rolling. People like the chicken dollars, and they are circulating as payments on all sorts of things. People are not redeeming very many on Saturdays for chicken dinners, so we fearlessly print even more! We decide that the new clubhouse that we always wanted but could not afford is now within reach. We get a quote from the printer to print up $500,000 (100,000 tickets) in chicken dollars to pay for a new clubhouse. The printer wants $500 to produce the tickets. No problem! We just change the order to $500,500 and order the tickets to be printed. We then take $500 dollars’ worth of chicken tickets and pay the printer, then find a contractor to build our new clubhouse that we can pay in chicken dollars. By using our ingenuity, we have stumbled upon a way to issueinterest-free notes.
“As long as we do not have a run on chicken dinners we are in great shape. Soon we find very few people are redeeming their chicken dollars for chicken dinners any longer. In order to maintain faith in our chicken dollars, however, we still have to have a few charbroiled birds out there on Saturdays just in case someone comes by to redeem his or her chicken dollars. We even contract with a cold storage facility and store surplus chicken dinners, creating chicken reserves.
“Someone in the club mentions that it could be a problem if everyone wants their chicken dinners one Saturday and argues that we should have 100% reserves in our cold storage facility to cover the entire amount of outstanding chicken dollars in circulation just in case. This member is quickly chastised with the explanation that statistically, it’s likely that no more than 40% chicken reserves are necessary at any given time and that further reserves are just a waste of chickens.
“Other Lions Clubs throughout the country have been paying attention to our phenomenal success and are starting to print their own chicken dollars. Soon, all of the Lions Club chapters meet and decide to open a Central Chicken Reserve Freezer Facility that will be the lender of chickens, or the last resort to protect against a regional run on chickens. Special refrigerated freight airplanes are secured to be on standby to rush Central Reserve Chickens to any Lions Club in any area of the country that might experience a run on chickens. Since we are now part of acentral bank, we can lower the reserves and print even more chicken dollars. This is great news, and we celebrate with a massive feast!
“Since only a few people have been redeeming chickens on any given Saturday, we fall into the habit of only cooking a couple dozen chicken dinners then stacking them next to a bunch of boxes filled with rubber chickens. In doing that, we instill confidence that abundant chicken dinners are on hand in case anyone wants to redeem their chicken dollars. This conceit helps people feel good about their chicken dollars. It can even be said that our chicken dollars are the envy of the world. Of course, who would want to redeem chicken dollars for actual chickens! After all, chicken dollars are much easier to carry around and spend on purchases than trying to swap actual chicken dinners for goods and services.
“Everything was going great until one day when suddenly everyone became hungry for chicken at the same time! All the local Lions Clubs quickly exhausted their small supply of chicken dinner reserves and in a panic called the Central Reserve Chicken Freezer Facility and requested chickens now! Unfortunately, the system was only designed to help with regional runs on chicken, and the Central Reserve was quickly exhausted.
“Panic set in.
“People ran down the streets crying, “Our chicken dollars are worthless!”
“This, of course, caused more people to attempt to redeem their chicken dollars, making the situation even worse.
“The worst case scenario had taken place; there was a run on chicken dollars.
“Finally the International Director of the Lions Club called a press conference and declared a Charcoal Pit Holiday. All charcoal in pits around the country grew cold. After a week, the International Director explained that due to the shortage of chickens in the Central Reserve Chicken Freezer Facility, chicken dollars would still be backed by chickens but would no longer be redeemable in actual chickens. Anyone who had real chicken dinners was ordered to turn them in under penalty of imprisonment.
After our chicken reserves were partially replenished, the International Director of the Lions Club announced that the chicken dollars were again ‘good as chicken,’ and even though the chicken dollars were no longer redeemable in chickens, they were still backed by chickens in the freezer.
“Later, chicken dollars were devaluated. Only one-quarter of a chicken, instead of one-half of a chicken, backed the chicken dollar, but not to worry: our chicken dollars are still sound and the envy of the world!
“For those of you who do not recognize it, this is the story of our U.S. dollar from inception to approximately 1935. As preposterous as this part of the story is, it only gets more outlandish. As the saying goes, truth is stranger than fiction. During the Great Depression, our own Federal Reserve, with FDR’s help, did almost exactly what you just read. Chickens or not, it’s enough to give you indigestion! Only the Federal Reserve can get away with a theft of this sort and not go to jail.
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