Here's food for thought. The 1920-1921 recession was deep, but was followed by a quick recovery. Austrians say that it's because the gov't and the FedRes didn't intervene (no stimulus, no spending, no bailouts). Compare this with all recessions since.

Here is Tom Woods' take on it:
"Warren Harding and the Forgotten Depression of 1920"
Warren Harding and the Forgotten Depression of 1920 by Thomas E. Woods, Jr.

So, what are the Chartalists' opinion on the trillion dollar coin idea?

“Usually when you find the model this far off, you’ve probably got something wrong with the model, not that the world has changed,” [Laffer] said. ”Inflation does not appear to be monetary base driven,” he said.

This post is about three different topics, Bitcoin and e-Payments, the Minimum Wage, and consumer spending and Walmart. There has been a lot of discussion about all three and I believe I have an innovative way to attack all three issues that will satisfy most reasonable people. The idea is simply to for Walmart to conduct a de facto minimum wage increase of all of its minimum wage workers’ salary by giving them extra salary in e-payments usable only at Walmart and transferable securely via a payment algorithm similar to Bitcoin’s.

The Minimum Wage

Here is the issue. During the Great Depression, the United States created a minimum wage law under the Fair Labor Standards Act of 1938. The US Department of Labor chronicles it this way:

Now, this $0.25 per hour wage was increased steadily over time in both nominal and inflation-adjusted terms until 1968 when it hit $1.60 per hour, which would prove to be the highest level in inflation-adjusted terms at $10.71 per hour in 2013 money. Afterwards, the minimum wage did not keep up with the level of inflation, such that workers earning a minimum wage of $7.25 per hour today can buy 32% less of the standard basket of goods than an equivalent worker could in 1968.

There has been a vocal campaign to raise the minimum wage closer to the 1968 level in real terms. US Senator Tom Harkin and US Congressman George Miller introduced the Fair Minimum Wage Act of 2013, to raise the minimum wage to $10.10 per hour hour by 2015, with the rate increasing each year to keep pace with the cost of living. This bill never made it through Congress. But the minimum wage remains a critical political issue in the US.

Supply and Demand

The problem with the minimum wage on a micro level is that in terms of supply and demand, a minimum wage raises the cost of supply of labor. Basic economics would dictate that the increase in cost would be met with a lower demand for labor. And so opponents of the minimum wage increase have warned that increasing the minimum wage would cost jobs. Companies, unable to pass through their costs to customers, would reduce US employment in some fashion, perhaps by offshoring workers. Some companies would either cease to exist or never be formed, with the cost of labor being the limiting factor.

The supply and demand framing of the minimum wage makes sense on a micro level. But on a macro level it suffers from a fallacy of composition problem. Clearly, workers earning a minimum wage, by all accounts often living paycheck to paycheck, have a high marginal propensity to spend. And that means that nearly every dollar they earn will be recycled into the US economy as consumer spending. The increased costs for some employers due to the increased wages becomes increased revenues for the retail outlets where these workers spend.

Moreover, higher wages can sometimes be beneficial to productivity by reducing turnover. For example, Henry Ford famously doubled wages at his automobile factory in 1914 to $5 a day under that premise – and had success. The Ford website explains it this way:

This is why research on the minimum wage issue is inconclusive regarding its effect on employment. And, according to the Center for Economic and Policy Research, the minimum wage is one of the most well-researched economic issues in the United States (pdf link here).

Walmart

From my perspective, I like Henry Ford’s concept that an increased salary means greater demand for one’s products. It makes good business sense too if you can capture a large percentage of your employees consumer spending. That’s when I hit on Walmart.

Here’s a company that has over 10,000 stores and employs over 2 million people. Revenue was $469 billion in fiscal year 2013. If Walmart were a country, it would rank 27th in the world for GDP, behind Argentina and ahead of Austria.

And in a sense, Walmart is like one big closed system. Some towns are dominated by Walmart. There is almost no other employer of significance. Employees can – and unfortunately often must – buy their groceries, their clothes, their toys, their electronics, their Christmas, Halloween and Birthday presidents —literally everything — at the local Walmart. This is why Walmart has become a lightning rod of criticism during the minimum wage debate.

According to the OurWalmart, Walmart workers average 8.81 per hour in wages, a figure only slightly above the minimum wage whereas Walmart says an “average full-time hourly associate” makes $12.83 per hour.Either way, the sums are close enough to the $10.71 bogey that the 1968 inflation-adjusted minimum wage set to make Walmart, as the largest private employer in the US, a target for critics.

From a business and public relations perspective, Walmart should want this issue to go away in a way that doesn’t cause it to have to raise prices, lose revenue or decrease profitability. This is where my idea comes in.

Bitcoin

Two weeks ago, in writing why Bitcoin matters, the Internet icon and venture capitalist Marc Andreessen wrote the following:

..,.and — crucially in my idea— Walmart digital money. Lets call it Walbucks.

Walbucks

Here’s how it works.

Walmart decides to go on a PR offensive and raise the salary of all its employees with salaries below $10.50 per hour to $10.50 per hour, regardless of whether they are full-time associates temporary or part-time. The key, however, is that Walmart doesn’t actually raise the cash portion of each worker’s salary. Instead, Walmart gives each employee Walbucks – credit to be used only at Walmart stores or Walmart’s website – in an amount equivalent to the difference between the worker’s average hourly wage and $10.50.

Walbucks are simply a specific form of digital money, credit usable only in the Walmart universe. And because they are secured with a Bitcoin type of algorithm, Walbucks are freely and securely transferable to anyone outside of the Walmart employee universe. This is the crucial point here. Walmart is essentially creating a local digital scrip, if you will – usable only in the local Walmart universe but freely transferable like cash but, unlike cash, secure in terms of transferability.

From a Walmart employee perspective, she has just received a raise to a Walmart-specific minimum wage of $10.50 per hour because she can use the extra money she receives as Walbucks to buy anything at Walmart. And to the degree she doesn’t want to buy items at Walmart, she can transfer her Walbucks to someone else and cash out of the Walbucks system and have dollars to spend at another place.

The difference between Walbucks and bitcoin is that while Walbucks uses the bitcoin payment transfer algorithm, the creation of Walbucks are not limited. Walbucks are created by Walmart for use at Walmart. Moreover, this is a centrally-planned environment, meaning that Walmart would be the only Walbucks payment solution provider. Think of Walbucks as PayPal using the bitcoin algorithm to ensure transferability. All cash to Walbucks and Walbucks to cash transactions must clear through Walmart. But Walbucks are freely transferable to anyone in the Walbucks universe. Walbucks are not a currency per se, though you could see them as a digital scrip inside the Walmart universe. Walbucks are more of a digital payments adjunct to existing fiat currencies.

What are the benefits of Walbucks to Walmart?

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I am a believer in bitcoin’s algorithm as a breakthrough in digital payments that will reduce fees and enhance internet security. By marrying bitcoin-style e-payments with an increased minimum wage, Walmart — or any retailer —has the opportunity to change the retail landscape forever.

Second, Walmart can raise its cost basis without it having an adverse impact on revenue or net income. It proves the fallacy of composition in assuming a wage hike will mean fewer jobs. BY keeping the money within the Walmart Universe, Walbucks assures Walmart of more revenue and that revenue will fall to the bottom line after costs as increased net income.