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Counter-cyclical

“Counter-cyclical” refers to any policy, instrument or phenomenon which is inversely proportional to fluctuations in the size of the overall economy. That is, when the economy as a whole expands, the counter-cyclical elements contracts; when the economy as a whole contracts, the counter-cyclical elements expands. This functions to stabilise the economy over time by partially offsetting fluctuations in the regular business cycle, or even counter-acting crises.

Counter-cyclical spending was a central tenet of Keynesian economics, with governments stimulating recovering through an increase in public spending during recession. This was felt to be necessary, in part, because banks and other private financial institutions – as well as most individuals and businesses – are naturally “pro-cyclical”: that is, they are more likely to spend, invest or loan money when the economy is doing well and more likely to save or hoard money during recessions and crises.

This in itself contributes to economic instability, as bubbles build up during “boom” periods and money is brought out of circulation (through saving or hoarding) during “bust” periods. Without counter-cyclical elements, there is nothing to stimulate a recovery.

Many complementary currencies work counter-cyclically. This is most clearly seen at times of severe economic crisis, as in the Scrip Money widely used in the United States during the Great Depression and the “Trueque” currencies which emerged spontaneously in response to the Argentine crash at the turn of the millennium. During more “normal” times, this has also been seen with systems such as the WIR Bank.

 

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