The Peristaltic Testator (peristaltor) wrote in talk_politics,
The Peristaltic Testator
peristaltor
talk_politics

Taking Stick of Money Yesterday

The other day, brucenstein asked in a somewhat snarky way if a Peristaltordollar (!) "creates wealth." After having a hearty chuckle at issuing my own currency, I realized yes, it could. It all depended upon what role my PeriBuck plays in my society.

And to determine that, we first thing we need to know is that many different types of exchange media have existed in a loose but overlapping evolution of monetary kind over the centuries. It's helpful to get a handle on what those types are before we dive into the problems we are experiencing with our system today.




First, credit where credit is due. Money is so simple that most people think it needs no close examination. We use it everyday, after all. What's to know? That kind of blindness to ubiquity has produced a dearth of money understanding. It's not just endemic at the bottom of the money pile (with people like me and those who surround me), but trickles all the way up to the supposed "experts" who are in charge of our money systems.

Money is clouded in mystery and there are few who really understand it. It is not that it is difficult to understand, but because it is made to seem that way by financial journalists, bankers, and monetary economists who speak an obscure language, indulge in superficial speculations about markets and policy changes, and behave as if the wizards of Wall Street were possessed of some superior form of intelligence. This discourages most people from even trying to understand money. But what we don't know can hurt us, and it is this general ignorance that is at the root of much of the present misery in the world.

(Thomas H. Greco, Jr., The End of Money and the Future of Civilization, Chelsea Green Publishing Company, 2009, pp. 87-88.)


Thomas Greco researched money and money/exchange systems for 20 years before he stumbled upon an obscure, out-of-print book in a used book shop that helped answer questions he had been pondering for decades. It was Hartley Withers' The Meaning of Money published back in 1909. (I haven't yet, but you can apparently download the entire thing for free.) Summarizing from Mr. Greco's book, money has what Mr. Withers called "the ladder of economic civilization," and that tracing the transformations over the centuries proves enlightening. The ladder:

  • Barter trade
  • Commodity money
  • Symbolic money
  • Credit money
  • Credit clearing


I'm going to add one more item to that list, to be placed at the very front: No money at all. This is David Graeber's insight, that small bands of people (under a hundred or so in number) self-organize enough that means of exchange are pointless. People just gift each other what they need. Think about it, and it makes sense. What did your parents charge you for the items incurred in your upbringing? Nothing, for me. They just gave me stuff, and by giving me chores and other duties allowed me the chance to contribute to the household. When I slacked egregiously, they yelled, as it proper. After all, they knew that I needed the discipline to feed myself after I was out. Though I haven't yet read Graeber's Debt: The First 5,000 Years, I have heard his book discussed in interviews, and am clear on this point regarding the gift economy.

Beyond gifting, when populations grow too large for natural socialization, the first option mentioned by Withers is barter. You have a bunch of sticks gathered in the forest for fires; I have some flour and no way to cook my bread. We agree on amounts and trade. We both have to have the items needed by the other, so barter is not so convenient.

Over time, barter morphed into Commodity money. Certain items, like flour, gunpowder, tobacco and ball or shot for guns were kept simply because just about everyone used them. You didn't need to smoke to know that your uncle in the next village smoked like a chimney and had those fat chickens with all the eggs they laid. Keeping some 'backy in a pouch was just common sense.

One of the more popular commodity items was metal, once people got the hang of working it. Precious metals were rare, so all the more valuable as a store of value. At first, these metals were likely traded based on their weight; later they were coined into specific weights. The English penny was minted, for example, from 1/240th of one pound of sterling silver, or one pound Sterling.

Somewhere in there, unscrupulous kings and/or their lords of the mint decided to debase these coins, using more basic metals to dilute the purity of the precious metal content. Henry VIII, for example, was called "Old Coppernose;" because late in his reign he debased the silver coin bearing his image so much that eventually the coins wore at the most prominent protrusion at the coin's face, revealing the poorer metal within. When this happened, the coin lost its commodity value and moved more closer to the fourth category in the list, symbolic value. "Yes, it's pretty much crap as anything but a coin; but since it's treason to question the king's coinage, I'll take it at face value."




Before I move into the last items in the Withers list, I should note that coinage was fairly rare in the past, especially before the end of the Medieval age. People used items marking value that have been all but lost to history, items like the tally stick.

The English tally system originated with King Henry I, son of William the Conqueror, who took the throne in 1100 A.D. The printing press had not yet been invented, and taxes were paid directly with goods produced by the land. Under King Henry's innovative system, payment was recorded with a piece of wood that had been notched and split in half. One half was kept by the government and the other by the recipient. To confirm payment, the two halves were matched to make sure they "tallied." Since no stick splits in an even manner, and since the notches tallying the sums were cut right through both pieces of wood, the method was virtually foolproof against forgery. . . .

Only a few hundred tallies survive . . ., but millions were made. Tallies were used by the government not only as receipts for the payment of taxes but to pay soldiers for their service, farmers for their wheat, and laborers for their labor. . . . By the thirteenth century, the financial market for tallies was sufficiently sophisticated that they could be bought, sold, or discounted. Tallies were used by individuals and institutions to register debts, record fines, collect rents, and enter payments for services rendered. . . . The tally system was thus not a minor monetary experiment, as some commentators have suggested. During most of the Middle Ages, tallies may have made up the bulk of the English money supply.

(Ellen Hodgson Brown, The Web of Debt, Third Millennium Press, 2008, p. 59, I emphasized.)


And those Middle Ages, despite revisionist historical attempts later, were actually pretty good for the average person. In his book Life, Inc., Douglass Rushkoff also noted the demise of the tally system as the end of a long and prosperous time. Though remembered today as a somewhat backward time — Monty Python and the Holy Grail comes to mind — the Middle Ages were for the lower classes, at least, not so very bad. (Speaking of Python, Terry Jones' Medieval Lives does a good job of dispelling the myths that seemed to accumulate in the 18th and 19th centuries.) An average worker could support himself and his family working only 14 weeks out of the year, for one thing. The rest of the year could be spent on side projects, like pursuing saleable crafts or donating his time to the church to build cathedrals; these were the high-tech tourist traps of the Middle Ages, drawing pilgrims and their money to the localities in which they arose.

Things were so prosperous, in fact, that the standing social order was occasionally seen as threatened by, of course, those nearest the top of the order. Jones notes in his documentary a tension between the nobility (those that owned the lands worked by serfs and vassals and to whom the rents on those lands were paid) and these rising merchants. Some nobles even passed laws outlawing the wearing of certain clothing by anyone but nobility. Jones notes that this happened with pointed-toed shoes. Why? The merchants often had more money than the nobles, and would buy the fashionable clothes for themselves, leaving nothing in the clothing styles to denote the difference between those of truly noble birth and what the French call the nouveau riche.

The tally sticks are not entirely gone from our lives. Brown notes:

Although the tallies were wiped off the books and fell down the memory hole, they left their mark on the modern financial system. The word "stock," meaning financial certificate, comes from the Middle English for the tally stick. . . . The holder of the stock was said to be the "stockholder," who owned "bank stock."

(Brown, ibid, p. 70.)





Ah, but why were things prosperous in the Middle Ages? For an explanation, we need to recognize that the tally stick represented another in Mr. Withers' list, credit clearing. (We'll get to credit money, just before clearing, in a bit.) Let's say I had a Medieval mill. For some reason, no one had money or would accept the money currently too debased for anyone to accept. The farmers, their sons gone to war, hadn't the hands to bring in the wheat. This threatens me, as a miller, since without wheat in the granaries I have no business.

Instead of starving, I can issue the farmers tally sticks or some similar marker representing a unit of wheat. He can offer to pay workers by the bushel with these markers. They get the markers and he gets the wheat which I store in the silos. All the wheat the farmers bring in beyond the issued markers are paid for by me the usual way, so the farmer gets something for his labors. Later, the workers can use the markers they earned in harvest to buy bread from the baker or wheat from me. Since everyone eats, these markers become an alternative currency, allowing people to use it kind of like symbolic money, kind of like coin.

What do I do with these markers when they get to me, the miller? Once they return to the mill, they have completed their cycle. I extend the credit to the farmers, and the credit, once it arrives at my shop, is made whole. I join the two halves of the tally sticks and retire the loan. Later, I burn them.

After all, why should markers of wealth remain in circulation after the loan has been retired?




I'm unclear as to the timeline or specifics of the transformation, but over time gold and silver smiths became the de facto place to store the valuable metals. They had the best vaults, after all. Many would also issue loans similar to the way pawn brokers do today, using the valuables as collateral for loans of coin. Some would also issue notes that would entitle the bearer to an amount of gold kept within the shop. These notes were originally Symbolic money, without value themselves but redeemable for a specific item or value . . . until they changed.

As smiths continued to issue bearer notes, they noticed that those notes often didn't return to the shop. They were used in lieu of gold, sometimes changing hands many times before returning battered and worn and in need of replacement, and when replaced, often simply changed out with a new paper note. The gold in the vault was still there, but. . . . What was to stop a smith from issuing more notes than he had gold to back them? Yes, on occasion there were runs on these emerging banks, where people in a panic demanded their notes be redeemed in gold; but those were few and far between. Over time the smiths learned that for every unit of gold, 6 paper notes representing that gold unit could be created. And over time, this ratio has been played with, becoming today's fractional reserve requirement.

Here's the thing: When more notes circulated in an economy, the outcome was often beneficial. More notes often mean more economic activity. When the activity is limited by rare metals, it cannot grow as fast as the Western economies after Columbus' discovery were growing. So money technically without backing by specie floating in the economy actually proved a good thing. Eventually, the gold backing standard was dropped altogether.




Next, folks, is where the trip down the rabbit hole gets positively Wonderlandian, all the more so because it's what's happening today. That's all I have time for tonight, but I'll do my best soon to address the real disconnects in today's modern system that have led not only to an economic/monetary establishment prone to shocks and disruptions, but one where such shocks and disruptions are actually to be expected.
Tags: finance, recommended
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