From the beginning of time the authorities– whether priests, rulers or popularly chosen officials– have claimed the authority to impose fees, fines, and taxes that force people to hand over their property. There is good evidence that arithmetic itself finds its origins in the need of the authorities to keep a tally of what people owed the state and what the revenuers had collected. Some clever person in the government in Pharoahland– let's call him the first Fed official– figured out that the easiest way to count the tally was to use a unit of the stuff the state wanted. That unit of account became what we commonly refer to as money. As Keynes puts it, "(m)oney proper in the full sense of the term can only exist in relation to a money of account." All the early money units of account were weight units for grain– the mina, the shekel, the lira, the pound. It did not take long for another clever person in the government– let's call him Fed2– to figure out that the state could accelerate its collections by creating physical representations of the units of account and then using them to "buy" the stuff the state wanted.

As long as the government was willing to accept the same physical representations of the units account– what we would call money– in payment of fees, fines and taxes, there would be no problem in having people accept money in exchange for stuff, provided that the money itself was not easily destroyed or counterfeited. The money could even be cheap to make - clay tablets and hazel wood sticks, for example.

As you might expect, it was not long before some other person in the government– known as Knuckles– decided that the domestic money supply could be the solution to giving the state and its favored citizens everything they wanted. Money could abolish scarcity itself; all the government had to do was make as many clay tablets and hazel wood sticks as it needed to buy whatever it wanted. Knuckles had the government start handing out clay tablets and hazel wood sticks in abundance. Unfortunately, paradise did not arrive as scheduled. The grain sellers realized that, since there was more money available, they could raise their prices. The government had made more money but it was not buying any more grain with it. In fact, it was buying less because some of the grain sellers realized that, if they held their stocks off the market and waited, they would be getting an even higher price.

The result was the first official monetary conference in history, now remembered as Hazel Woods. At the conference first Fed suggested that perhaps the government should be restrained in its production of new money, that it should not make more than 2 to 3% more clay tablets and hazel wood sticks each year. Fed2 suggested that the demand for money needed to be increased: if the government raised taxes, then the farmers and grain sellers would need more clay tablets and hazel wood sticks and they would make and sell more grain. Knuckles the Treasurer had a more direct solution: he and his minions would stop the grain sellers from raising their prices by throwing them in prison and confiscating their stocks.

The conference ended with a proper compromise: all 3 approaches would be tried.

There was only one problem that remained. Pharoahland still needed things that it could not produce, and the merchants who dealt in those commodities were clever enough to stay offshore out of the reach of Knuckles' minions. Even worse, those "foreign" merchants refused to accept clay tablets and hazel wood sticks as payment.

Some things never change.


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