A simple model of money – how money works

A single man is able, without any technical aids, with no artificial fertilizers – and manage without EU directives – so much land that might be sated with his harvest of 20 people. So that this man is not yet saturated. Between harvest and sowing the next, he has cut a few months to fell trees, boards, build furniture, so he could cover as a carpenter – just “casually” – the needs of approximately 20 people.  We now construct a simple model for the functioning of the money. Let’s say, a small village community consisting of 4 families, each with 5 family members. This could, in addition to the aforementioned “carpenter-farmer,” for example, still a “Weber-Flute”, a “Mason-Fischer” and a “pottery-maker” type, each of which produces at its trades so much that so that the needs the entire 20-member community can be met.

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Its own currency

When the 4 families would each introduce a currency, in order to overcome the hardships of barter, then you would need do nothing more than to each family once a sum of about 1000 units available.

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That could be, for example, 1,000 pieces of paper, signed and on which all 20 citizens, that this is a question of a primary money-note with the value “1″. Such notes can circulate everywhere. It must not be brought up five dollars for it is enough that this piece of paper money is accepted by those who wish to engage in trade in them.

This once in the system fed by a total of 4,000 units of money could be sufficient for all time! With these 4000 units to the 20 people to feed more than a century (and longer) to dress, to create a roof over their head, and furnish their homes comfortably.

Finally, one can but the same money that has been given away yesterday for a new pair of pants to the Weber family tailor, and one back today for the sale of a large clay pot from the Weber tailor tomorrow to use again, in order to bread and sausage from the farmers Joiner to buy.

Disequilibrium

This wonderfully functional and beneficial for all exchanges of money or model, but could now be destroyed completely and deviancy completely on its head. For example:

The wife of the carpenter farmer has bought a whole year not a piece of clothing. It has also brought no new pot and pan, and not her husband persuaded to give up fish that prefer to eat their own potatoes and postpone also be mounted on the shed for another year. In this way they made it that after one year every 4000 pieces of paper held by the carpenter builder.

In the course of history, there are several possibilities:

Joiner Bauer recognize that saving was a stupid piece of paper and distribute the newly covered families and all swear that they will never again stir up such trouble.

The Weber tailor, blacksmith, potters and masons fishermen to leave the house and yard and elsewhere to seek employment and wages …

The Weber tailor, blacksmith, potters and masons fishermen to band together and get with violence bread and sausage from the cellars of the peasant carpenter, the carpenter’s family farm is defeated and driven out in disgrace.

The old money is explained by the Weber tailor, blacksmith, potters and masons Fischer invalid. It will be distributed four thousand new notes and old notes will also be exchanged at a ratio of 4:1 into new, so the game can proceed now with 5000 units of money (= demokrat. Control).

Joiner farmers will hear the lamentation of their neighbors, and lend to each family in 1000 notes, with an obligation to repay after exactly one year per 1100 bills, which would have invented the interest rate.

If they prefer the latter solution, then you can judge the progress of the history of our small, manageable Economic and Monetary Union, where the journey will go

A descent into ruin

The money was until very recently nothing more than 4000 jointly prepared paper, has gained a new quality: From pre-Merk notes, which was one to remember and proof that a performance was still lacking the consideration because the two barter goods as not simultaneously on the same site were available, had developed a separate, independent value, the property was suddenly as important as the possession of bread.

Since all money and property is owned by the carpenter farmers, the world has changed: from four families with the same wealth and living standards has created a scenario in which a family can buy anything with their possession of money, three other families facing the starving must, if they do not make money quickly – even on work behavior and productivity, nothing has changed.

But we see to grow. The money is awarded, each family will start again by 1000 (this time borrowed) units, all reasonable economies again, as before that dark year, three families had driven to the brink of the precipice.

After another year has the best understanding and stimulate trade again in 1000, each family bills in the box. Unfortunately, it can at the end of the year but returned the borrowed amount, but for the interest there is no money. Where it should have come here too?

The situation is getting worse

It is that all the sensible kept house for a year, and the situation is more tense than before. That just added a new piece of paper should be written wanted the carpenter builder does not participate (= failure of the democratic control). Why should that be. There is enough there. It would be even nicer if we could just write a new note, if you have spent all of them.

Now, because additional money is not obtained and the interest could not be paid, and each family had to borrow for next year again, anyway 1000 appearance of the carpenter farmer, saw the carpenter peasant family forced to invent an account book in which each family its own page received has been written on how much money it owed to farmers and carpenters would be repaid when and how high the interest rates are now, which would have to pay and how much interest is accrued on the unpaid interest.

And once again we are witnessing a revolution. First was born out of harmless Wish slips a new, additional value, which replaced all other values. Now, the money supply had increased, without having to have written new notes could be entered only through the introduction of a debt book, in the interest rate exposures.

Although it is still only 4000 units had money, had the carpenter farmers a fortune that was grown after the first year (in the book) at 4300 units and continued to grow with each passing year.

A poor solution

Mason was the wife of the fisherman’s nervous, she had a long discussion with her husband, and both realized that the carpenter farmers in this way are already a part of the fish was one that had just caught yet, and that the carpenter farmers even now part of the state House, which had not yet been established.

The biggest concern for the progress of this development, which could only mean that in a few years, the point would be reached where all the fish, the fishermen would catch the bricklayer father in his entire life, and all the houses he built still could have belonged to the carpenter, farmer, before he would have built only one of these fish were caught and only one of these houses, they searched desperately for a way out.

Finally, you have offered to help farmers Joiner Power, in her house to him and the court and the fishing boat when it would cancel the debt in the debt book.

Of course, they first need to continue to live there to remain until the fisherman father for a mason would have built far from the village into a new house, but they wanted him to pay a monthly interest rate for this residency, for sure.

Thus dawned the plan, began now to save Maurerfischerin and bought a year neither pot nor pan or cloth or clothing, and when the year was the new house ready, the rent was paid, and 1500 were in the box labels .

Poverty and debt

Farmers, however, the carpenter, the potter blacksmith and the weaver Schneider crying because this time they could afford neither the interest nor the repayment, which noted the carpenter farmer with a big frown on the debt book, and a precautionary already indicated that he next year, the risk of the 1000 to add notes, probably could not go to see where it was becoming increasingly obvious that the two losers would never be able to pay their debts.

One must think together about whether now is not the houses would be transferred to …

Well, now you should think briefly about what distinguishes our real money system from the paper economy of our carpenters and masons peasant fishermen.