How Money Works

Thracian tomb in Kazanlak, Bulgaria

There are so many books and theories about money, their origin, use, purpose and so on….

Yes, money (try to) measure value and enable trade which are both important side effects of their essence but let’s run the numbers with a story :

Imagine that you are a king in ancient times. As a solе ruler your kingdom, you (formally) own everything in it: land, property, animals, citizens, slaves – everything. But all these possessions and living beings require management so the significant part  of your kingdom’s assets are controlled and managed for you from appointed representatives.

You own a kingdom and thus you have enemies within or outside of your lands. You need an army and a governance system to solidify your reign thus redistribution of resources and property (taxation) is implemented centuries ago by your grandfathers. You do not have your own money like the neighboring kingdoms, you only do barter and war taking what’s needed through power more often than trade. But you are tired of wars, you want peace and trade to flourish and you want to understand how these “money things”  work.  So you invite a treasury consultant to educate you and he goes like this:

“My Lord, all your possessions can be bought in some form or another on the big marketplaces of your neighbors. You can buy slaves, weapons, property, food, and so on. Of course not in the same quantity nor quality that you have but still you can purchase them. So I have calculated that your kingdom with all its land, proprty and people costs 1 000 000 gold coins issued by your enemies…”

“My kingdom is priceless … you vulgar bastard…”

“…let me get to my point, My Lord. Let’s say that your kingdom cost a 1 000 000 in coins. You can become twice as rich over the nignt by simply issuing a 1 000 000 of your own money. This way you will have a 1 000 000 in property and a 1 000 000 in coins. It is as simple as that. You will pay your army with coins and they will start buying what they need from farmers and merchants. In the end, the more powerful and influential you become, the more other kingdoms will accept and want your money!

 

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