Once up a on time.. in a far away land… there was a barber who did his job in return of goods that his customers produced. So for a shave, he got may be a pot, a coconut, some rice and probably 2 mangos depending on time & season - Demand - depending on whoever was his customer.
And for the farmer, he got the pots from the pot maker for 1 KG of wheat, and fire wood from the wood cutter for 3 kg of wheat in monsoon and for 1 KG of wheat in summer. Fair enough - demand & supply - market based economy right..?
Then the chief of the village, who gave advice for what ever in exchange got a piece of yellow metal from a miner who mined it but didn’t know what to do with it and had nothing else to give in exchange for some good advice. Since the yellow metal is not common and easy find, the chief wanted his wife to have it as an ornament and called it precious metal - of course he also might have got something in return from his wife.. after all marriage is all about give and take right… ;-)
The chief asked the miner to give any of the metal he finds to him.. but the miner didn’t need any advice at that point, so the chief gave a signed ‘note’ reading - “I owe whoever carries this note advice worth X Grams of yellow metal” (Sorry for the X variable talk)… and here comes the Gold Standard.
But the miner has to buy some rice, he gave the note to the farmer and said, “you give this to the chief when you need advice, it’s signed promise for what he owes me.” And everybody who got the note continued to repeat the action.. - and thus the “notes” came in to circulation - Currency is established.
Since every one is using his “note”, the chief thought now he has to make and sign this note, which is an expenditure for him, so he need to recoup it and he should get a share for his signature - so he announced, every time somebody exchanges his note, a small portion of the note should go back to him… - ideally if the note is used this way, it will run out of value.. so this small amount is added in addition to the value of the goods/value exchanged.. here comes Tax.
Suddenly everyone started to realize they are hoarding a lot of signed notes from the chief in their homes, and how much of the notes they got decides how much they can buy. Now the thieves in their village and near by ones who doesn’t produce anything started to steal the notes from homes.. The chief called for a ‘panchayath’ and in that meeting, the village ‘wrestler’ who protected the villagers came forward and said, “I will keep all your notes safe in my home, but I take a small portion of the note as service charge” - Fees.
But later the wrestler figured out, he can loan the note to people who don’t have it and ask for a small amount called interest on the loan, so he told the villages, he will pay them a bit more of the notes, if they keep their notes with him.. he made his income by the difference between the interests - there comes the banker.
Now since its the same notes the chief issued, chief insisted every time someone makes a note using his note, he should get a portion - Tax again - and the chief decided he doesn’t need to make the note against the gold the miner gives, and decides to write and sign the notes at his own whim and fancy, whenever he choose to flood the market with more notes - inflation.
The Wrestler figured out a way to make people open a tab in his books for every note they borrowed with out even giving the note - now no note is issued, but a promise to give a note is issued - “promise on a promise” - but again with an interest charge. Now every time somebody has to buy something, they don’t carry the original goods/service they exchanged, neither the ‘note’ the chief issued, but another ‘tab’ which told the seller the wrestler will pay him. -- Credit market is born.
Then a few men from the neighboring village came to visit our village, they had their own notes and credit tabs, but it had different values.. and people of our village didn’t have a way to verify if these notes and tabs were genuine and worthy for sure, so they didn’t accept notes of the other village for goods/services. Seeing this, the tour guide of the visitors said, he will make arrangements with Wrestler of his village to accept notes and credit tabs with any village, but for a small fee of 2% on each exchange - here comes the Payment Gateway.
Now the chief has no way to know who all has his note and who all are exchanging them how many times.. he is missing on his share.. so he partners with the wrestler and the tour guide to control all exchange of his notes. And he deploys more Wrestlers to grab notes from anyone hoarding it and not paying him his share - Tax Departments and Reserve Banks are born - authorized collection agents. Whenever the chief thinks there is too much notes in circulation, he increases interest rates - like a valve on the air supply.
And he tells the people no one can carry his notes anymore, but it should be all marked against the books of the wrestler and the tour guide. He gets a cut out of the book’s records. Of course he is going to use the share he gets to pave the streets, put lights and benches on the street sides, makes wells and ponds and what not.. again for the people of the village.. he is a good chief.
Now, the farmer who used to get a hair cut giving 2 KGs of Rice, but today he can’t do that - he sells his rice for 10 notes/KG to a shop keeper who pays him through the wrestler and tour guide - and the farmer pays 25 Notes to the barber to get a hair cut ‘swiping’ the credit tab issued by the wrestler in the gizmo issued by the Tour Guide. The 5 extra Notes paid goes to the Chief, Wrestler and the Guide and it happens every time somebody swipes the tab.
All the farmer wanted was a hair cut, and the barber wanted was some rice to feed his family. Alas.., cashless society was there for sure… once upon a time.
By the way, the illiterate and sun dried miner still crawls up his grave digging for stuff that glitters in the dark which is taken away by suit wearing, cigar smoking merchant exchanging worn out notes to the miner. He then sells it to other suit wearing, perfuming smelling men who buy them as ornaments for their flamboyant bimbos to feel worthy so that they would bed them for every piece. And we all live in peace.
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