but no money has necessarily been created in this scenario.
I was hoping not to have to spell out all the details, but here goes:
The shipwrecked survivors are all on an island, glad to be alive. They set about taking care of themselves. Some can fish, others climb trees for coconuts, others make grass skirts, some collect available wood & palm fronds to make shelters, others make containers and haul water from the inland spring, and others collect firewood. To start with, everyone does everything for "free" helping each other out. As the days tick by, the advantage of specialization is recognized, but also, everyone needs a little of all the commerce that is going on (you need food, clothing, shelter). So barter starts up. But barter has some limitations. A might want to barter for what B has but B does not want A's wares, rather he'd like what C has and C would like what A has. What to do? Multi-step bartering! But what happens when the units of A's, B's, and C's goods don't work out to "fair trades". You can wack a fish in half, but that does not work for all trades. Further, what happens when A didn't catch any fish today, but would like a coconut drink this evening. Ah, IOU's work, even when you have goods to back the debt, but as a step to make multi-step bartering easier. First not even handshakes, we are all friends here. Eventually A forgets that he owes B two fish rather than one and they argue. So bookkeeping starts with IOU slips. Signed names. Now some more problems surface. Some people are more productive than others, and also some people like living in better style than they can afford. At some point the IOU's from some people are taken with less enthusiasm. But the friends of those people might be more accommodating. Some people eventually have so many IOUs out there that even their friends are reluctant to take them.
Eventually everyone gets together and says, we need some discipline. The few Libertarians in the group scream bloody murder: We don't want Government. The rest prevail. They set up a "bank", and nominate a "banker". The banker has the delightful task of reviewing everyones financial situation, their assets, outstanding IOUs and assigns a credit rating. All IOU's are surrendered to the bank who pays out "official" notes (paper, or special shells, it does not matter) at a rate determined by the credit rating assigned to each issuer of the circulating IOUs. The bank might assign an interest rate for the cost of this "better" money system. At least to cover the cost of running the bank.
The bank can of course allow new IOU's, but people must come to the bank, which gives them "money" and likely charges them interest based on their credit rating. At some point, the bank does not issue new credit to some people at any interest rate.
I assume you think we finally have money? Nonsense, it was money from the start. Its just that there were many competing currencies, of different value.
You can of course do the above without debt, instead, some people comb the beach for special rare shells, and that becomes the medium of exchange, perhaps by gradual steps, or perhaps by committee, it does not matter. In this narrative, the bank might be set up because everyone decides to spend most their time looking for "money" on the seashore rather than doing something constructive like fishing, building, growing. The bank then regulates the production of shells (by special concession or whatever) in order to control the money supply, and people get back to working usefully rather than digging for gold. Of course even in this approach, people can still do private IOU's, so there is a parallel money system (different currency) and you have all the issues of the first example.
Please note that AFAIK, their is not a fundamental difference between the type of money the bank issues in either case (paper notes or rare shells). There is a fundamental difference in the cost of producing the money, and the temptations of poor fiscal control that go along with those differences. |
