Fictional monetary system: How's this sound...?

[Tarquelne]

Hi, all.

I'm working on a fictional setting and I want to run some basics of the economy - the monetary system, really - past the economically-minded posters here.

The system is supposed to help keep the poor poor, the rich rich, and the central government powerful.

Here's what I'm thinking:

The basic official monetary unit is a silver coin.

I want what I think is called a "bullion" system: The value of metal coins - or, often, ingots, or bars, or whatever - is directly related to the weight and metal content.

Metals other than silver are used for exchanges. The government doesn't attempt to control the relative values of metals.

However, the government restricts ownership of metal, and doesn't allow most people to keep metal money. (Or, indeed, many metal items at all.) Instead they're to use shell rings. The government, in theory at least, controls the manufacture and distribution of rings. The government is a major employer, btw.

Most people are paid in shell rings. By government fiat they're each worth a government-determined fraction of a silver coin. The exchange rate is generally pretty stable (say, 1/6), but could be changed at any time.

The government sets prices for a lot of things like food staples and basic housing. Necessities.

Those not allowed to keep metal money have to accept either shells or metal as payment. Those allowed to keep metal money can refuse to accept shells.

"Upper class"
Aristos, priests, higher-bureaucrats, military officers, and wealthy merchants would be allowed to possess and use metal money more or less without restriction.

"Middle class"
Soldiers in the ranks, many traveling merchants, shopkeepers catering to the middle or upper class, and skilled artisans might be paid in metal, but not much. When paid in shells their wages are pegged to silver. Theoretically they can accumulate significant amounts of metal, but few do. Basic necessities are easily affordable, but beyond that they don't have a lot of buying power. Still, they're much better off than those paid only in shells.

"Lower class"
Everybody else. Always paid in shells. Little buying power beyond the necessities. (Beer after work, low-stakes gambling, some ornamentation.) Savings, if any, would typically be a small bag of shells hidden somewhere.

Somebody like a general laborer found with silver coins would face immediate confiscation, if not further punishment.

Those not allowed to keep metal can accept it as payment, but have to turn the metal over to the government in return for shell rings at the accepted exchange rate. (I'm not sure how often: Perhaps immediately.) The exchange might not be at quite the official rate, to compensate the government for going to the trouble of taking the merchant's money.

I'm hoping that due to the government mandated prices, shell rings are significantly over-valued. Grain, for example, would be effectively subsidized by the government because a seller must accept X shells for a given measure when metal-money could buy considerably more. (I guess rising costs in the production of grain could also cause the shells to be over-valued. Also: The government is going to need to involve itself in supplying grain to the masses.)

I also hope that metal would be the preferred money. Criminals and others willing to risk the government's ire would want to be paid in metal rather than shells.

Shell rings are OK for buying cheap, commonly available things like a basic meal, simple clothing, beer, or paying rent in a tenement. However, beyond goods that are price-controlled, or naturally inexpensive, shells quickly become impractical.

Since this is for fiction I could simply operate by fiat and screw logical consistency. However, I'd greatly prefer it if, given the set-up I describe, the system would work as I hope it does.

Would it? If not, what could be changed to correct it?

 

[Valka D'Ur]

What kind of shells? I take it nobody lives near the ocean...

 

[Tarquelne]

Probably Conus.

Shell money

 

[cardgame]

The system is supposed to help keep the poor poor, the rich rich, and the central government powerful.

Why make something up? Just use one that already exists

 

[gay_Aleks]

He is going for a fictional monetary system.

 

[Valka D'Ur]

How would the government prevent just anybody from gathering up their own shells, or breeding the creatures that use them? What if the creatures got sick, endangered, or went extinct?

 

[Tarquelne]

How would the government prevent just anybody from gathering up their own shells, or breeding the creatures that use them?

Employing unsympathetic men with swords? How do governments prevent anybody from doing anything?

Note that if the system works as I intend, there's not all that much profit to be made form illicit shell-ring manufacture. Devices used to cheaply/quickly carve the shells might also be relatively capital-intensive.

What if the creatures got sick, endangered, or went extinct?

They'd use something else.

 

[Perfection]

I would think that because shells are almost universally accepted, and you can't get in trouble for having it they would become preferred currency for criminals. For a criminal to spend it, he would have to launder the coin to shells. Who cares if you have money if you can't buy stuff with it?

HOWEVER, there is a scenario where silver may be preferred. That is there was significant trade with foreign countries that wouldn't take the shells.

 

[Snorrius]

What are tech level of the world and country you are describing? What is the size of the country?

 

[Cutlass]

There have been novels in the past where the monetary system starts at gold, silver is common, then you go to copper, bronze, iron. Typically those are all that's used, because a society that poor isn't going to have much in the way of other metals for the masses to use as coin. Then you get into various fiats, markers, IOUs, and any number of things people use in the place of the money that they couldn't get their hands on.

Look to China in the Age of Exploration. China became a major exporter to the West in 16th-18th centuries because they had very little silver, and so were willing to trade a lot for it. The Spanish had a lot of silver, and wanted the goods produced in China.

As to shells, anything readily counterfeited will be, if the materials are available. You can adulterate a metal, but you can't really counterfeit it. And even in olden days, there were ways to catch that.

In addition to the material of a coin, you can also vary the size of the coin. So you could have a copper coin the size of a quarter, and one the size of a penny. Few people remember it, but the US even one had a half cent copper coin.

As to keeping the rich rich and the poor poor, any monetary system where the quantity of money is low and fixed will do that. It will keep a lot of people unemployed.

 

[Valka D'Ur]

Employing unsympathetic men with swords? How do governments prevent anybody from doing anything?

Note that if the system works as I intend, there's not all that much profit to be made form illicit shell-ring manufacture. Devices used to cheaply/quickly carve the shells might also be relatively capital-intensive.

I'm asking questions an editor would ask, or a beta reader. Certainly these are issues your intended audience would pick up on if you don't work them out in advance.

Sometimes governments are effective at curbing crime. Sometimes they're hopelessly inept, or don't use common sense. For example, many stores in Canada won't take $50 or $100 bills because they fear counterfeit bills. But the most frequently counterfeited bill here is the $20. The government started issuing polymer bills instead of paper bills... at time when more and more Canadians are using debit cards and online banking for the vast majority of transactions. It's literally been months since I last used physical money to pay for anything.

What methods would the government in your story put in place to guard against counterfeit shells?

 

[Tarquelne]

HOWEVER, there is a scenario where silver may be preferred. That is there was significant trade with foreign countries that wouldn't take the shells.

There's some trade. I'm not sure how much would be significant. They wouldn't be compelled to take shells.

The shells would be handed out by city - city-state - governments. I suppose they differentiate them in different ways, to discourage shells from one city being used in another.

What are tech level of the world and country you are describing? What is the size of the country?

Low. Large.

As to shells, anything readily counterfeited will be, if the materials are available. You can adulterate a metal, but you can't really counterfeit it. And even in olden days, there were ways to catch that.

I'm thinking that shells and metal aren't all *that* different in how they're obtained. The shells aren't found locally over the vast majority of the country, and they need some processing. Easier to get then metals, but not vastly.

The big difference, I'm thinking, is that the metals have inherent value and the shells don't.
The destructibility of shells might be important. But I'm not sure who would want to, how many, or when.

In addition to the material of a coin, you can also vary the size of the coin. So you could have a copper coin the size of a quarter, and one the size of a penny. Few people remember it, but the US even one had a half cent copper coin.

Isn't doing that a pretty much inevitable result of using "bullion"? (Perhaps I'm not using the term correctly.)

What methods would the government in your story put in place to guard against counterfeit shells?

It's a despotic government with few enlightened ideas. As a matter of tarrifs or taxes it's already eyeballing the transport of goods. It'd do the sorts of things such governments have done historically.

Your question is hard to answer because at this point I'm still trying to determine if the system i outlined above, regardless of the details of counterfeiting and enforcement, is logically coherent. You're asking about enforcement before I know how much enforcement, and of what type, would be necessary. This is why I asked about the monetary system, not anti-smuggling techniques or the procedure for counterfeiting shell rings.

I'm not shooting for a perfect, incorruptible system. Maybe there'd be a problem with counterfeiting. But first I want to make sure it wouldn't crash merely because, as it's described in the OP, it simply wouldn't work.

ATM, though, I don't see all that much motivation for counterfeiting on a significant scale because of the low buying power of shells. They're supposed to be "over valued" already.

The rings don't have denominations. Even the metals just have weights, remember.

Note, also, that it's the government supplying the shells, and setting how much they buy. Heck, if widespread counterfeiting becomes common enough, the government's answer could simply be to get out of the shell manufacturing business.

 

[Snorrius]

Low. Large.

Enforcing direct price control for an extended period of time in a large low-tech country is unfeasible (Roman Empire and China tried it to no avail). The main problem is that producing is heavily decentralized.

But you still can get system to work. The system is a little like in USSR.

You have silver for upper class and shells for lower. Lower is prohibited to have silver but the main method of control should be markets. So the idea is:

- there are market for lowers: the price for goods is not set but a range of goods is, i.e. only appropriate for lower classes goods can be traded. In your country lower class probably is peasantry, so these market are mostly country fares.

- markets in cities: they are even more easier to control. Goods can be traded either for shells or silver depending on a good (if you can sell it for shell according to law) and desire of seller.

- special markets in castles: luxury goods allowed only for higher-ups, only for silver

- black markets: illegal currency change, illegal trade of smuggled goods Being controlled by special department

As for price control, you rely on indirect monetary means, which actually means that you put all inflation on shell users, while silver is stable.

 

[Tarquelne]

Enforcing direct price control for an extended period of time in a large low-tech country is unfeasible (Roman Empire and China tried it to no avail). The main problem is that producing is heavily decentralized.

Ah. I did know they'd used price controls, but not how well it actually worked.

- there are market for lowers: the price for goods is not set but a range of goods is,

That sounds good, thanks! Essentially sumptuary laws, which is I guess what I was getting at.

(if you can sell it for shell according to law)

I was wondering about that. The gov. is already trying to restrict access to metal: Rather than the gov. declaring who could and couldn't buy what, would it be the same if they made laws regarding what may be purchased with shells? People only allowed shells then would automatically be barred (in theory) from buying non-shell items.

So ... the whole thing might work via price control laws, but indirectly? The laws declare prices for certain items in shells. Those prices aren't necessarily obeyed - perhaps they're long outdated - but the medium of exchange used, shells or metal, is still enforced.

Either way, though, the enforcement would primarily be via controlling either where things are purchased, or by monitoring what people own. Yes? (In fact, I've already got a potter that's a front of an illegal butcher's shop.)

As for price control, you rely on indirect monetary means, which actually means that you put all inflation on shell users, while silver is stable.

You lost me there. What would the government do? Supply more or fewer shells? Or declare different official exchange rates between shells and silver?

A lot of my puzzlement comes from trying to figure out how a bullion-based system and a limited fiat-system would interact. I think ol' Gresham's law would devalue the shells, but I'm not sure it'd actually apply in this case.

I can imagine a merchant, for example, who has to outlay metal to pay for many of his expenses, but can only accept shells for his goods. I suspect he'd be getting screwed, and thus he and all those like him would tend to be driven out of business. But I can't really picture just how, or what would have to be done to correct it.

I'm not sure if such merchants would even exist. If the society is labor intensive, and labor is payed in shells, maybe it's not difficult to avoid metal-requiring expenses ... in which case would people want to bother with bullion?

One possible reason I have for the use of metal is the impracticality of toting around shells. Historically they transported them by the shipload, but I'm thinking the value set by the government is high enough that most people won't have to lug them around by the sack-load to by bread. (Can they gov. get away with that? If it's determined simply by supply, I think I'm OK)

OTOH, if people don't want bullion, might they unofficially raise the value of shells?

See? Very

 

[Cutlass]

Snorrius is right that price controls will distort the markets. But that can play out in a number of ways, depending on how the economy is structured. Mostly what you see is shortages of anything where the government has set the price too low. But in a police state that might be partially remedied by command and punishment of the producers. Black markets and smuggling are also issues. If the controlled price is too far off, a black market will arise. And this is also subject to just how aggressively the government cracks down on it. Though in many cases the powers that be pretend the black market doesn't exist, because they are unwilling to pay the price for doing anything about it. This means that the government is undermining it's own credibility. But they rarely see it that way.

Price controls sometimes set the price of things too high as well. And that results in gluts of those things.

And, if you have a thriving black market, and currency is hard to come by, there can evolve a separate payment system. Some substitute for the official cash.

 

[Tarquelne]

Snorrius is right that price controls will distort the markets. But that can play out in a number of ways, depending on how the economy is structured. ...

Hmm ... all of that seemed like acceptable downsides. More than acceptable, really, since they could help drive stories.

OT1H, production would indeed be decentralized. Record keeping is also quite cumbersome. OTOH, cities, which is mainly what I'm interested in regulating, would be natural choke points and the gov. is quite despotic.

Perhaps out in the boonies price controls are unworkable and largely unenforced, but apply in the cities? IIRC the Roman government wanted to keep the price of grain down, which is something I'm interested in, too. But that was more about controlling the supply, I believe, than simply setting prices.

I'd be very tempted to ditch the whole shell system, but I like the sumptuary-law angle, and do want to keep metal out of people's hands. (I'm assuming the Powers that Be aren't powerful enough - or organized enough - to completely switch over to a non-metal fiat currency.)

Mostly what you see is shortages of anything where the government has set the price too low.

How would that work with a city's grain production? Strong incentive to sell it elsewhere? Hmm... or conceal production and store it, if possible, to sell it later?

Black markets and smuggling are also issues. If the controlled price is too far off, a black market will arise.

I don't know how much this might matter, but I'm thinking that many in the government would in keen get in on the black market. Ah - so I'm wondering how much rampant corruption would change things.

And, if you have a thriving black market, and currency is hard to come by, there can evolve a separate payment system. Some substitute for the official cash.

Can you give me an historical example? (The only thing that comes to mind is memory chips being used as cash in drug deals. I'm pretty sure that's not what you're talking about, though.

 

[Cutlass]

Cigarettes are money in prisons.

 

[Tarquelne]

Cigarettes are money in prisons.

Ah. Something valued and restricted, but not as much as the currency. So, given the sumptuary laws, perhaps furs, or silks, or chocolate bars. That could be interesting.

 

[jackelgull]

If your fictional empire had a designated "rich" city, where all of the rich and powerful stayed, then there could be laws where only certain approved merchants could deal with silver in that city, and how silver couldn't leave the city without permission from the government. Preferably this is where all the silver is produced to make control of the silver easier.

Now outside the designated "rich" city, what could happen is that vendors who produce the goods they sell, would bring it to the city markets, and then sell it for shells to buy other necessities.

The problem is with foreign trade. How much are shells worth outside the empire? If in the unlikely case that some merchant amassed a lot of shells and ventured forth would he be able to buy silver and escape government regulation.

 

[Hygro]

You have introduced two monetary/economic constraints into your world.

1) That the paper currency "shells" trades for silver at a fixed rate.

2) That the government sets prices for trade goods, in shells.


There is a very important element to consider for this analysis: is there a strong international trade component based around money (aka "open economy")? Because you only talk about the one country, I'm going to treat this as a "closed economy".

If the economy is a closed economy then by and large the silver is irrelevant, except if the government has to borrow silver to finance its spending--i.e. that people stop taking shells as payment. This would happen if and only if private silver lenders were afraid of a devaluation. They would want as much silver as possible before such an event. It's a bit of a prisoner's dilemma situation: if there's no run on the silver supply, then it doesn't matter. But if there is a run on the silver supply, the government can go bankrupt. Depending on your world, this might or might not matter. It matters more if it's an open economy. It matters more if government lacks a monopoly on force.

There could be a devaluation if the government was spending/printing too many shells, and it was making the government set prices untenable and unprofitable relative to the non-fixed prices. Aka there's a shortage of goods because there's too many shells at the fixed price.

The fixed prices matter a lot. Are prices fixed high or low? If they are fixed high, that means that their aren't enough shells to meet supply. There would be an over supply of stuff. Who would capture the extra costs? The suppliers of the stuff, or the government (i.e. are they fixing prices in private enterprise, or are they only fixing prices of what they provide?). If prices are fixed high and firms can't profit on their inventories, there might be a lot of goods reported "stolen" so that they may be sold at a lower price. Alternatively, the rich might buy up all the stuff and then lease/rent it out to the poor.

If prices are fixed low, that means that everyone has a claim to what's produced and it's unprofitable to produce it. There would thus be a large black market for those items, sold at a markup. There would be a lot of people angling to get the items cheaply and officially to resell on that black market.


If we have an open economy things get trickier. If prices are artificially high people will import those goods at a cheaper price killing the domestic market. If prices are artificially low, those goods will all be exported causing a shortage.

Additionally, would foreigners accept shells or not? This depends. Let's assume that the shells carry no commodity value other than its value as money. Let's assume that the silver not only has its money value, but has a commodity value as silver for both jewelry and for international trade.

If the government is restricting the production of shells, such that there's enough silver to cover the shells, everyone will take the shells because they are available and they can exchange them for silver later. But if there's more shells than silver to cover, then foreigners might only accept silver or might charge much higher prices in shells for things to reflect the shell's hidden "true" value. Foreigners holding shells are the most likely source for demanding a switch to silver. If the home country defaults, it can refuse to honor its obligations or it can honor its obligation and go into an austerity-driven depression as they tax shells (and silver), and cut spending.