Anything Can Be Currency In A World Without Tax

I touched on this a little in the first post. Essentially, what makes something the currency, is that we're taxed in it. It's very simple to understand if you look at things from the ground up, however, since we've all been born into a world where everything is measured in one currency it's hard for us to imagine how things could be otherwise.

The Farmer and the Woodcutter

If we imagine a more "primitive" era, perhaps a few thousand years ago, where there is no sophisticated system of money, things are quite different.

Let's say we have a farmer with some farmland and a woodcutter with some woodland. Naturally the woodcutter might want to trade some of his wood for some of the farmer's milk. To make this trade they could straight up barter these two things. However, they'd also both be free to use anything else as an intermediary. They could use metals, coined or otherwise. They could also use other commodities: salt; grain; tobacco - anything they were both happy to accept as trade.

So the woodcutter could perhaps give the farmer one bag of salt for two pails of milk.

Even if the farmer already has enough salt for himself he might still be happy to accept this trade, as he knows he can then trade this salt with other people, for something else he needs.

So the salt acts as a currency as well as a useful commodity.

(Both the firewood and the milk could also be used as currency. However, the wood, unlike the salt is cumbersome to transport, and the milk would quickly go off. So salt, being easier to store, carry and divvy up is the more natural choice.)

The Lord of the Manor

Even if the farmer and the woodcutter do have to pay some kind of tax in this less sophisticated world (let's say there's a local warlord or lord of the manor wanting tribute), they still have a degree of freedom in how they pay.

The woodcutter gives the lord of the manor some of his wood.

The farmer gives the lord of the manor some of his milk.

Let's say there's a third person, a peasant with less to give. They might pay the lord of the manor in their time. That is, they might pay their tax by doing a day's work on the lord of the manor's estate.

So, anything can be a currency (providing both sides are willing to accept it), and though it may be unfair that they have to pay these taxes in the first place, at least they can be paid in a currency more fitting to the individual and their circumstances.

Money, Money, Money

Once you have a set currency however, this flexibility disappears.

Let's imagine there's now a local mint, that mints copper coins, and that all taxes need to be paid in this specific currency.

Let's return to our original example. The woodcutter wants to buy some of the farmer's milk. He has some copper coins, but he knows he needs to pay this year's tax with these coins - so he's reluctant to let go of them. He goes to the farmer, and as before, he offers his firewood, or some salt, or some other commodity as payment.

However ..the farmer also needs copper coins to pay his tax. So he's reluctant to accept these other items.

"I'm sorry, I need payment in coins."

So now we have a situation where the farmer has worked really hard and has a surplus of milk. The woodcutter has worked really hard and has a surplus of wood. Yet because they need copper coins, and these are somewhat more scarce, they can't exchange their work and goods as fluidly.

Of course, they may still end up trading if they really need to. The woodcutter may relent and say, "Okay, I'll give you some copper coins for your milk." Or the farmer might relent and say, "Well, I do need firewood, so I'll exchange some milk for firewood, and forgo the coins."

However, these decisions may come with downsides..

Debt, Debt, Debt

Let's say it is the woodcutter who relents. Let's say he had 10 copper coins, but he gives 2 in exchange for the milk, and because of this he now doesn't have enough coins to pay his tax.

What does he do?

Well, he does what people always have to do when they need ready money. He borrows it.

So now he's in debt, and of course, he has to pay back this debt ..in copper coins too. No doubt with interest.

Conclusion

You can see how being locked into one specific currency, by the need to pay tax in it, creates a bit of a bind. In many ways, the more "primitive" people had more freedom and a more truer form of capitalism.

Likewise you can see how going back to a standard, gold or otherwise, isn't necessarily going to solve anything for regular people. At least with copper it was abundant enough to be fairly readily available to normal people, whereas gold, as I've mentioned before, is way worse as a currency in that regard.

I'm not sure what the solution is. It would be good if there were ways to have more freedom. Not necessarily a better currency, but more currencies maybe. Again though, I actually prefer fiat currency to currencies fixed to a commodity - I think people should be careful what they wish for when it comes to that.

Also, a crypto currency that worked more like copper (or cigarettes, as per the last post) would be interesting - as opposed to Bitcoin, that works like gold. If that's even possible.

Anyway, I'll leave it there.