The Reserve Bank of Oz (Part One)

by Mark Davis

“We’re off to see the Wizard, the wonderful Wizard of Oz.  Because, because, because, of the wonderful things he does.” ~ People of Oz

When the Land of Oz was but a backwater kind of place, people worked their land and tended their family businesses.  People and families were eventually able to produce enough corn, grain and animals in summer and fall to save for use in the winter and spring.  Many clans prospered and several would meet every year where the river reaches the ocean in the face of the morning sun in winter.  After meeting rituals and celebrations giving thanks to providence they would meet to exchange what had been saved for what was needed.  Many people settled down in the area and named it Oz after a great musician who played for people at the gatherings in the early years.  Oz prospered as savings and trade grew and expanded.

People improved the land with water works and mills, homes, farms and places of worship.  A culture developed that respected the persons and property of others as well as contracts defining agreements between them.  Skilled persons whose labor production exceeded their necessities saved growing surpluses.  Some had horses, cows and fowl while others had grain, corn and vegetables.  Craftsmen displayed inventories of plows, wagons, nails, swords and many other goods.  Simple goods were available that allowed its owner to find a trading partner who would also think that they were better off making an exchange.  The farmer, shoemaker, blacksmith, knight and others divided their labor to maximize their productivity individually and as a whole. 

Families traded at established locations and built reputations in Oz.  Trust, which is central to making agreements for trade, expanded as more successful trades were made and contracts were honored.  Common practices as to the proper etiquette of trade became honored customs.  When enforcement of contract was required for those who were not honorable, the leaders of families and trade groups would work together to seek justice.  Peace and cooperation spread in spite of petty, dishonorable people, who became outcasts.

Each person, family or group would produce some type of good by mixing the skills they had developed with the resources they had acquired.  They had to create a good that would fulfill someone’s need, though.  Needs and goods are what make trade possible, and trust is what gets it done.  The shoemaker sought to find farmers who would trade him foods to eat; tanners and tool makers to trade for the goods he needed to stay in business; and clothes makers, carpenters and masons to provide shelter in return for well made boots and leather accessories.  But this process was burdensome and time consuming.  It could be difficult to find trades that were satisfying and met all needs.  This took time away from production.

Men who were widely connected to many trades and many clans saw opportunities for purchasing items that were needed elsewhere.  Traders took inventories to the next level of development by keeping many goods in one store or wagon for trade.  These traders quickly recognized the goods most people wanted and traded and they became the most common stores of value.  The custom of trading developed further protocols to diminish disputes and measurements were standardized.  Contract terms became more refined.

Many mediums of exchange came and went depending on seasonal scarcity of supply and popularity of desire.  The mediums that were most convenient to move and store; that would not spoil or be mass produced in a short period; and had the most universal marketability became used as money.  The concept of money spread from traders to producers to consumers, and most people were all three at some point, helping understanding and acceptance of this practice to quickly become custom.  When a good would be used for money, it increased the demand for that good.  Money fostered more trade and opened up new trades, expanding the division of labor and increasing productivity.  The people of Oz chose for their money cattle and horses for large transactions and corn and grain for the smaller stuff at the beginning.  The economy grew at the same pace that people saved, with spurts when improvements in technology and methods were made.

The mill separated by quality and quantity of corn and grains traded for into marketable goods produced and stored in sacks of flour, bottles of liquor and wagon loads of animal feed.  A few stable masters developed good eyes for the good and the bad animals and large facilities to house and protect them.  The reputation of the miller’s guild for fair trade and quality merchandise grew, while the stable masters were known to lie, cheat and steal from their customers.  The finished goods of the millers then became money by custom after a short bit.  More people worked harder and saved more.

The complexity and growth of the division of labor enticed more and more people to the market until it stayed open all year round.  The City of Oz grew where the river meets the ocean, and many goods came by sea to be traded.  The sun rises on many fine new buildings filled with goldsmiths, silversmiths and jewelers, armories and ship builders, grocers and breeders as well as masons and painters.  Luxury items became much sought after and rare jewelry was very valuable.  The miners could not find gold and silver fast enough, and their prices increased.

One year the amount of grain and corn brought to market far exceeded all previous years because so many acres of newly cultivated land and increased productivity brought a bumper crop.  This inflation of the money supply caused the people to change their custom of accepting grain and corn products to the more stable supply of metals.  Gold became the most popularly accepted form of metal money, and this custom developed for large purchases and the more abundant silver for small things.

The goldsmiths would create beautiful gold and silver coins marked with their weight and content.  The goldsmiths that were found to provide true measurements and the most pure gold and silver into their coins built a reputation for honesty, a trust, in the market.  When coins that were not pure and measured as sold became available from deceptive goldsmiths, these coins would be traded first because the holder wished wisely to be rid of them.  The good coins would be held in reserve by knowledgeable traders.  This corruption of trust in the market caused the bad money to run the good money out of the market and trade diminished because of it.  This diminished trade caused many businesses to fail and many people became impoverished.  Some blamed the people who would not part with their good money.

A large number of farmers who had lost their farms in the great grain inflation moved to Oz looking for work, though they had no marketable skills.  They had heard the streets of Oz were paved with gold, and all you had to do was walk down them to prosper.  This myth was not true, of course, but the disappointed immigrants created slums, and crimes against persons and property increased.  Some learned rudimentary skills and offered cheap alternatives to the established traders.

A meeting was organized by the largest landowners and trade guilds that employed the largest numbers of people.  These leaders made themselves into a Council that made most of the decisions for everybody.  Like saying what the important customs were; the laws for who could speak before the Council and what would be said officially to the people.  These good citizens thus wrote down their customs and formed the Office of the Sheriff of Oz, who would be given the power to jail and even hang persons who did not follow these laws.  This included checking on the purity of the coins that goldsmiths made.

The large, established tradesmen and landowners on the Council thought the Sheriff should be able to take a percentage of all trade in return for his services, and they called this a tax.  The Council could set the price for his services and the tax for the people to pay him for it.  The Sheriff was allowed to establish the level of service that he thought was best for everyone.

The Council of Oz then made a contract between the Council, the Sheriff and the People.  The Council Members signed for the people, of course, because everybody knew that it just wasn’t practical to try and get everyone to sign it.  This Great People’s Contract would also apply to all of the people’s children and their children and their children and so on.  Of course, the GPC did this for the good of everyone, and anybody would be crazy to not like that.  They would let the people elect Council members from the list of approved candidates, and there would be an official Oz Supreme Court chosen by the Council to make sure it was all fair.  Checks and balances were built into the contract, and the people thought it sounded good.

The economy then stabilized for a bit but society slowly began to diminish.  People moved back out to the country to build homes and small communities beyond the reach of the Sheriff and his taxmen.  The people complained that the Sheriff only protected the Council members and their friends, and the Sheriff said he couldn’t protect everybody, and they all agreed he was right.  So the merchants followed the farmers to the small communities.  As Oz became more demoralized and less populated, the number of people who worked hard and saved their labor diminished and the number of people paid by the Council increased.  Raising taxes and restricting competition to Council Members and their friends’ trades made things worse. 

The Council of Oz had the only remaining goldsmith as a member.  He suggested the old trick of seigniorage, or faking the purity of the coins.  “We could never get away with it before because competition from other coins would eventually cause the impure coins to fall in value and increase their use until nobody would take them and the economy would collapse.  But nobody will question the Council and the Sheriff because they have to trust us.  There is nobody left to trust.  If they don’t trust the Council and the Sheriff for long, we just make a law that says they have to, wave lots of flags and jail anyone who disagrees.”

The council saw that they could make one ounce gold coins with ¾ ounce of gold, and the Council gets 3/16 ounce with the goldsmith getting 1/16 ounce.  Everybody on the Council decided that it was good for the people too, because it would increase jobs, so this measure to not measure correctly was passed with only one dissenting vote.  But the Council shouldn’t tell the people until they have to make a law.  The Council was making so many laws that nobody paid attention to them any more.

The people were fooled for a while, but eventually found out this scheme and bailed out.  Many people were put in jail and many were hung by the neck for using foreign coins.  The Sheriff tried extending his territory to the closest small communities to stop this, but then ruin came to them too, and expenses just kept going up for the Sheriff.  Other small communities tried to secede, and the Sheriff was using up all the gold in the treasury just to retain their existing territory in his grip.  Inflation further ruined the economy and trade and saving just stopped.  They all became more impoverished: the fools who could not leave Oz, the Council Members, the Sheriff and their friends and employees.  When the people of Oz were just about to revolt against the Council and the Sheriff, a Wizard appeared driving a large wagon pulled by big, beautiful horses.

The Wizard said, “Your worries are over.  I can turn paper into gold.”

(To be continued.)