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Volume 2 | Issue 5 - Money
Article by Alex Martin. Edited by Stephen Woodward. Additional Research by Emily Spencer.
I’d wager to say there is no more controversial and misunderstood a topic than money. It’s always been around in the form of fiat, gold, pigs, teeth, numbers on a computer screen et cetera. Money has been seen as a way to plunge society into meaningless materialism, the perfect way to order resource allocation, a debaser of culture and the main motivator behind much of human action all at the same time. The history of money too is often even more confusing and overlapping with competing ideologies attempting to force and argue their way into historiographical supremacy; however like all things in human history there is also the novel, the irreverent and the downright funny side of money.
Take for example the Roman emperor Diocletian, who in 301 enacted the edict on prices of foodstuffs, which rebalanced the coinage system and placed a cap on wages and the prices of food. The harsh penalty set for the heinous crime of making a living by providing an essential good to willing and able customers was death. It didn’t work, unwilling to make a loss bakers, grocers, butchers and the like decided to not sell their goods. The lack of wages led free workers to do nothing or abscond. Gradually the edict was ignored and became a punch line. Probably what’s worse for Diocletian was how he advertised his terrible idea, it was inscribed in stone monuments throughout his empire, small piece of advice for future dictators don’t permanently carve your bad ideas in stone unless you want people to laugh at you throughout history.
Another small tip for the hallowed rulers of our lands; don’t tax the people with more weapons than you. After failure in his forestry policy King John of England decided to do just that, more specifically to tax the weapons themselves. He fired the knights of the realm from their military service, then ordered them to pay a large shield tax. It turns out people with shields tend to have swords, and as a corollary, people with swords know how to use swords. Soon, they were trying to kill their King. They forced him to surrender in an ignoble fashion, making him sign the degrading Magna Carta in 1215. However this only bought the inept and argumentative King some time, he died fighting his own people having contracted dysentery.
The Muromachi period 1336 to 1573 (in modern day Japan), was a period marked by extreme violence, war, and raids along the Mandarin area of the Great Ming Empire (modern day China). To counter the vicious and unpredictable attacks the Ming cooked up a ridiculous idea to prevent or at the very least curb the raiders’ attacks. They would buy every single sword that Japan produced. Not only was this expensive and ineffective but it was stupid. The surge of demand for Japanese swords with the supply remaining about the same, led to inflated super profits for both the Muromachi sword producers and the Muromachi government taxing them. This in turn led to a Muromachi government with more money to invest in the military and Muromachi sword producers with the ability to invest in ways of producing better, cheaper, and more efficient and more deadly weapons. The raids and invasions did not stop until internal conflict arose among the Muromachi.
In 1590 the Republic of Venice had suffered many defeats. Nineteen years earlier it had lost Cyprus, the republic’s supreme possession. In 1585 the newly elected doge had thrown silver coins instead of the customary gold at his coronation ceremony. Burdened by taxes, imposts, tariffs, duties, tithes, assessments and fees, the economy was in steep decline. However out of all this despair and failure there seemed there would be one great hope. A Venetian named Marco Bragadini, who was living in Lombardy at the time had mastered the legendary process of alchemy. A legion of soldiers was sent immediately to escort Bragadini into the city. Meticulous ‘scientific’ tests were ordered by the senate to verify the power of the process of which Bragadini alone was aware. The alchemist filled a crucible with quicksilver, added a smidgen of his secret powder and set fire to it. The quicksilver turned to gold. The price of alchemist capes and retorts skyrocketed. Signor Bragadini told the senate he could produce whatever they desired; his only wish was to be a servant for his homeland. The senate put all of Venice at his disposal. The Nobility flocked to Bragadini by the dozen, begging him to give them a slice of the action. As the months passed no mountains and rivers of gold began to flow, however the excuses did. Apparently there were restrictions on how quickly Bragadini could manufacture gold. Realising a growing impatience with his operations he fled to Munich where Duke William the Pious had offered him sanctuary, for the simple price of the secrets of his alchemy. Alas for the genius that was poor Bragadini, the sanctimonious Pope Gregory XIV had recently ascended to the Holy See. He considered the alchemist to be on the devil’s side and sent orders for Bragadini’s death, which William executed. Leaving aside the poor science of the Venetian government’s attempt to fund alchemy the economics was true madness, even if they managed to keep Bragadini’s technique a secret, (with all the workers that would have to have been privy to it: guards, cleaners, suppliers, contractors et cetera) any gold produced would increase the supply whilst the demand remained unchanged, ultimately leading to a drop in gold’s price, or as gold was the currency, hyperinflation.
Whilst governments seem to take great joy in pissing around with other people’s money it must be noted that private citizens are equally capable of stupidity. Charles Ponzi, where the phrase Ponzi Scheme originates, destroyed five banks and stole over 15 million dollars (around 162 million dollars in today’s money,) that makes Bernie Madoff look like the operator of a shell game at the seaside. A Ponzi scheme is where you promise one investor an abnormally large return on investments, when two or more people invest you show person X a portion of person Y’s money and vice versa in order to convince them of their return of their investment, and to invest more. This sounds simple but when thousands of people invest thousands of dollars it becomes much more complicated and when people chose to cash out their investments there is always inevitably a short fall. What’s mathematically impossible is not possible and will fail. Ponzi like others before (for example William ‘520 percent’ Miller) and after him (match mogul Ivar Kreuger or modern day Bernie Madoff) faced this reality in 1920. The scheme began as an honest business plan to exploit a recent loophole in international postage stamps system, however after red tape slowed the process down and with his creditors after him he decided to turn (not for the first time in his life) to fraud. Two years later the scheme fell apart and Ponzi was forced to spend five years in prison, later he died penniless and blind in Brazil.
Whilst some of these stories are funny, others are baffling, regardless they all make me wonder. Whether you like it or not, want a lot of it or not, money is important and ought not to be taken as lightly as the people in these examples did. Whether it was Diocletian who thought he knew better then the collective result of millions of choices taken by the people he ruled, or Ponzi who thought he could fool and scam his way out of an ever increasing hole money/currency/the medium of exchange, whatever you call it matters.
P.S. For an example of a modern day Ponzi Scheme comparable to Charles’s look up California’s current public pension plan, and perhaps your own.
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