Joe took a moment, his thoughts once again deeply considered before he began, “Right! I have an idea. Let us say … well, we have a lady here and she is the leader of Coushar! So, one day, the Matriarch decides she wishes to create money. Let us say, before this day, there was no money. People only bartered and traded items directly. There was no money.
“So the matriarch wisely makes money. She decides to make only one form of money, for ease. She makes a coin out of wood. She decides that this coin will represent a man’s or woman’s work. One coin will equal one day’s work. So, from her pronouncement, she begins issuing one wood coin for each day of work any of her people perform.
“So, if it is such as this, then, in your thoughts, how much would food cost, or staying at an inn, or other such things?”
The two thought carefully before Kukurnal responded, “Likely it would be valued such that it is valued against one day’s work.”
“Exactly! So, how much would one day at an inn likely cost.”
“A meal and a stay? Likely half a coin.”
“Probably. Or less possibly. But it would also depend on the inn as well, yes?”
Both quickly nodded and the Matriarch actually had to stifle a flush that tinged her cheek as she realized that she was feeling that she was back with her tutor.
“So. Now, one day, a lazy man living in Coushar finds working to be tiring, and he finds that he has some skill with his hands and finds he can make hundreds of wooden coins each day. And soon, with his hundreds of coins, he buys a new house and incredibly expensive things, hoarding his wealth in his home. He soon begins to buy almost everything in the city, bringing vast amounts of things to his home, buying everything in the city. Soon, there are few things in the city, but everyone has many coins; so many coins as this man has given many coins away for his wealth as the coins are very easy for him. But now there are few inns or food stalls as there is no more food since the new wealthy man took everything. First, before I ask deeper questions, what work has this man offered to the city.”
Both quickly replied, “Nothing.”
“But how much of the wealth does this man have?”
At this point, the both seemed to sit back, realization hitting them hard but then quickly listened as Joe continued.
“It gets worse than that. The city is full of wood coins and everyone in the city is wealthier than before, at least in the number of wood coins they own, but how much do they actually own?”
Both thought for a moment before Kukurnal quickly responded and she deferred to his thought, “Much less!”
“Yes. Not only that, who has food or supplies that all need?”
This seemed to confuse Kukurnal and she felt relieved as she wasn’t quite able to grasp his thoughts.
“Right, let me try again. Who is buying most of the food?”
“The fake rich man.”
“Yes. But, now many others wish to have food and are now hungry. They wish to buy food, but there is not much food left, what will others do to buy food?”
This left both of them silent and Joe let them stew for a moment before he offered them a hint, “Will they offer to pay more for the food.”
At this, both quickly nodded their heads in understanding, Kukurnal even replying, “Yes.”
“Likely. So now, one days food was only half a coin, but now people are hungry, and not only are they hungry, they have many, many wood coins. To them, what is spending one or two coins now, for a days food.”
The two nodded, easily understanding before Joe continued, “But now, the rich man wishes to buy more food, but the food is now two coins. What does he do? He now makes two new coins, or more, to buy the food he wishes. Before, for the food, he only made half a coin, but now he is making two new coins and those coins go to the food stalls or butchers. From the food stalls and butchers, it goes to the farmers and hunters who bring in the food. The farmers and hunters pay many of the other villagers for various other things, and now there are two coins for that same work, instead of only half a coin.
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“People are still hungry and have even more coins, so pay four coins. The rich man shrugs and makes four coins to pay for his food and now the city has four more coins for the same work. The people are still fighting for the food, and soon some decide, since they have so many coins, that five or six coins are easily given for the food. Why not? They have so many. And the rich man makes more coins, and the people spend more coins. This is called inflation. It causes the money to be less powerful, needing more money to purchase the same thing.
“Soon, people are paying hundreds, thousands, or more to purchase a single meat stick from the food stall.”
Joe ended his statement and she exchanged considering gazes with Kukurnal, her thoughts burning at the idea of this inflation. She’d seen its effects, although it was quite a bit slower than Joe was describing as the values of the various coins had shifted only slightly over time. She thought for some time before questioning Joe.
“I have seen this happening, but it is very slow and not so fast.”
“Usually, yes. But if the people lose faith in the ‘money’ the inflation will grow very, very fast, even as quickly as in months.”
“People lose faith?” Kukurnal asked quickly.
“Yeah. What if, in our wood coin city, one of the food stalls decided that he was tired of accepting wood coins, believing them to be worthless. What if just previously, the village hunter demanded more for his animal, claiming that the inn was charging more for his stay and the store was giving less for his furs and charging more for his supplies, therefore he asked the food stall owner to pay more for his meat. What would happen?”
Both fell silent, uncertain and Joe allowed them to ponder for a bit before Kukurnal began to nod slowly before he responded, “The food stall would charge more for his meat.”
“Yes, but would he charge only slightly more? Or would he fear that his supplies at the shop and his beer at the inn now will cost him more?”
Kukurnal’s eye’s narrowed at that as he thought carefully but she easily grasped Joe’s explanation, replying “He would charge quite a bit more to cover the losses.”
“And the people who buy from his stall would charge more for their services. First one would only charge a few wood coins more, but the next might charge the same plus a few more. As each person charges a bit more and more, others will follow suit and rapidly increase their prices. Soon, changes in price will occur within weeks, even days. If you were the food stall owner and sold your wares in the morning, believing what you sold for today would allow you to cover your expenses for the day, but by the end of the day you find you only have the coin you barely needed because everyone had increased their prices incredibly just in that day, would you continue using the wood coin?”
Both fell silent and she felt a shuddering fear travel through her. It took a moment, but she allowed her mind to follow the avenues of trade in her mind, the web of money flowing through her city easily seen thanks to her job, and as each trade increased in cost rapidly, the entire system began to shudder and her realization quickly turned to horror, “It would destroy a city!”
“It would destroy a city and likely all cities trading with it,” Joe replied without any concern or fear, leaving her feeling more concerned than ever as he seemed unaffected by such a terrifying outcome.
“Have you … have you seen such a thing?”
“Personally? Not too much, although I did see one happen to Indo… ah.. you don’t know, but a large… clan… I was living in. The value of their coin decreased by ten times in about two or three years before their leadership were wisely able to stabilize… that’s the word for causing a currency… hmm… currency means a set of coin or a specific… clan’s set of coins. In my world, each clan has their own … set of coin, I guess. Anyway, they stabilized their currency and stopped it from becoming worthless.
“But I have heard of other countries where the value of their coin devalued by ‘thousand thousands’ in a matter of a year or so, I believe. I can’t remember exactly. I learned of this in my schooling, so I am uncertain of the exact details, only that the devaluation was so great that it was a ‘thousand thousands’ of loss and people were even throwing the coin in the trash or using it as ‘cleaning supplies for personal hygiene in the toilet’ because most of our coin, as I said, is paper based,” Joe finished with a shrug, as if such devastation was … not the norm, but easily known and understood.
Both sat stunned for a moment, staring at Joe as they considered his words before she could no longer hold herself, fear at what could happen to her city driving her to ask, “How… What… Ah… as you know, I am the Matriarch for Coushar. What is the … how would one protect your city from such a thing?”
“Don’t create a lot of money,” Joe replied bluntly.
“How do you mean?”
“Remember what I said of the poor man who made his own wood coins? What devalued the wood coins was the man making as many wood coins as he wished. Soon, everyone had so many, and people were willing to pay more for what was the same. They had enough and felt no concern to treasure what they had. There’s… a lot more to it than that, but that’s the basic thing. Don’t make a lot.”
“That is all?”
“Hmm… well… I guess, yeah… you will have to be careful of the dungeons though, although not so much. They are a source of basically infinite wealth, so if you get too many dungeon items, they will become… less valuable since there are so many and easier to purchase, but… that’s actually a good thing because you can raise the strength and ability of your city, so… yeah.”
The matriarch paused for a moment, deep in thought before shifting the topic slightly, “Then, is there a … way to generate wealth?”
“There is an easy, fast, but destructive way to do so. It will destroy your city's economy. There is a slower but better way that will increase the wealth of all in the city and thus incredibly increase the wealth and strength of the entire city.”
She sat forward, excited, “How?”