Steel, Guns, and the Industrial Party in Another World-Chapter 633: Military Scrip 2

TL: Rui88

“Precisely.”

Paul looked at Eileen and said, “The money becomes less valuable. This phenomenon, we can call it inflation. The term ‘currency’ in this context refers to the money that serves as a medium of exchange in socioeconomic activities. As the name suggests, it has expanded like a bubble, but its quality…that is, the corresponding material wealth in society…has not increased.”

“And conversely, suppose the Lord of Light performed another miracle and reduced the number of gold coins in human society to five. In that case, each gold coin would correspond to two loaves of bread, double what it was before. With less money circulating in society, this phenomenon can be called deflation.”

Paul’s explanation made the two sisters nod repeatedly, but Catherine could not help but ask, “But what does this have to do with what we were initially discussing?”

Where was the “immature idea” Paul had mentioned at the beginning?

“Alright, alright, we are getting to it now. Be patient, do not rush.”

Paul smiled. That explanation had been a bit of a show-off, and he had unknowingly said a bit too much.

“The materials that make up money cannot be something found everywhere, nor can they be easily obtained, like water, soil, or stones. Otherwise, everyone could effortlessly create a credit certificate, and the phenomenon of inflation I just described would occur immediately.”

“And precious metals like gold, silver, and copper, they are difficult to extract and rare in quantity, but not so rare that they are impossible for anyone to obtain. This ‘just right’ characteristic makes them excellent materials for making coins.”

“Now I have a proposition…coins made from such precious metals have a natural tendency towards deflation.”

Catherine and Eileen exchanged a glance and asked strangely, “A natural tendency towards deflation? According to what you just said, does that mean the total amount of metal currency in the world will become less and less?”

“Yes, it will become less and less. Uh… I mean, it will become less relative to material wealth,” Paul nodded.

Eileen was very puzzled. “How can that be? After everyone receives coins in a transaction, they will spend them in another transaction. The coins are just circulating; the total amount will not decrease. Unless…”

The little princess blinked her big eyes. “Unless it is like in the example you just gave, where the Lord of Light made the coins disappear?”

“Haha.” Paul laughed out loud. “The Lord of Light would certainly not do something so boring.”

“In reality, there are many reasons that can cause the amount of circulating metal currency to decrease. Note, I said circulating currency.”

Under the curious gazes of the two sisters, Paul explained.

“First is a relative decrease. You see, as the population grows and certain technologies improve, people produce more material wealth. But the speed of minting new coins often cannot keep up with the speed of wealth growth…the mining and smelting of precious metals is a major issue. Am I right?”

Catherine and Eileen nodded.

“Then there is a real decrease. Metal coins do not decay easily and are easy to preserve. And any normal person has an instinct to save money. So, unless it is absolutely necessary, people will keep their money in hand as much as possible, rather than spending it.”

“That makes sense,” Catherine agreed.

Paul continued, “Especially those great nobles and wealthy merchants! Many families have vaults that only take in money and never let it out, passed down from generation to generation.”

“Some of them have broader channels of income than ordinary people and can obtain a large number of coins. The rate at which many of them spend is much smaller than the rate at which they earn. Some even take their money to the grave with them. This leads to more and more metal currency being hoarded, and less and less circulating in the market.” ṞΆℕỖBЕ𝙨

“Thus, deflation, or a money famine, occurs. And there is another problem in all this. We know that gold and silver coins are not pure gold and pure silver; they are always mixed with some other metals. And the fineness of coins minted by different countries in different periods varies. Therefore, there is a distinction between good currency and bad currency. People tend to hoard the good currency with higher fineness and spend the bad currency with lower fineness. This eventually leads to only bad currency circulating in the entire market. This is the so-called bad money driving out good. So…”

Paul paused for a moment.

Eileen immediately had a look of understanding and preemptively said, “From an overall perspective, the amount of money the kingdom’s government can collect is destined to become less and less, and there will always be a shortage of funds.”

Catherine, meanwhile, had long been frowning in deep thought.

“That is right.” Paul nodded. “Unless there is drastic social turmoil that causes the owners of money to willingly…or be forced to…let their hidden money see the light of day again and continue to circulate, only then can this situation be alleviated.”

The two princesses’ faces turned grim. How much turmoil would that take? When that time truly came, it would be hard to say if the Kingdom of Ordo would still be ruled by the Rodneys.

Paul said, “Alright, I have said a bit too much again. But as Eileen just mentioned, the kingdom’s government will definitely be short of money. But what it lacks is those metal coins. If we ignore those shiny, scattered pieces of metal and look only at the material wealth that can satisfy people’s needs for food, clothing, shelter, and transportation…grain, cloth, livestock, minerals, and so on…is the kingdom’s government lacking in these things?”

Catherine thought for a moment and shook her head.

Paul said, “Yes, the kingdom’s government does not lack wealth at all. The royal family directly rules over the most extensive and fertile lands in all of Ordo. The output from these lands is countless. Logically, they should be the wealthiest in the entire country. It is just that due to the deflationary nature of metal currency, they may never be able to exchange it for a sufficient amount of currency.”

“So you mean?” Eileen asked, “The royal family should pay soldiers’ salaries not with coins, but directly with goods of equivalent value…like grain or cloth?”

“Well, that is one method.” Paul nodded. “There have been many similar measures in history, such as using salt as military pay for soldiers, but these are all temporary, expedient measures that definitely cannot last for long.”

“If we directly use the primitive method of distributing goods to pay soldiers, it will mean a lot of trouble. Suppose a soldier’s garrison is near an orchard owned by the royal family. So, we pick a pile of apples from the orchard and give them to the soldier as military pay. This pile of apples is equivalent in value to the soldier’s salary in coins. In theory, we have not shortchanged the soldier, and it is very convenient.”

“But the soldier needs to eat and drink, to wear clothes, and even to support a family. A pile of apples alone cannot do all these things. He will inevitably have to take them to the market to exchange for money. Can he sell them all? Most of the apples will just rot before his eyes. And think of the scene of all the soldiers in the entire barracks selling apples together after payday. How ridiculous! And the soldiers still have to march and fight. Are they supposed to march and fight with their property…a pile of apples?”

“Haha!” Eileen was amused by Paul’s description.