Professor Thyme - 850AD
By 850 AD the Nowhereans had been isolated from the rest of the world for 350 years and had made great strides in developing their land. You will recall that they adopted the sound money ideals of Aristotle - gold and silver, and that they understood in an entirely practical way the advantages to them of the concept of "the division of labour".
So their cottage industries expanded and specialised and as the population grew in number so they congregated into small towns and the occasional large town.
They developed the advantages of the old Greek cities and the common law of Rome and pursued maximum freedom for all and when any local leader looked like he was becoming a "strong" leader with a following of bully boys the Nowherean elders and townsfolk surrounded them en mass and awarded the "strong" leader the free ride on the catapult.
So they all lived by following their own needs and requirements and followed a strong law of property so that no-one interfered with anyone else's property. As the society grew more complex the young needed more and better training. So a new industry was born and basic schooling and job training advanced.
After 350 years society had become quite sophisticated and the original Greek and Roman philosophers had developed to the extent of starting their own school of higher learning and attracted a following of students.
This school studied Philosophy and Mathematics, Poetry and Science and had recently set up a Professorial Chair in Economics. Dr. Thyme was the first professor of this new branch of learning and we meet him with his class on a fine sunny morning for another discussion.
Click the Heading to see what he had to say.
Nov 20, 2010, 15:20
Professor Thyme Second Lecture
"We are here today", said Professor Thyme, "to discuss value and how and why we have developed businesses the way they are. It is a natural process as noted yesterday and yet it seems to be so organised."
"What is the relationship between sales and purchases and how do people decide on the prices? Some people have held that the price of goods is dependent on the cost of producing those goods. However, we only have to see what happens when we have a glut of wine like this season when the prices are about 50% cheaper than this time last year and obviously price cannot be dependent on cost of production. Sometimes the price is less than the cost!"
"There is obviously more to this than simple cost accounting so we must examine the problem in more detail".
Follow Professor Thyme's lecture by clicking on the heading.
Nov 19, 2010, 16:10
1000 Years Later in the REAL World
This is an extract from one of the foundation texts of Austrian Economics to be found at the Mises Institute.
Not an easy read but interesting to show that economics is all about satisfying human needs in the future. Maybe the immediate future such as food for the day or the distant future such as a shelter for life.
Entrepreneurs and their businesses provide for this in our modern world.
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Nov 18, 2010, 17:06
Professor Thyme Talks about Money and Banking
Like everywhere else in the world the Nowhereans used gold or silver coins as money for their transactions and used whichever seemed the best deal at the time. On average the value of gold was about 15 times as much as silver but the ratio continually changed as the buyers and sellers made their judgments about the value of goods.
As people became wealthier they found a need to store their money in a safe place and the Gold Smiths who were already storing precious metals and gems offered the additional service of storing gold for a storage fee. They would issue a receipt for the gold and would return the gold on return of the receipt.
After a while people began to buy and sell goods using the receipts themselves rather than take an extra trip to the Gold Smith's place and withdraw their gold, only for the seller to make the same trip and put it back again.
This seemed most convenient but it allowed a moral hazard to creep into economy. In some of the towns the Goldsmith discovered that he could write out a receipt for gold that he did not have in the vault and spend it down at the market just like all the other gold receipts for REAL gold. After a while in one town the citizens became suspicious of the sudden increase in wealth of the goldsmith and decided to take their gold back. Unfortunately they discovered the awful truth. There were more receipts than gold grams. They had been defrauded. So that goldsmith went for the big trip in the sky and the others frantically borrowed and begged enough to build up their gold supplies again and the people became very watchful of their goldsmiths.
Over time the worthy citizens employed a careful person to make an independent count of the gold in the vault and the list of receipts issued and check that all was in order. The goldsmith paid for this service because if he didn't the citizens went to one of the others who did pay.
So far so good. But over time people wanted to borrow some of the gold stored at the goldsmith so the goldsmith arranged a second facility called the borrow and loan account. The normal storage was called the demand deposit since the customer could demand his money back "on demand" at any time and woe betide the goldsmith who couldn't meet that demand. The second account was for customers who had more money than they needed for some time and would lend this to the goldsmith for a certain length of time and for a certain amount of interest. The goldsmith could then lend this out to another citizen for the same length of time at a higher interest and everyone was happy. The borrower would pledge substantial assets like a house or his buggy in exchange for the use of the money and this would be sold if he didn't pay the money back.
This was the same method that was used back in Imperial Rome and provided everyone followed the strict accounting for each type of gold storage they had the perfect system. The goldsmiths were subject to audit and if people were at all suspicious they could take their gold out and use a different goldsmith. This kept the goldsmiths honest. The receipts used for demand deposits were issued by each different goldsmith and again if there was any doubt about that goldsmith people would not accept his receipts and the gold owner would be compelled to remove his gold to pay for his goods which was inconvenient. So they would shift to a more reliable vault.
The gold was a REAL storage form of wealth. It was worth so many hours of work, depending on the worker, and that work was stored for future use. At any time it could be redeemed and used or if it was in the time loan system it could be withdrawn at the end time for the loan.
Nov 17, 2010, 17:34