Or: A fable Where Capitalism is Supplied as the Founding Myth of Despotism and then Capitalism (the Sui Generis of Capitalism.)
Imagine the following events: first, a single currency becomes the world standard. Second, a law is enacted by the world government stating that any form of bartering--the exchange of goods for goods--without money exchanged equal to the respective value of the goods or services in question is outlawed. This relies on some sort of internet clearing house for goods and services that would establish a uniform price based on all the transactions in the world, which would have to be registered on a server. Naturally, with such conditions money would become fully computerized and would have no physical basis. This eliminates the reliance on the physical coinage entirely, and allows the currency to be exchanged in fractions of the original unit (i.e. one could spend, for example, .000576$ on a particular item. This, of course, already occurs all the time in trading, and a few folks even make millions of dollars trading fractions of a penny per share of stock.)
Now imagine that a massive computer failure wiped out all of the money in the world except one dollar, owned by one man. And imagine, as well, that the central government controlling the currency for some reason decided not to simply print more money. The one dollar is it--its everything. What happens to prices? They become not infinitely but rather arbitrarily low. The one man would be able to name his price for anything, because the value of whatever arbitrarily low number he chose would have and infinite number of decimal places between it and zero. There would also be no other demand to compare to, except his. The use-value of the thing is not reflected in the exchange value, and the exchange value is determined not by initial cost, but by supply and demand. The supply would remain, but the demand would be reduce to a single monopoly. Of course the man could be more of a king than any king ever was. He could buy up all the businesses and have everything he ever wanted. and then he could render the money that he just spent totally worthless simply by spending an amount of money that is still ridiculously low, but worth much more than the previous arbitrary number.
But lets say that he decides not to do this. He spends his money at arbitrarily small increments. lets say, he starts shelling cash out in increments of 10-47 . He decides, like any good American, that spending is patriotic, and that he needs to get out there and stimulate the economy. First he buys goods and doles them out to the newly poor, so they can at least survive. Then he gets data on the previous month's sales of all the goods for sale in the world, and proceeds to buy up a cross section of finished retail goods and services from the whole economy. Every good out there, he buys in sufficient quantity to match all the old demand. But lets say he decides only to buy stuff at retail. he doesn't need to buy steel; only, of automobiles. He doesn't need to buy wheat, only bread. He could if he wanted to, but he doesn't want to.
So something magical happens: the retail shops get money and they use it to pay for more finished goods from the manufacturers. then the manufacturers pay the suppliers of raw materials. This assumes that the manufacturing firms wouldn't be taken over the retailers. but lets say the owner of the almighty dollar gives them a cash advance to temporarily recapitalize their business. Anyway, now they all also have the money to pay their workers. Now everyone's got money, and this money is basically in proportion to their monthly earnings before. everything hasn't returned to normal, of course, since all of their savings are gone. but their assets, for instance, retain a certain value that can now be traded in the new world where the 10-47 dollar is king. Surprisingly even banks and the whole system of debt start working again. Thank God! What would we ever do without them? This is because the banks aren't in the business of keeping and holding money--they have a small reserves of currency, but most of their money is lent out. Losing their actual cash reserves would probably not be as fatal to the banks as this latest crisis, where the wholesale collapse of the multinational banks was averted only by the government pulling about a trillion dollars out of thin air.
Now lets pretend that the banks were required to store all the information keeping track of who had money in thier institutions on the central computer, and couldn't maintain their own records. The computer system was fried, so all the people who had savings in banks were out of luck and couldn't go asking the banks for money. The banks aren't in the business of holding money as we have said--they are in the business of lending money, and of investing it. and, of course, things like mortgages and the like are still just fine--they didn't get erased; however, lots of people and businesses would then owe sums of money that were ridiculously expensive at that point--many, many times the total amount of money in existence in the economy! So lets pretend the banks get together and say: Ok! all the debts you had are now divided by 10-47 . Everything's cool. This is realistic because, although the banks could get lots of cool property on the cheap, they wouldn't have any money to pay all of their own debts and obligations, of which they have many! These debts would also be denominated in dollars, not 10-47 dollars. So its at least conceivably in the interests of the banks to come to this kind of agreement, so that they can be recapitalized by workers in the economy, and not send the value of real estate plummeting.
Now, finally, The Man decides to pretend he's the central bank. He does this by either lending money to the big banks at certain rates; or, he goes into debt to them (though, of course, he has the money to pay at any time) and pays back the loans at his leisure. Meanwhile tax time comes, everyone's earnings gown do to the level of 10-47 dollars, and they're taxed accordingly (minus the sticky issue of capital gains and the like.) Everything is back to normal.
I find this fable illustrative on many levels. About the nature of money. About the transition from despotism to capitalism. About how centrals banks work.
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