The modern banking “brokering” process would occur as follows in the camp:

1. John knits a wool coat from yarn.

2. Bob wishes to buy the coat for 50 POW dollars, but does not have enough money.

3. The camp’s store brokers the deal; it buys the coat from John with 50 dollars it prints from thin air.

4. Bob buys the coat from the store on credit, owing the store 50 POW dollars, and agreeing to repay the debt over five months, paying 11 POW dollars per month (one dollar per month as an interest fee).

Modern banking is the same, but the wool coat is a house and the terms of the loan are longer. Banks broker deals in exactly the same way, making it easier for a home-builder to sell to a person who lacks the capital to make the purchase.

Notice that in this system there is not enough paper money to both pay off all the loans and the added interest payments. To correct this problem, the store would need to purchase supplies and keep them off the shelves, balancing the amount of supplies and paper. This is why the Fed engages itself in “quantitative easing,” purchasing assets with new money, and keeping them off the market on its balance sheet.

Later, if the value of paper falls against the value of cigarettes, as actually occurred in this camp, the store would be able to place additional items on the shelves to raise the value of paper — by making it less plentiful relative to the supplies available in the store.

Who knows what type of currency we would think up in the years to come?

One guy in a village has a cell phone. Family who work in the city will buy a pre-paid cell phone card and then call the guy in the village. They give him the information for the pre-paid card and he uses it to charge up his cell phone. The village cell phone guy then gives money to the city worker’s family after taking a commission. Then when people in the village want to use the cell phone, they pay him for the minutes they use.

Essentially, they created a currency with something that we would never think of as a currency.

Here’s the talk, but it’s more than about this story above. (I actually didn’t care for most of the talk. The part I’m referencing is at 8:00 in the talk.)

http://www.ted.com/index.php/talks/jan_chipchase_on_our_mobile_phones.html

Most of the class was a little boring (professor was long winded). But the papers were awesome. This paper was pretty much my favorite thing about the class.

That coffee guy is a highway robber.

Fascinating paper for us economy nerds. ^^

Empire of the Sun has a set of great scenes of John Malkovich running the camps black market and the kid (the future Batman) Christian Bale as the young child helping as a runner.

Of course, currency also doesn’t go stale, a factor on the bread side of the equation.