Friday, April 22, 2005

The Eleventh Round - A Fable

Bernard Lietaer, a fellow at the Center for Sustainable Resource Development at the University of California at Berkeley, used to a banker and a currency trader Central Bank in Belgium, where his first project was the design and implementation of the single European currency system. He was also the president of Belgium's Electronic Payment System.

Here is a nice small fable from his book The Future of Money about the social consequences of an interest-based monetary system.

The Eleventh Round

Once upon a time, there was a small village where people knew nothing about money or interest. Each market day, people would bring their chickens, eggs, hams and breads to the marketplace and enter into the time-honored ritual of negotiations and exchange for what they needed with one another. At harvests, or whenever someone’s barn needed repairs after a storm, the villagers simply exercised another age-old tradition of helping one another, knowing that if they themselves had a problem one day, others would surely come to their aid in turn.

One market day, a stranger with shiny black shoes and an elegant white hat came by and observed the whole process with a sardonic smile. When he saw one farmer running around to corral six chickens wanted in exchange for a big ham, the stranger could not refrain from laughing. “Poor people,” he said, “so primitive.”

Overhearing this, the farmer’s wife challenged him. “Do you think you can do a better job handling chickens?”

The stranger responded: “Chickens, no. But there is a much better way to eliminate all the hassles. Bring me one large cowhide and gather the families. I’ll explain the better way.”

And requested, the families gathered, and the stranger took the cowhide, cut perfect leather rounds in it and put an elaborate and graceful little stamp on each round. He then gave ten rounds to each family, stating that each round represented the value of one chicken. “Now you can trade and bargain with the rounds instead of those unwieldy chickens.” It seemed to make sense and everybody was quite impressed with the stranger.

“One more thing,” the stranger added. “In one year’s time I will return and I want each of you to bring me back an extra round, an eleventh round. That eleventh round is a token of appreciation for the technological improvement I just made possible in your lives.”

“But where will that round come from?” asked the wife.

“You’ll see,” said the stranger, with a knowing look.

Assuming that the population and its annual production remained exactly the same during that next year, what do you think happened? Remember, that eleventh round was never created.

As the stranger had suggested, it was far more convenient to exchange rounds instead of the chickens on market days. But this convenience had a hidden cost beyond the demanded eleventh round—that of generating a systemic undertow of competition among all the participants. The equivalent of one out of each eleven families would have to lose all of its rounds, even if everybody managed their affairs well, in order to provide the eleventh round to the stranger.

The following year, when a storm threatened some of the farmers, there was a greater reluctance to assist neighbors. The families were now in a wrestling match for that eleventh round, the round that had not been created, which actively discouraged the spontaneous cooperation that had long been the tradition in the village.

No comments: