Translator: Cinder Translations
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"Exactly," Paul said, looking at Eileen. "Money becomes worthless. This phenomenon is called inflation, where the currency in circulation, as the name suggests, expands like bubbles, but the quality—meaning the material wealth in society—does not increase."
"Conversely, if the Lord of Light appears again and reduces the number of gold coins in human society to five, then each gold coin would correspond to two loaves of bread, doubling the amount. The money circulating in society has decreased, which is known as deflation."
The sisters nodded in understanding, but Catherine couldn't help asking, "But how does this relate to what we were discussing at the beginning?"
Paul's so-called "immature idea"?
"Alright, alright, we're getting to that now, be patient," Paul smiled. He had been a bit showy with his explanation, saying more than necessary.
"The material used to create money can't be something readily available, something easily obtained, like water, soil, or stone. Otherwise, anyone could effortlessly create a credit certificate, which would immediately lead to the inflation phenomenon I just mentioned."
"Gold, silver, and copper are precious metals that are difficult to refine and rare, but not so rare that they are unseen. This perfect balance makes them ideal materials for creating coins."
"Now, I have a thesis—coins made from these precious metals inherently have a deflationary characteristic."
Catherine and Eileen exchanged looks, puzzled. "Inherently deflationary? Are you saying the total amount of metal coins in the world will keep decreasing?"
"Yes, it will decrease," Paul nodded, "Well... I mean relative to material wealth, it will decrease."
Eileen was confused. "How could that happen? After every transaction, people receive coins and then spend them in the next transaction. The total amount of coins doesn't decrease, unless..."
The little princess blinked, "Unless, like in your example, the Lord of Light decreases the coins?"
"Ha ha," Paul laughed. "Of course, the Lord of Light wouldn't do such a pointless thing."
"In reality, there are many reasons why the circulating metal coins might decrease. And I'm talking about the coins in circulation."
With the sisters' curious gazes, Paul continued.
"First, there's a relative decrease. With the growth of the population and improvements in technology, the material wealth produced by people increases. However, the speed at which new coins are minted often can't keep up with the increase in material wealth—mining and smelting precious metals is a big problem, right?"
Catherine and Eileen nodded.
"Then there's the actual decrease. Metal coins don't easily decay and are easy to store, so anyone with a normal mindset would have the instinct to save them. Therefore, unless necessary, people tend to hold onto coins rather than spend them."
"That's true," Catherine agreed.
Paul went on, "Especially among the nobles and the rich! Many families build vaults where no coins are allowed out, passed down from generation to generation."
"They have broader income channels than ordinary people and can accumulate a large number of coins. The rate at which they spend their money is much slower than their income. Some even take their wealth to the grave, which causes the number of stored metal coins to increase while the number circulating in the market decreases."
"As a result, deflation or a currency shortage occurs. There's also another issue. We know that gold coins and silver coins aren't made of pure gold or pure silver; they are mixed with other metals. Different countries and eras have different coin purities, so there are good coins and bad coins. People tend to keep the good coins and spend the bad ones. This leads to a situation where only bad coins circulate in the market, a phenomenon known as 'bad money drives out good money'. So..."
Paul paused for a moment.
Eileen immediately had a lightbulb moment, saying, "On a larger scale, the kingdom government will collect fewer and fewer coins, and there will always be a shortage of money."
Catherine had already furrowed her brow, deep in thought.
"Exactly," Paul nodded, "Unless there is a major social upheaval that forces the owners of money to actively—or passively—bring their hidden wealth back into circulation, only then can this situation be alleviated."
The two princesses looked grim. Just how big would the upheaval have to be? If it came to that, whether the kingdom of Aldor would still bear the Rodney name was uncertain.
Paul added, "Alright, I've said a bit too much. But as Eileen said, the kingdom government will definitely be short on money, but it lacks those metal coins. However, if we don't focus on the shiny little bits of metal and instead look at material wealth like food, cloth, livestock, minerals, and so on—things that can actually meet people's basic needs—does the kingdom government lack these things?"
Catherine thought for a moment and then shook her head.
"That's right," Paul continued, "The kingdom government doesn't lack wealth at all. The royal family directly controls the most fertile and wealthiest land in Aldor, with countless resources. In theory, the kingdom is the richest. But because of the deflationary nature of metal currency, they might never be able to exchange enough of it."
"You mean..." Eileen asked, "The royal family could pay soldiers with goods of equivalent value—like food or cloth—instead of using money?"
"Yes, that's one option," Paul nodded. "History has seen similar measures, such as paying soldiers with salt, but those were temporary solutions and not sustainable."
"Paying soldiers with goods directly would cause a lot of trouble. If the soldiers are stationed near the royal family's orchard, for example, we could give them a bunch of apples as their pay. The apples would be equivalent to the coins they would normally receive, so theoretically, we wouldn't owe the soldiers anything, and it's very convenient."
"But soldiers need to eat, drink, and even support their families. A bunch of apples won't help with that. They'll have to sell them at the market, but most of them would spoil before they can even be sold. Imagine all the soldiers in the camp trying to sell apples after receiving their pay—how ridiculous! How can soldiers go off to war carrying their 'wealth'—a bunch of apples?"
"Ha ha!" Eileen laughed at Paul's description.
(End of the Chapter)
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