August 2 … 1100 – BEGINNING OF THE REIGN OF KING HENRY I OF ENGLAND … About 1100 AD, the King ordered the creation of a unique form of money. Made of wood, the currency was called "Tally Sticks." They were polished sticks of wood declared by the Sovereign King to be good for the payment of taxes. The sticks were used as money by England for 726 years – included the period of the British Empire. It may be no coincidence that shortly after the Bank of England (a private entity) was established in 1694, it attacked the Tally Stick system. Nevertheless, the Sticks were accepted as money for another 150 years, until 1854. – createrealdemocracy.blogspot.com
Dominant Social Theme: Tally sticks were a great invention, much better than gold.
Free-Market Analysis: Since King Henry I took power around this time about a millennium ago, we thought we'd take the opportunity to revisit some basic truths regarding money.
It was Bill Still via Money Masters and then Ellen Brown in her famous book Web of Debt who (most recently) popularized the idea of tally sticks and their superiority as money.
Neither Bill Still nor Ellen Brown seemingly has any great love for competitive markets (though Mr. Still has run for office as a Libertarian) and this may explain the attraction to tally sticks.
For purposes of clarity we'll confine our discussion below mostly to Ms. Brown, who is a courteous and even visionary proponent for her monetary viewpoint.
Coming from a free-market viewpoint as we are, it took a while to "get" what Ms. Brown (and Still and others) really had in mind. What it came down to was a defense of government!
We're still not sure why anyone would want to defend government, but there you have it … Ms. Brown in particular seems to feel it is important. She is not alone in this, of course. Leaving aside various bureaucrats, we find that paper money advocates generally seem to believe that government is not just a necessary evil, but that it is plain necessary.
We come from the perspective that it is better to offer arguments AGAINST the force, warring and exploitation of government and the shadowy power elites that stand behind it.
See … you're probably going to end up with it anyway, but why facilitate it? A smaller government is less apt to do harm. The best government would probably be none at all.
But Still, Brown and others go out of their way to try to paint government as civilization's founding force. The idea in particular is that money came of age via the so-called "temple" system of ancient Sumer.
Ms. Brown not only believes that money was thus created communally, she also believes that there were gender issues as well. She entitles this chapter in her book, "From Matriarchies of Abundance to Patriarchies of Debt."
We are not sure that gender has much to do with the creation of money any more than we are sure money – gold and silver – was the product of a system of public temples some 5,000 years ago.
In fact, given the discovery of very ancient cities such as Dwarka off the coast of India, it is probable that money is a lot older than 5,000 years. And since almost everything else comes from the private sector and is then adopted by the state, we figure that goes for money, too.
When it comes to tally sticks, the same rationale is in play. Brown, like Still and others, wants to establish tally sticks as a superior form of money because she sees them as government-based. Tally sticks are a metaphorical instrument for the innate superiority of government. Ms. Brown goes so far as to state that England built its empire on a foundation of tally sticks.
As we have noted previously, we're not sure why "building an empire" is an endorsement of a certain kind of money, but Ms. Brown seems amply impressed.
When we first began researching tally sticks we couldn't find much available to rebut Ms. Brown's contention that tally sticks, being government money, were innately superior to private, competitive money, but in the past few years much detail has emerged.
The counter-tally stick arguments are available now throughout the Internet and we found a cogent explanation on Mish's globaleconomicanalysis.blogspot – written by "Trotsky" and edited by Mish. Here's a telling excerpt:
The other historical development that can be seen as an ancestor of the modern day fiat money system is England's application of the medieval 'tally stick' method of recording debt payments.
Taxes in the largely agricultural economy of the Middle Ages were usually paid in the form of goods, and these payments were recorded with notches on wooden sticks that were then split length-wise (one half remained with the tax payer serf, as proof of payment). This was an ingenious method of avoiding counterfeiting.
In AD 1100, King Henry the First ascended the English throne, and adopted the tally stick method of recording tax payments. By the time of Henry II, taxes were paid twice a year, and the tally sticks recording the partial tax payment made at Easter soon began to circulate in a secondary discount market – i.e., they began to be accepted as payment for goods and services at a discount , since they could be later presented to the treasury as proof of taxes paid.
It didn't take long for the King and his treasurer to realize that they could actually issue tally sticks in advance, in order to finance 'emergency spending' (not surprisingly, such emergencies often involved war – after the extortion of tax money the second big hobby of governments).
The selling of these claims to future tax revenue created the market for government debt – an essential part of today's fiat money system as well.
By 1660, the English monarchy , after a brief hiatus of experimentation with a pseudo-republican government under Cromwell, was reinstated and Charles II began his reign but with vastly reduced powers, especially in the realm of taxation.
Since Charles had to beg for tax money from the parliament, he struggled mightily with paying his vast pile of bills. Whenever Charles wrangled permission to raise taxes from parliament, he immediately went to cash in the future tax receipts by selling tally sticks to the goldsmiths at a discount. This necessitated the introduction of previously referred to method of making such debt payable to the bearer, which allowed the goldsmiths to sell it in the secondary market to raise funds for more lending to the King.
They also began to pay interest to depositors, in order to attract still more funds. At that stage of the game, the goldsmiths had a good thing going for them, since the King was the equivalent of a triple A rated sovereign borrower, who could always be relied upon to cover his debt with future tax receipts. No one thought it problematic that the vaults soon contained more wooden sticks than gold. There was an active market in this government debt, and the goldsmiths profited handsomely.
The King meanwhile decided to circumvent parliament and began to issue tally sticks as he pleased (as an aside, one half of such a stick, which originally remained with the treasury had a handle and was called the 'stock' – the term that has evolved to describe shares in publicly listed corporations today) .
Naturally, Charles was more than happy to exchange wooden sticks for gold, and not surprisingly, soon kicked off a veritable credit boom by upping his wooden sticks production …
So what does a king do with all that gold he received for sticks? During his 25 year reign, he waged 3 losing wars (2 against the Dutch, one against France); he survived 4 different parliaments (only the first of which wasn't hostile to him); he helped to establish the East India Company, made shady deals with Louis XIV of France (his cousin), sired a horde of illegitimate children of which he acknowledged 14, and was renown for his hedonistic court. That's a lot of "merry".
Of course, there was a natural limit to this debt expansion. Once all the money attracted from depositors had been transferred to the King, additional deposits could only be acquired by means of offering higher interest rates than previously.
By 1671 the annual discount on the King's debt had reached 10% and due to redemptions nearly overwhelming funds raised by new debt issues, things clearly had ceased to work for him. Charles suddenly and conveniently remembered that there was a law against usury on the books, and lo and behold, interest rates in excess of 6% were not permissible.
With all his recent loans carrying a far bigger discount, he simply declared the debt illegal, and stopped payments on it (with a few judiciously selected exceptions). Overnight, the King's tally sticks reverted back to what they had really always been – worthless sticks of wood.
The King's creditors, chiefly the goldsmiths and their customers, had, quite literally, "drawn the short end of the stick" (if you ever wondered where this expression came from, this is it).
Although tally sticks were still used until the early 19th century, and even formed part of the capital of the Bank of England when it was founded in 1694, the secondary market never truly recovered from this blow. Charles had, with the stroke of a pen, killed the better part of London's budding banking system, and transformed countless of his creditors into destitute involuntary tax payers.
To add insult to injury, he even gained a propaganda victory, as the public tended to blame the goldsmiths for the mess (they were of course not entirely innocent, and above all had been quite gullible).
We don't usually quote so much of any given explanation but this is fairly brilliant. It destroys at one stroke the idea that evil money-changers were responsible for the demise of the tally stick system and it also shows quite clearly how government will take any monetary system and pervert it for warmaking. War, after all, is the health of the state.
We will close this little history lesson by pointing out that those who advocate government money and paper pushing in general are not having a very good time of it of late.
Whether it be Sumerian temples, tally sticks, or Greenbacker heroes such as Abraham Lincoln or John F. Kennedy, it turns out history is not necessarily as Ms. Brown, et al., make it seem.
Lincoln, a dictator if there ever was one, wasn't shot for standing up to Money Power (his Greenbacker scheme was nothing like what Ms. Brown has in mind) and Kennedy never intended to monetize silver, as G. Edward Griffin has eloquently pointed out.
Economist Gary North has, in fact, done a good job of deconstructing Web of Debt, especially certain factual inaccuracies. It is, of course, perfectly normal to have anomalous issues in a book as ambitious and complex as Web of Debt. But Ms. Brown's perspective that a fallacious quote is okay if it is simply found in abundance on the web (even absent any original source) strikes us as a bit disingenuous.
We are not fans, either, of her affection for the Occupy movement, which is apparently funded by the "bankster" George Soros; her recently formed Public Banking Institute has at least one board member with broad United Nations experience.
Ms. Brown, it should be noted is mostly a happy warrior and has not been much inconvenienced by criticism. She forges ahead as we long ago predicted.
It is simply and incontrovertibility true that the arguments for monopoly fiat are extraordinarily attractive. Ms. Brown, along with various Georgists and social creditors, makes the case that "ordinary people" should be able to issue out paper money from "people's banks" just the way banksters do.
To make their arguments, Ms. Brown and others rely on often suspect readings of history. Certain notions regarding tally sticks might constitute such misreadings. But when the narrative generally is rigorously examined, it turns out to contain fundamental flaws from what we can tell.
The flaws begin with the idea that government rather than the private sector is a responsible and appropriate entity for the disbursal of currency.
The larger question, and it is one that continually baffles us, is why Brown, et al., want to spend so much time and energy establishing the prerogatives of government. We can think of much else to do with our precious time. Almost anything else …