Pegging currency to agrarian produce

Question

Under the Bretton Woods system the US Dollar was fixed to gold. ($35 would get you an ounce of gold if you were there.). This obviously created problems when gold became rarer and rarer; the American dollar slowly lost its value (this is what my books say).

In my post-apocalyptic world, some amount of government and order remain in most regions albeit severely crippled. They have almost no good infrastructure or food resources. Obviously, under these circumstances, gold will lose its value because everyone will want bread more than the gold (am I right here?). So in order to combat this, much of the surviving world decides to peg its currency to agrarian produce. Such produce which is sparse and, in this environment, much more valuable than gold.

Four questions:

• How could I ensure that such a system would work?

• How do I combat black marketing since agrarian produce is consumable?

• How long could this system be stable?

• Is it possible that given enough time this system becomes permanent?

Answer 1

Most modern currencies are fiat currencies. They function because they are backed by "the full faith and credit" of a major government and their promise that the money is worth something.

When you have paper money backed by gold or silver, somebody takes a piece of note paper and writes "pay the bearer a pound of silver from my vault." If the person issuing the note is trustworthy enough, other people will accept that the note is worth as much as a pound of silver. (Initially it might be accepted only at a slight discount, especially at some distance from the person who issued it, to reflect the trouble of actually getting it exchanged. But paper is easier to transport, so it might be preferred to specie after some time.)

At some point it becomes convenient to uncouple the paper from the metal. The person or institution issuing the bank note writes "this is a pound" onto the note, without a direct promise to pay silver. With the institution is trustworthy enough, that piece of paper is worth something. How much silver it buys may change at market rate, which is a convenient way to determine the value of silver.

So there could be a bank note "pay the bearer a pound of grain" if the issuer has a large granary. This might work if there is not enough trust for true fiat money, but enough trust that the note will be redeemed.

Something similar was done by Germany in 1922 to stop the inflation after WWI. The Rentenmark was backed by real estate.

Side note: There are plenty of good reasons why currencies are no longer pegged to gold, and scarcity of gold is the least of them. It is quite inconvenient if the total value of currency is linked to the total amount of gold -- what if the economy grows faster than the gold supply?

Answer 2

In the history of currency, nobody has ever eaten gold. Gold and dollar bills are always a means towards an end. Currency is valued because it can be traded easily.

If you have a post-apocalyptic world, you may see the reintroduction of the barter system, which has a similar look and feel as to using produce as currency. However, as things grow, such produce is a poor currency. Produce is not the best form to store value in. Economists generally recognize three major factors which make a currency useful:

• Hard to forge - You want your currency to appear to have a reliable value. This is related to your black-market question. If it's hard to distinguish fine quality maize from low quality maize until you cook it, you'll find that would open the door for a black market, and would make that product a bad currency.
• Fungibility - You want your currency to be easily divisible. Many produce products are fungible, but not all. A head of lettuce can be split in half. A coconut is harder to divide evenly.
• Durability - This is where many produce items fail as currency. You want your store of value to be able to survive long enough to spend it. Lettuce wilts, and tomatoes go bad. Grains do reasonably well for durability from year to year. Potatoes are actually really promising here. In Peru, they perfected the art of drying potatoes. The particular potatoes and the way they do it actually leaves these particular potatoes replantable next year!

Note that nowhere on there was "high value." If a currency has all three of these, it generally does well. Pennies are just slugs of copper... or were slugs of copper until we made them even less valuable. Yet they're still a successful currency. We've tried for years to get rid of them (it costs 5 cents to make a penny!), but they stick around!

Eventually people will choose objects which meet these three criteria for their currency. They may accept two-out-of-the-three for a short while, but once they get on their feet, they'll want all three.

There's only one case I know of where agricultural product was used as currency, and that was the Inca. In their civilization, cocoa beans were used as a currency! A fresh rabbit was worth 2 cocoa beans, according to one document we've found. Cocoa beans were hard to forge (everyone knows what they look like), fungible (at least to the rich... the rich could afford to have enough cocoa beans to treat them like coinage), and durable (cocoa beans last an astonishingly long time when properly treated). This was a consumable currency, like the famous cigarettes in POW camps (non-smokers would still accept cigarettes as payment because they knew there was a smoker they could sell them to). Of course, it takes a lot of cocoa beans to make a cup of hot chocolate. The poor could not afford such an exotic drink, while the rich could literally drink away their money!

Answer 3

Japan currency used to be koku - enough rice to last for one person and one year. So yeah, it's been done and it worked.

Answer 4

One of the reasons for using commodity backed currency such as silver and gold was that the metals themselves had intrinsic value, and were fungible (gold and silver are generally considered valuable anywhere, ancient Roman coins have been found in large caches as far away as Siri lanka). Metallic currency is also compact (a pocket full of coins is far easier to deal with than the object you are purchasing)

Produce has difficulties in that it is not as fungible (not everyone actually likes to eat what you grow), difficult to transport and is perishable as well. When produce was used as the backing for currency (such as community grain silos) there was always the issue of the materials stored in the silo going bad, being eaten by rats and insects, accidentally destroyed by a fire or deliberately destroyed or stolen by invaders or criminals. Metallic currency does not suffer from most of those fates.

So this sort of produce backed currency could work over a limited area and for a short period of time, but the extra overhead will make the currency difficult to use ({imagine the disputes when you put 3 bushels of grain in the community pot but after spoilage etc. you only got two bushels back).

There could be an evolution from agricultural produce to backing the currency with productive agricultural land (and the value and amount of currency could evolve as land is cleared or improved), but once again there will be a limitation to the area where the currency could be valued 9much like you van't cash your grain backed coins at someone elses silo, you are not going to use currency where the vendor isn't in a position to buy or sell the land that backs the currency).

The one widespread produce backed "currency" which did exist in history was Cypriot copper ingots cast in a stylized oxhide. Traders could go throughout the Bronze age world and everyone understood the value of the ingots in barter terms (one ingot was worth one Ox. how well you could barter the value of an ox defended on the skill of the trader). However, the reason this worked was more due to the value of copper (the intrinsic value theory) than anything else.

Oxhide ingots

Answer 5

Such produce which is sparse and, in this environment, much more valuable than gold.

The rule is stated bad money drives out good. So if you have one form of a money that is more valuable than another, people will tend to trade the less valuable money (gold) and hoard the more valuable money (food). In this case, they will also eat it. And farmers will grow more. This would persist until food became abundant again.

In the circumstances that you describe, food would be very valuable. People would accept it in trade. It would be possible to create a currency based on promises of food. So you could go to an approved store and exchange your currency note for a day's food in some staple form (e.g. a bag of flour).

There would be some challenges though. If farms produce an abundant crop next year, there will be inflation. Other goods will be worth more of the currency (i.e. prices will go up). If there is a problem growing food (bad weather, pests, disease, etc.), there will be deflation. Other goods will be worth less of the currency (prices will fall).

The government would have to store food to make this credible. But since food has a limited shelf life, this means that they will have to constantly replenish this storage. Releasing food in the spring. Throwing away food in the summer (perhaps feed it to cows or pigs). Buying food in the fall. A normal year should have a surplus. An exceptional year should have a big surplus. A bad year should just make ends meet.

Answer 6

TL;DR: I try to come up with a 'sensible' scheme to peg currency to produce (taking into account some concerns voiced so far) and find a few of it's limitations.

Defining the Currency

1 groin (portmanteu of "grain" and "coin") buys the calories and protein to feed a hard working, fit adult for a day, all in plant-based, easily stored form - most likely grains + lentils or something. Most likly definition is x calories, y% as protein. Protein content and caloric value are not too hard to measure. There may be a fee for analysis etc. at the grank (granary/bank) when you bring your produce. Expect a large body of codes on quality and quality control for stuff allowed into the granks.
That means that one will suffer malnutrition if subsisting solely on the groin-backing foods (possibly little fat, hardly any vitamins).

Enforcing

The state, warlord or whoever collects a head tax in groin - meaning everyone must either get groin (for produce) from the central grank or work for payment in groin. This ensures that the grank is always well stocked.

Cash crops

There will be, in any given climate/region, one combination of produce that is most groin-efficient - bringing most groin/hectare and year. On the other hand, people like to eat a variety (and likely die on a groin-only diet) so we will also see people growing vegetables and other less groin-efficient foods. These, as well as meat and dairy products will be traded in groin but not via the granks. The actual daily expenditurey for food will be several groins for everyone but the most destitute.

Complications

A specific grank will store a variety of grains and beans and so on. The baker will have to go through these steps to make a bread:

• Buy an assortment of grains and beans and so on for his groin, the assortment represents what's stored in the grank at this time
• Sell everything except one very specif type of grain because our baker needs wheat with this exact glutene content for his bread, and no barley or soy beans or whatever else is in the mix of the day
• Have the grain custom milled for the specific recipe

Maybe the grank will have a produce-trading house attached so step one and two can happen virtually. You could imagine trading 'virtual grains' - that are still stored in the grank but at the moment don't back any groins. The size and handling of the virtual grains market will influence how much trust people put into the granks.

Nothing lasts forever, so the grank will sell food that sits on it's shelves the longest or is most perishable otherwise. This gives the grank master quite some economical power if ther's any leeway.

Limitations

There will be only as much currency floating about as the grank stores foodstuff. A society on the brink of starvation will have hardly any liquidity. OTOH, to have a lot of capital floating about you need huge granks. How huge? I'm too lazy to do proper research right now, but for an estimate find these numbers:

• How much of a given currency is floating about? (X)
• How much is a groin approx.? (y)
• How many people are there using the currency exclusivly? (n)

Then X/(y * n) is the number of days of food storage you need to back your currency. My guess is that at one point the amount of food storage becomes ridiculous, so nothing resembling late capitalism as we know it will be possible with such a scheme. Not having researched how long grains keep, I guess about 10 years at most - that's maximum ~3600 groins per person in circulation - remember, each groin has to be backed!

Conclusion

I could imagine a post-apocalyptic warlord coming up wit such a scheme when consolidating his litle empire: It encourages food storage at the granks which gives the warlord an additional lever over his population. Maybe our warlord is a goldbug but there's not enough gold (or similar) in reach to back a currency, and neither warlord nor subjects trust fiat currency?
So we have a motive to start such a system, if our society continues on a capitalist trajectory the groins and granks will end at some point and in between we have a few weird effects. Now write your story.

Answer 7

Non-perishable, commonly-locally grown calories, one adult's basic ration, e.g. 1 kilogram of dried soybeans (or closest high-yielding local bean cultivar.)

In the specific circumstances you specified, I suspect that a day's basic ration, especially of a non-perishable, general foodstuff (such as dried beans or grain), would become a natural unit of exchange. Or a week or month if a larger denomination is desirable. While neither as compact or durable as coinage metals -- it's what they can produce locally that has both immediate and future value -- both to survive and to trade. Once you're out of the starvation/food-shortage phases, people would probably move on to a different unit of exchange for trading. (But what 'currency' comes next, although an interesting question, likely depends on the details of the particular apocalypse. Vitamins, seasonings for basic foods like beans and peas?)

From what I've seen, dried beans keep longer (quite a few years, if kept properly dry and sealed) than grains and can be eaten (e.g. boiled) without milling. Most grains (corn excepted) need some level of milling before easy consumption; IMHO that makes most unmilled grains problematic as the basic 'currency.' Even 'brown' rice (as sold in the USA) has had most of its outer/bran coat milled off. Where milling isn't available (or is expensive), an easier-to-consume foodstuff would IMHO be a better unit of exchange.

There will likely be rates of exchange between beans (or whatever the baseline foodstuff is) and other common foods. Let the markets adjust according to supply and demand.