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I'm working on a setting where a settlement was established by about 350 people. These were from a medieval civilization, but have been cut off due to various reasons and had settled on the coast of a new continent (uninhabited).

It was a shipwreck situation and not a lot of supplies they got from their homelands survived. They have however survived for a decade now and have a functioning village slowly develop with the basics of food, water, and shelter covered. They hunt/forage/fish and supplement it with simple crops/farming.

Early on, one can assume they would be living as a community but as time passed, they would barter goods and services.

However, I need to figure out how they would setup money based economy? Since the generation that experienced civilization are still surviving (since only a decade had passed), they have knowledge of money based economy.

How would they go about establishing this?

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    $\begingroup$ AIUI, economists generally accept that a barter/trust based system works for up to 500-1000 people if they know one another. So, they probably just wouldn't. The closest they might get is habitually using a durable foodstuff as a proxy, so that often the value of stuff is expressed in (standardised) bags of rice/pickled lizard heads. $\endgroup$ – Grimm The Opiner Jul 4 '17 at 8:11
  • $\begingroup$ @GrimmTheOpiner - pickled lizard. Ha! But what you said does put L.Dutch's answer in perspective! $\endgroup$ – Vyoma Jul 4 '17 at 8:27
  • $\begingroup$ @Grimm But if these are people already used to living in a money-based economy, they might recreate one well before a barter-based economy would naturally start to fail. $\endgroup$ – Ben Jul 5 '17 at 1:27
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    $\begingroup$ @Ben You're shivering in a pile of sticks on a beach and have managed to catch a few small fish, two people ask for a fish; in exchange one offers you a shirt, the other offers you money. It's the guy with the spare shirt who gets to eat. $\endgroup$ – Grimm The Opiner Jul 5 '17 at 7:00
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    $\begingroup$ For money to work, you need to trust the one who is handing out the money as you give something in exchange for getting handed out the currency. So there has to be someone in your setting functioning as leader or someone owning a lot of worthy stuff as counterweight for the currency. Also it would take effort to produce a currency that is stable in worth and/or fraud resistance. I would conclude, there is no logical reason for a 350 heads community building their belongings almost up from scratch, to aim for a money based economy. $\endgroup$ – Zaibis Jul 5 '17 at 10:53
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Money economy does make sense when there is the need to exchange good and services over large spatial or temporal intervals, where money act as non perishable value keeper, to be used when barter is non practical (e.g. I would barter 2 cheeses for your ladder now, but presently I have only 5 goats and making cheese would take me 3 months).

Normally in your situation once they settle their village some of them would start venture into the surrounding for hunting and gathering water and other resources. This would result in exploring the surrounding and establishing paths. While doing so they would end up either crossing some already established commercial routes or finding some other village.

But you state the continent is not populated. There is then no need for a value keeper which is non perishable. I even doubt if they will need to keep the concept of private property.

Unless they grow so much that they can spread in the continent, creating different villages with different needs and productions (e.g. a village of farmers, producing crops during summer, and a village of hunters/sheperds, producing meat/furs during winter)

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  • $\begingroup$ Thanks - that makes sense. Would the size of the village/population have any bearing? Would there be a threshold beyond which the barter-system not work? $\endgroup$ – Vyoma Jul 4 '17 at 5:47
  • $\begingroup$ @Vyoma, I'll edit my answer later to cover this. By the way, here on Worldbuilding you can upvote answers (and questions) to show appreciation ;) $\endgroup$ – L.Dutch Jul 4 '17 at 5:59
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    $\begingroup$ @L.Ditch - oh I did. It however says "Thanks for the feedback! Votes cast by those with less than 15 reputation are recorded, but do not change the publicly displayed post score." $\endgroup$ – Vyoma Jul 4 '17 at 6:04
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    $\begingroup$ @GrimmTheOpiner It would be stupid for the people not to join the village (if anything, the "villagers" are likely going to claim all the resources from the wrecked ship, which can easily be the difference between death and survival); but that doesn't remove the fact that they're not necessarily going to coöperate as well as people who actually know and trust each other. $\endgroup$ – Luaan Jul 4 '17 at 11:11
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    $\begingroup$ I wonder if this is true for a community in which nearly everyone was brought up with the concept of money. I think your answer makes sense if they were a blank slate, but I suspect the survivors might try to recreate a money system because it is what they know, even when it would not "naturally occur" for such an isolated population. $\endgroup$ – Niels Jul 4 '17 at 12:09
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One thing I've read is that the development of money seems to predate the development of currency by many thousands of years. In other words, there wasn't a free-for-all system of barter, where anything could be exchanged for anything, but a few semi-standardized units of value, such as livestock, which were later replaced by tokens.

Origins of Money and Banking

So, your society might have decided that cows and chickens are your main stores of value and exchange. Not quite the same thing as pure barter.

Another possibility would be a gift-based economy, which is similar to barter but not identical:

The Myth of the Barter Economy

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    $\begingroup$ thanks for both those links. They were particularly interesting reads and does help me in worldbuilding this village. $\endgroup$ – Vyoma Jul 4 '17 at 8:35
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    $\begingroup$ @Vyoma, btw, David Graeber, cited in latter link, wrote a book concerning debt, origin of money and trade, etc, you may to want to check it. $\endgroup$ – user28434 Jul 4 '17 at 9:07
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    $\begingroup$ Something like copper or iron wires/bars, or even fabric, were also commonly used as tokens, and might be appropriate in Vyoma's setting. Hard enough to make in an early medieval setting, low-perishable, actually useful on their own. "Worthless" money (silver, gold, paper notes at the extreme) takes a lot bigger societies; an iron bar has a value even if the person you're trading with doesn't need an iron bar. $\endgroup$ – Luaan Jul 4 '17 at 10:42
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As was brought up by Ariah, a true barter system has never really been observed, even in very undeveloped parts of the world. People tend to implement the closest things to barter systems in time of need (winter, famine, etc.), or when communities are extremely small. Often, however, it's usually more of a neighborly, gift-based system.

Now, you have stated that you want your community to move past a communal, gift-based, bartering society, which is really quite natural. I can see it going in two directions, one without money, and one with money. In this case, I determine money to mean a medium of exchange that holds "imaginary" value. A banknote is not actually worth 20 dollars - its literally a piece of paper - but the society gives it value.

Without Money

Now, in a stable environment, often several goods naturally become a sort of currency among a people. They generally meet a few criteria:

  • Non-perishable (I use this term loosely)
  • Plentiful
  • Stable in value

Depending on the environment, a few common examples would be cattle, rice, blankets, salt, skins, tobacco, and wine. All of these never really lose their value (okay, cattle can die, but they're pretty stable), are useful, and, in the areas where they were used as currency, were generally pretty easy to come across. Things like bread, or eggs, that will go bad extremely quickly, are less suited to this system, and things that fluctuate greatly in value (because of seasons, for example), are generally unsuitable as well.

This would be a more natural evolution as the society moves on from struggling to survive to a more normal state of existence. Without external influences, this is the most likely development to occur.

With Money

Well, we all know how money works. As for materials, you can be as creative as you want. Whether its a seal printed on paper, minted coins, bits of precious metals, shells, et cetera, you can really choose anything convenient for use as your currency.

"Why would such a system develop here though?", is the imperative question. Frankly, it wouldn't be completely necessary. It is quite plausible, however, mostly due to the cultural background of the settlers. If they came from a nation with ideas of money engrained in them, it is quite likely that they would mimic their native culture.

Somewhere in Between

Most European colonists (which seems to be the closest approximation to yours), used a mix of the two. In early Virginia (Jamestown and Roanoke), copper, tobacco, and minted coin were all used as currencies. Most emerging societies will find themselves in between as well.

Money, Credit, and Banking in Virginia, 1585-1645

Establishing a Money-Based Economy

Establishing a money-based economy is fairly simple in theory. The government decides upon a value to give to the currency and makes the currency. The hard part comes in convincing everyone to act in accordance with the idea. It could be difficult to convince someone to trade a cow for a piece of paper at the start. As time goes on, however, and if the money stays stable (no horrible inflation or deflation occurs), the society will start to have more and more confidence in it. It certainly will help that all of the settlers came from a society where money was the norm. Money, at the end of the day, is a risk, with rewards. It has no inherent value, but allows for much more ease in trade and regulating the economy.

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  • $\begingroup$ Also, random thought: The magic of the setting allows for new currency possibilities. Mainly, I just think it would be cool if everyone paid for stuff with potions or something. $\endgroup$ – Noord Jul 4 '17 at 11:35
  • $\begingroup$ Yes! This particular "settlers" do have a cultural background where they did have currency driven economy. Thank you for a detailed answer - I think I will be going down the path of 'no money' to 'somewhere in between' to 'with money', as the population of the village grows up to be a town and beyond. $\endgroup$ – Vyoma Jul 4 '17 at 12:07
  • $\begingroup$ @Noord thus establishing a formal exchange rate and arbitration opportunities between GP and HP $\endgroup$ – Hydrargyrum Jul 5 '17 at 6:54
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You could chalk up developing an 'economy beyond bartering' for an isolated village to a number of things (summed up at the end). First, you could look at different forms of pristine state formation and extrapolate the consequences of each one. F. Fukuyama listed six in a book called Origins of political order. I'll mention two: A Hobbesian model, whereby everyone lives in squalor and barbaric conditions until a hierarchy is developed and a king (or priest, in those days) claims there must be a better system and says the way this will be is through gold or grain. Hierarchy allows a ruler to manage the population better and the one on top says how its all going to be. Hobbes called it the 'Leviathan'. The ruler in turn can claim more for him self and the population lives is stratified.

An alternative is by a guy called Ibn Khaldun, (14th ce) who argued something that the book Dune adopted. There's a people that comes up from hardship by settling down and becoming farmers, and there's a nomadic warrior people living on the fringes. When the farmers become soft, the warriors come in, kill people and force them out and then sit at their tables becoming soft. (The original people become nomad warriors and return years later when they've become stronger than the new farmers. Kill Loot Repeat) In this way, an economy is born by becoming more comfortable and advancements that take place to make people lazier. To create this kind of advancement-decline-repeat system, some people leave the village to venture forth and do their own thing - become disenchanted and return.

Personally, I think there's something to be said for urban development. The Oxford Handbook of Cities in World History claims in the early chapers that it's a mistake to think that a bartering system changes because there are more people. Rather, it changes because with more people, new institutions rise to manage them in different ways. Old european cities usually had multiple tiers of problem solving levels. For example: a town would contain a number of streets and in a street there was one guy you needed to speak to if something went wrong (like theft). If he couldn't solve it he took it to e.g. the church. If they couldn't fix it they took it to the courts. Which is why today, depending on your problem, you can call support centre, next go to the council, next go to lawyers office, next go to police, next go to parliament or something. A bartering system changes when the problems facing the people overwhelm whatever system is in place.

In short, 3 ways: the economy (a system of exchanges and interaction) changes when a hierarchy is instated that says: 'this is the way we will do it now'; kill-loot-repeat system that sees people pursue peace through comfort and death; or system changes within urban setting that try to reconfigure the way it's done (progressive trial-and-error changes). Just some options.

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Money would come into play when the leaders decide they have a need to tax the population.

If the rulers create the currency, it gives them more control over the population and makes taxing them easier.

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