10 September 2018

Origination of Legal Tender

Money is commonly credited to have originated in seventh century BC; however, money had been in existence long before written history, and metallurgy had long been at an advanced state by seventh century BC, advanced enough to make rings, swords, shields, jewelry, and such. Creating small, circular disks of metal to be used as money would not have been a technological nor conceptual breakthrough. Minters stamping ingots of copper or silver to certify a coin’s weight and fineness had been practiced long before in Babylon.

So, what significant event happened to money in seventh century B.C. to confuse it with the origination of money itself?
The origination of Legal Tender happened. In sixth century BC, the first Legal Tender coinage was stamped in Lydia, a leading gold producer, a country in what is now western Turkey. King Croesus of Lydia [560-546 BC] is credited with this development of Legal Tender, often confused with the birth of money itself. In the process, Croesus became fabulously wealthy.

1. died 546 B.C., king of Lydia 560-546: noted for his great wealth. 2. a very rich man. 

The History of Money by Jack Weatherford, 1997
"As rich as Croesus" is a common expression in modern English, Turkish, and other languages around the world.

Martin Luther, 1517
“Why doesn’t the pope build the basilica of St. Peter out of his own money? He is richer than Croesus."

The Three Musketeers by Alexandre Dumas, 1844
However, when he served the dinner given by d’Artagnan and saw him take out a handful of gold to pay for it, Planchet thought his fortune was made and thanked heaven for having placed him in the service of such a Croesus.

Slaughterhouse-Five by Kurt Vonnegut, 1969
Billy owned a lovely Georgian home in Ilium. He was rich as Croesus, something he had never expected to be, not in a million years.

The War of the End of the World by Mario Vargas Llosa, 1981
The baron’s as rich as Croesus, isn’t that so? An antediluvian character, an archaeological curiosity, there’s no doubt about it.”

A Man in Full by Tom Wolfe, 1998
He was Old Family and Piedmont Driving Club all the way, and he was rich as Croesus.  

Fifty Shades of Grey by EL James, 2012
“Honestly, fancy falling for a man who’s beyond beautiful, richer than Croesus, and has the Red Room of Pain waiting for me.”

The name Croesus has passed the test of time for defining wealth. By what financial mechanism was this wealth obtained?

Assume there are multiple minters stamping gold coins of specific weight and quality, and imprinted with the logo of the minter. Though two gold coins may be of the same weight and quality, only the gold coin stamped by the State is considered Legal Tender, and therefore a valid payment for taxes and debt. The State monopolizes the minting/stamping of Legal Tender.

Legal Tender
Any form of money that a government decrees must be accepted in payment of debts.

Any gold coin not stamped as Legal Tender is rejected by the State or Creditor as a valid tax/debt payment, potentially throwing the Taxpayer or Debtor into default, evoking eviction, seizure, and/or slavery ownership clauses of Law. The State enforces Law and will forcibly execute the change of ownership.

Taxpayers and Debtors are severely motivated to have Legal Tender in order to avoid the default clauses of Law. Already circulating gold coins are taken to the State to be converted into Legal Tender coins. The State takes a generous seigniorage, or fee, for the stamping, and returns a debased coin, smaller or mixed with lesser value metals, and calls it a dollar. If it was a dollar before, it’s still a dollar afterwards, not in substance, but in Law, in Legal Tender.

The seigniorage and debasement skews wealth towards the State. And from this financial mechanism of Legal Tender, King Croesus, head of the State and Army, became legendarily wealthy. It’s use spread throughout the Greek States, as did Debt, to the point of unsustainability, culminating in the infamous Shaking Off of Burdens.

Legal Tender is a derivative form of money, not money itself.

Croesus and the Delphi Oracle

The Delphi Oracle was renowned both for the ambiguity and the occasional plain accuracy of its answers. Croeus, king of Lydia [560-546BC], wanted to test the most highly regarded Greek oracles. He sent messengers to each one of them with instructions to ask, after exactly 100 days had passed, the following question: “What is the king of Lydia doing today?” Five of the oracles were wrong. A sixth was close. The oracle at Delphi replied as follows:

Lo, in my sense there striketh the smell of a shell-covered tortoise,
Boiling now in a fire, with the flesh of a lamb in a cauldron.
Brass is the vessel below, and brass the cover above.

As it happened, Croesus was, at that very moment, cooking a lamb-and-tortoise stew in a brass pot. Convinced of the oracle’s accuracy, he questioned it about the weightier question on his mind, namely the Persian Wars. The answer was that a great army would be defeated. Taking this for a good omen, Croesus sent his army into battle against Cyrus the Great. Again the oracle hit the mark, but it was Croesus’ army that was defeated.

The Delphic Oracle, 1899, John William Godward [1861-1922]

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