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Historical Error #10: England's Medieval Wooden Tallies Were Interest-Free Fiat Money.

Gary North
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Ellen Brown tells the story on England's medieval tallies. She includes this story in a section on fiat money. As you read it, think: "If an IOU is a receipt for payment in money -- coins -- then is the IOU fiat money?" If your answer is "no," then it agrees with my answer. She writes:

The English tally system originated with King Henry I, son of William the Conqueror, who took the throne in 1100 A.D. The printing press had not yet been invented, and taxes were paid directly with goods produced by the land. Under King Henry's innovative system, payment was recorded with a piece of wood that had been notched and split in half. One half was kept by the government and the other by the recipient. To confirm payment, the two halves were matched to make sure they "tallied." Since no stick splits in an even manner, and since the notches tallying the sums were cut right through both pieces of wood, the method was virtually foolproof against forgery. The tally system has been called the earliest form of bookkeeping. According to historian M. T. Clanchy in From Memory to Written Record, England 1066-1307:

Tallies were . . . a sophisticated and practical record of numbers. They were more convenient to keep and store than parchments, less complex to make, and no easier to forge.

Only a few hundred tallies survive, Clanchy writes, but millions were made. Tallies were used by the government not only as receipts for the payment of taxes but to pay soldiers for their service, farmers for their wheat, and laborers for their labor. At tax time, the treasurer accepted the tallies in payment of taxes. By the thirteenth century, the financial market for tallies was sufficiently sophisticated that they could be bought, sold, or discounted.[Web of Debt, p. 61]

What has this got to do with fiat money? Nothing.

Here is a modern account by a specialist in these tallies.

Tally sticks came into use in England after the Norman invasion. Tax assessments were made for areas of the country and the relevant sheriff was required to collect the taxes and remit them to the king. To ensure that both the sheriff and the king knew where they stood, the tax assessment was recorded by cutting notches in a wooden twig and then splitting the twig in two, so that each of them had a durable record of the assessment. When it was time to pay up, the sheriff would show up with the cash and his half of the tally to be reckoned against the King's half. As the system evolved, the taxes were paid in two stages: half paid up front at Easter and the rest paid later in the year at Michaelmas when the "tallying up" took place.

Technologically, the system worked very well. The tally sticks were small and long-lasting, were easy to store and transport, and easily understood by those who couldn't read (i.e. almost everyone). As a new technology, however, they soon began to exhibit some unforeseen (in the context of their record-keeping function) characteristics.

By the reign of Henry II (who died in France in 1189), the Exchequer was already a sophisticated and organised department of the king's court with an elaborate staff of officers. The use of tallies to enable this operation had an interesting side-effect. Since the king (as is generally the case) couldn't be bothered to wait until taxes fell due, and could not borrow money at interest, he would sell the tallies at a discount. The holder of the tally could then cash it in when the taxes fell due, making it (in effect) a fixed-term government bond. The discount on the tallies varied, just as one would expect, by economic circumstances. Adam Smith notes that in the time of King William the discount reached 60% when the Bank of England suspended transactions during a debasement of the coinage. The tally system could (of course) be abused by the Exchequer selling tallies which they would not redeem, but kings soon learned not to renege on tallies, since the discount on future tallies would be increased and the Exchequer would be hit hard.

The market for tallies evolved quickly. Someone in (say) Bristol who was holding a tally for taxes due in (say) York would either have to travel to collect their due payment or find someone else who would, for an appropriate discount, buy the tally. Thus, a market for tallies grew, arbitrating various temporal and spatial preferences by discounting. It is known from recorded instances that officials working in the Exchequer helped this market to operate smoothly.

Pay attention: "Adam Smith notes that in the time of King William the discount reached 60% when the Bank of England suspended transactions during a debasement of the coinage." Why did they depreciate? Because they were IOUs for money, and the coins were debased by the government.

The tallies functioned as money because they were IOUs for money: coins used to pay taxes. There was nothing fiat about them.

Lawyer Brown was trying to put the shuck on the rubes again. Why? Because she wants them to believe this.

The tally system was thus not a minor monetary experiment, as some commentators have suggested. During most of the Middle Ages, tallies may have made up the bulk of the English money supply. [Web of Debt, p. 62]

She says "may have." She doesn't know. The tallies were IOUs for taxes paid or promises to pay. The taxes were not paid in tallies. They were paid in coins.

She just can't stop.

Richard Hoskins attributes this long period of prosperity to the absence of usurious lending practices. Rather than having to borrow the moneylenders' gold, the people relied largely on interest-free tallies. Unlike gold, wooden tallies could not become scarce; and unlike paper money, they could not be counterfeited or multiplied by sleight of hand. They were simply a unit of measure, a tally of goods and services exchanged. The tally system avoided both the depressions resulting from a scarcity of gold and the inflations resulting from printing paper money out of all proportion to the goods and services available for sale. Since the tallies came into existence along with goods and services, supply and demand increased together, and prices remained stable. The tally system provided an organic form of money that expanded naturally as trade expanded and contracted naturally as taxes were paid. Bankers did not have to meet behind closed doors to set interest rates and manipulate markets to keep the money supply in balance. [Web of Debt, p. 63]

She says: "Rather than having to borrow the moneylenders' gold, the people relied largely on interest-free tallies." On the contrary, they were sold at discount. That is, they were sold with the interest payment built in. The bankers were the promoters of this form of commerce. On page 61, she wrote: "By the thirteenth century, the financial market for tallies was sufficiently sophisticated that they could be bought, sold, or discounted." Does this woman not understand what the word "discounted" means? On the other hand, if she does understand it, why can't she remember what she wrote two pages earlier?

She says: "They were simply a unit of measure, a tally of goods and services exchanged." No, they were not. They were IOUs for coins.

She says: "The tally system avoided both the depressions resulting from a scarcity of gold and the inflations resulting from printing paper money out of all proportion to the goods and services available for sale." She offers no proof for this. She just says it.

The Greenbackers have used the story of the tallies for decades. Brown just picked it up from previous authors. Their version of the story is not true.

For my answer to her response to this article, click here:

http://www.garynorth.com/public/7156.cfm

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm

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