Grains-based Valuation

The previous section explained using grains as the store of value in order to cure the problems associated with money.

• Money is controlled by either the central bank (wholesaler) and commercial banks (retailer)
• Grains are controlled by the people by growing or storing their own grains

All ancient governments made grain farming, logistics, and storage as their top priority.

Those who failed in this either failed or needed a policy of conquest to keep on raiding the grains of other countries. This made their civilization short-lived and consequently, their culture became insignificant relative to those who could last long.

Adam Smith explained grain-based valuation as real value that is based on wheat, as opposed to nominal value which is based on money as coins:

The real value of a wheat is more stable from century to century than from year to year, compared to metal money.

It is useful to have real and nominal prices for long term leases. But it is not useful in common transactions. At the same time and place, the real and the nominal price of all commodities are exactly in proportion to each other.

Only at the same time and place is money the exact measure of the real exchangeable value of all commodities. At distant places, real and nominal prices will have differences. The merchant considers only the nominal or money price.

Adam Smith

Wealth of Nations, Book 1, Chapter 5

We can say that wheat kept the subjectivity of prices, while coins made them objective. This is because the volume of wheat can change rapidly, whereas metals are more persistent.

But the advantage of persistence of metals is counteracted by the lack of freedom and circulation that happens from hoarding it.

• In contrast, grains cannot be hoarded for so long as they rot. This makes grain-based valuation more dynamic and flexible.

How it Works

Assume that 1 kilo of rice is $1.

Adam want to buy bread from Bob.

The bread is work $1 a piece.

This creates a relation:

1 kilo of rice : $1 : 1 piece of bread  

Since 1 point is 1 kilo of rice, then the bread is worth 1 point.

If Adam doesn’t have $1, he can give to Bob anything that Bob wants that is also worth 1 point.

In this way, both people can get what they want, without having to employ and bankers, financiers, or lawyers.

The most important ingredient in the transaction is their mutual agreement.