It's a mad, bad, wonderful world: A celebration of commercial diversity

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In some countries people haggle incessantly, in others to haggle is insulting. In many cities transportation costs are based on time rather than distance. On Alderney house buyers and house sellers both put up a deposit. This lecture examines how people use different commercial structures around the world and what we might learn from their strange ways. Continuing Professional Development Attendance at these lectures can contribute towards the Continuing Professional Development requirements of the Securities & Investment Institute (SII) and the Association of Chartered Certified Accountants (ACCA). Some other professional associations also accept these lectures under their CPD requirements. Further details of CPD entitlement can be obtained direct from members' professional bodies.

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Professor Michael Mainelli




Good evening Ladies and Gentlemen.  Tonight is a multi-cultural celebration of some of the crazier aspects of commercial transactions, not least of which might be giving free lectures for over 400 years.  As Gresham regulars know, it wouldn't be a Commerce lecture without a commercial so I'm pleased to announce that the next Commerce lecture will be "Regulating The Above Average: Luck Or Skill?" here at Barnard's Inn Hall at 18:00 on Monday, 15 December.

An aside to Securities and Investment Institute, Association of Chartered Certified Accountants and other Continuing Professional Development attendees, please be sure to see Geoff or Dawn at the end of the lecture to record your CPD points or obtain a Certificate of Attendance from Gresham College.

Well, as we say in Commerce - "To Business".

The First Business Trip

This lecture examines how people use odd commercial structures around the world and what we might learn from their strange ways.  At points we shall touch on the history of money and coinage, though I particularly intend to look at how the social aspects of commerce interact with communications theory. One of my first business trips abroad, to Switzerland, partially inspired this lecture.  I'd already experienced perplexing British commercial situations, such as having Post Office Telecommunications (later British Telecom) demand a significant deposit from an unknown new customer for a new telephone, but then realising that the best way to get the deposit back was to cancel the contract a few months later and re-apply as a known customer.  At the age of 20 this trip to Switzerland was the first time I exchanged my own currency and made my own travel arrangements.  I arrived in a country where overall, frankly (sic), things were fairly similar to the British Isles, yet I noted two strange things that stuck with me for nearly three decades.  The first strange thing I noticed was that my bus ticket from the airport was valid for one hour.  If my journey took longer than an hour I'd have to get off and buy a new one.  I noticed too that this time limit was enforced by the various inspectors.  What a wonderfully intelligent system.  If you don't want extra charges and difficulties, then don't travel at peak times.   When you realise that we congratulated ourselves on introducing a congestion charge in London in 2003, with great fanfare and impressive amounts of technology, this simple Swiss approach to congestion provides a simple counterpoint.  Further, it really is a congestion charge.  You will pay more if you go when traffic is moving slowly, whereas the London congestion charge is just a daily access tax.  We'll uncover the second strange thing about currency later.

The Silent Trade


I thought it would be fun to have a lecture where die-hard markets people suspend their belief that markets always work, and see what anomalies come out.  Over the past six months I've asked for help from friends and acquaintances - what strange or unusual commercial practices have they observed.  I was delighted when an old friend Keith Smith pointed out something with which I'd intended to start this lecture.  When Keith taught African history, he explained the "Silent Trade".  For many centuries, sub-Saharan Africa, particularly the western Sahel, was rich in gold and poor in salt.  Salt from the desert was needed by the people of the Sahel to flavor and preserve their food.  Gold was valued by Europeans.  The British variously called areas southwest of Timbuktu on the Niger tributaries from Jenne to Ghana, "Guinea", from which the British gold coin takes its name.  For well over a millennium, salt was worth its weight in Guinean gold along the transition from Sahara to Savanna, where sub-Saharan Africa starts to turn green.  Herodotus records the Silent Trade on the west coast of Africa outside the Straits of Gibraltar around 440 BC.  Let's listen to Herodotus 24 centuries later:

"The Carthaginians say also this, namely that there is a place in Libya and men dwelling there, outside the Pillars of Heracles, to whom when they have come and have taken the merchandise forth from their ships, they set it in order along the beach and embark again in their ships, and after that they raise a smoke; and the natives of the country seeing the smoke come to the sea, and then they lay down gold as an equivalent for the merchandise and retire to a distance away from the merchandise. The Carthaginians upon that disembark and examine it, and if the gold is in their opinion sufficient for the value of the merchandise, they take it up and go their way; but if not, they embark again in their ships and sit there; and the others approach and straightway add more gold to the former, until they satisfy them: and they say that neither party wrongs the other; for neither do the Carthaginians lay hands on the gold until it is made equal to the value of their merchandise, nor do the others lay hands on the merchandise until the Carthaginians have taken the gold."


[Herodotus (480 BC? - 420 BC?, ca 440 BC), Volume I, Book IV, Section 196; Translation by MACAULAY, George Campbell (1852-1915) - Source:]

More on messages across time later.  Bernstein writes of the Silent Trade, "What must those poor diggers have thought of the funny people from the north country who swapped inestimable salt for stuff whose only role on earth was to give men pride and pleasure by letting them see its lustre?" [Bernstein 2000, page 73]

The Silent Trade, also known as "dumb barter" or "depot trade", was a feature across the Sahel.  In east African Azania, Cosmas Indicopleustes, the voyaging 6th century Greek merchant-monk, describes bartering gold for beef.  Portugal's Prince Henry the Navigator recorded dumb barter centuries later when he occupied Ceuta in 1415, though by now the conventions for signalling included drums or gongs. 

The local board (or dust) games in much of the Sahel have two parallel lines of depressions and winning involves placing counters in your depressions opposite your opponents, the Mancala family of games, of which Oware is an example.  Keith wonders whether the Silent Trade might be the basis of Mancala games.  I did some inconclusive digging.  Mancala games seem to be about 1,300 years old and probably originated in East Africa, near modern Ethiopia, so it is a possibility.

Information & Communication Theory


Many commentators remark that dumb barter is a method by which people with no common language could barter goods.  Less remarked upon is that even if people spoke a common language, dumb barter is a way to avoid physical confrontation or overpowering.  You have time to run away.  Dumb barter is about trust.  We touched on a similar problem in last December's lectures on Fads and Fashions [] when I shared a little puzzle about trust, deterrence and rationality.  "Imagine that someone promises to leave a bag of oranges by a tree in the woods every day in return for £5 from you.  ... the deal can never get started with rational people.  Trust breaks this jam.  Trust, whatever it is, will get people to leave the money and leave the oranges.  But how can rational people trust?"

The reason I wanted to start this lecture with the Silent Trade is that it provides an ideal opportunity to introduce some of you to the principles of communication theory, but first I want to introduce you to one of the not-so-silent characters of the 20th century who proposed the first major theory of communication.

Claude Shannon (1916-2001) was a remarkable American electronic engineer and mathematician who, as a telecommunications engineer at Bell Telephone laboratories, was at the heart of the information revolution of the past century.  This 1950 photograph of him shows his electro-mechanical mouse, Theseus, in a maze used for one of the first experiments in artificial intelligence.  Even his 1937 master's thesis at MIT was remarkable. "A Symbolic Analysis of Relay and Switching Circuits" was published in the 1938 issue of the Transactions of the American Institute of Electrical Engineers.  Shannon demonstrated that Boolean algebra could resolve numerical relationships, thus crediting him with setting out digital computer and circuit design theory as early as 1937.  The combined engineering societies of America bestowed the Alfred Noble Prize (sic, not the Nobel) in 1940 on him for his thesis, and he hadn't really even started his career at age 24.  Harvard University's Howard Gardner said Shannon's thesis was "possibly the most important, and also the most famous, master's thesis of the century." 


Shannon was a bit of a character too.  He loved unicycles and juggling.  He wrote the first chess software paper on minimax procedures.  He co-invented the first portable computer and made a fortune with his friend Edward Thorpe using it to beat the Las Vegas casinos at roulette and blackjack.  I can't resist one further digression about him.  Based on an idea by Marvin Minsky, he kept an extremely plain box on his desk called the "Ultimate Machine".  The box had a single switch on the side.   Of course with "Ultimate Machine" written on it, people simply couldn't resist flipping the switch to see what happened.  When someone did flip the switch, the lid of the box opened, a mechanical hand emerged, the mechanical hand flipped off the switch and then retreated back into the box.


Shannon remained creative throughout his life.  His enduring fame emanates from a paper he published in 1948, "A Mathematical Theory of Communication".  This paper is widely held to have initiated information theory and communication theory.  The paper opens with the statement, "The fundamental problem of communication is that of reproducing at one point, either exactly or approximately, a message selected at another point."  The paper is famous because in one step it connected basic ideas such as:

♦     the "bit" being the fundamental unit of information;

♦     channel capacity and compression: the measure of the maximum amount of information a channel can carry;

♦     entropy: the measure of uncertainty as a measure of value, or, the value of a specific bit of information depends on the probability that it will occur;

♦     redundancy: the degree to which information is not unique in the system;

♦     noise: any additional signal that interferes with the reception of information is noise.

Shannon would be a towering figure in any case, but he grows taller because he published his 1948 ideas with a co-author, Warren Weaver (1894-1978), in a landmark work on communication in 1949, The Mathematical Theory of Communication.  Weaver was a mathematician who pioneered the idea of using machines to translate languages.  He covered all the basics in an early memo.  In later life Weaver was an important scientific administrator who held a deep commitment to public understanding of science.  He became President and later Chairman of the American Association for the Advancement of Science.  Rather like our former Professor of Geometry, Robin Wilson, Weaver was entranced by Lewis Carroll's Alice In Wonderland and, rather naturally, how it could be translated.  He supposedly had some 160 editions in over 42 languages and in 1964 wrote a book entitled Alice In Many Tongues: The Translations Of Alice In Wonderland.

It's not difficult to grasp information theory.  You see before you seven elements that Shannon set out, going from left to right.  The start is a source message: the material that an information source wishes to transmit, e.g. words or poetry that you wish to send your mother.  This then propagates from the:

♦     information source: an entity that is responsible for formulating a particular message from a set of possible messages, e.g. you sending a birthday message to your mother;

through the:

♦     transmitter: an entity that changes the signal into a form that can be sent to the receiver, e.g. your child writing out "Happy Birthday!" or you tapping it into a computer;

♦     source signal & received signal: a form in which the message is physically sent, e.g. letter or email, along a channel: the medium used to send the signal, e.g. post or broadband;

♦     noise source: anything that introduces something that was not intended by the information source, e.g. postman dropping letter in a puddle or computer transmission error;

♦     receiver: the opposite of the transmitter, translates the signal into a message that can be processed by the destination, e.g. your mother's eyes opening an envelope or computer screen;

to the:

♦     destination: the recipient of the message, e.g. your mother.

All this theory leads to the transmission of a received message: the combination of the signal and any noise that has been introduced, e.g. a damp, muddy note or a garbled email.  Shannon's information theory is clearly a simplifying theory that ignores meaning.  It reminds me of Alfred Capus (1857-1922) the French journalist who commented, "Words are like sacks, they take the form of whatever one puts in them."("Les mots sont comme des sacs: ils prennent la forme de ce que l'on met dedans.") 


A lot of the criticism of Shannon starts by pointing out, rather self-evidently, that communication is not this simple.  Still, Shannon and Weaver made no claims that their theory was all-encompassing.  They were out to describe and solve technical problems.  Social humans, though, experience multiple levels of communication.  At a technical level, you have the basic pen and paper or bits & bytes.  Above that, you have the system of communication, a postal network or a telecommunications infrastructure.  Above that you have a social system fixated on anniversaries of planetary solar alignment and the severing of an umbilical cord.  Above that you have you and your mother's relationship.  Above that you have your mother's sense of humour, which is why it might all go wrong when you make a joke about her age in the poem you composed and found so witty.

Information theory notes that common things are generally shorter than less common things, so "dear" is shorter than "birthday".  Information theory also notes that redundancy adds robustness to the message, so your mother still understands "Happy $%^&*£+#!".  Remember games of Chinese whispers and the apocryphal World War I tale of a message from the frontline starting as "send reinforcements we're going to advance" but arriving at HQ as "send three and four pence we're going to a dance".  We need robustness at the social level.  If you call your mother every day you'll probably find that she gets over your tasteless poem.  If you call your mother once a year, she may nurse her umbrage at your joke till it grows into a family rift.


Information and communication theory are at the heart of the 20thcentury's information revolution, influencing a plethora of disciplines, both pure & applied, both technical & social, such as computer science, coding, encryption, cybernetics, artificial intelligence, syntax, semantics, semiotics, systems theory, gambling, investing, complexity, chaos theory and even post-modern deconstructionism.  Perhaps the most advanced idea put forward by Shannon is valuing information.  Stephen Littlejohn explains this concept well:

"Information is a measure of uncertainty, or entropy, in a situation. The greater the uncertainty, the more the information. When a situation is completely predictable, no information is present. Most people associate information with certainty or knowledge; consequently, this definition from information theory can be confusing. As used by the information theorist, the concept does not refer to a message, facts, or meaning. It is a concept bound only to the quantification of stimuli or signals in a situation.


On closer examination, this idea of information is not as distant from common sense as it first appears. We have said that information is the amount of uncertainty in the situation. Another way of thinking of it is to consider information as the number of messages required to completely reduce the uncertainty in the situation. For example, your friend is about to flip a coin. Will it land heads up or tails up" You are uncertain, you cannot predict. This uncertainty, which results from the entropy in the situation, will be eliminated by seeing the result of the flip. Now let's suppose that you have received a tip that your friend's coin is two headed. The flip is "fixed." There is no uncertainty and therefore no information. In other words, you could not receive any message that would make you predict any better than you already have. In short, a situation with which you are completely familiar has no information for you.

[Littlejohn, 1983, page 116]

Likewise, if our only information is fairly tossed coins, they are equivalent to randomness, no information either, just white noise.  We should move from Shannon on to Weaver.  While Shannon focused more on the engineering aspects of the mathematical model, Weaver developed the philosophical implications of Shannon's essay.  Weaver's commentary on Shannon pointed out the wider applicability of Shannon's work.

"How does noise affect information?  Information is, we must steadily remember, a measure of one's freedom of choice in selecting a message.  The greater this freedom of choice, and hence the greater the information, the greater is the uncertainty that the message actually selected is some particular one.  Thus greater freedom ofchoice, greater uncertainty, greater information go hand in hand."

[Shannon and Weaver, 1949]

At the level of tonight's lecture I had tremendous freedom of choice and thus tremendous uncertainty about whether I could successfully convey important concepts adequately.

The Binds Of Communication


Shannon's and Weaver's ideas were extended by Wilbur Schramm, David Belso and others to a general theory of human communication.  Weaver had noted that - "The concept of information developed in this theory at first seems disappointing and bizarre - disappointing because it has nothing to do with meaning, and bizarre because it deals not with a single message but rather with the statistical character of a whole ensemble of messages, bizarre also because in these statistical terms the two words information and uncertainty find themselves to be partners."  This concept of noise affecting information ranges from measuring signal quality, to the importance of body language in human communication to the role of education.  Perhaps the biggest addition to the Shannon and Weaver model has been the idea of feedback loops.  Encoding and decoding are integral to Shannon's model, but communications theorists emphasise that both the sender and the receiver are in a loop performing both roles.  I reproduce here Schramm's diagram of this.  As well as having feedback from recipients, Schramm notes that people monitor and evaluate their own behaviour - "self-monitoring."  Face-to-face communication has immediate, simultaneous feedback, while mass communication has indirect, delayed feedback.


The University of Toronto economics professor Harold Innis (1894-1952) was influential in developing modern theories of communication.  He dwelt on the interaction of empires and communication.  His theory was that the media people choose will affect the shape and durability of their society.  He divided media into two types, "time-binding" and "space-binding".  His most famous example is the distinction between time-binding stone and space-binding papyrus.


"The concepts of time and space reflect the significance of media to civilization. Media which emphasize time are those which are durable in character such as parchment, clay and stone. The heavy materials are suited to the development of architecture and sculpture. Media which emphasize space are apt to be less durable and light in character such as papyrus and paper. The latter are suited to wide areas in administration and trade.  The conquest of Egypt by Rome gave access to supplies of papyrus which became the basis of a large administrative empire. Materials which emphasize time favour decentralization and hierarchical types of institutions, while those which emphasize space favour centralization and systems of government less hierarchical in character."

[Innis, 1950, page7]

Given Innis' theories we should expect our extremely light information age to emphasise centralisation and less hierarchical government.  A point for discussion.  When I first came across information and communication theories they led me to ponder whether money was just information or communication.  Interestingly, Innis influenced his vastly more famous Canadian colleague at the University of Toronto, Marshall McLuhan.  In the same book that McLuhan points out that "the medium is the message" and spots local culture being overwhelmed by globalisation,Understanding Media, he too touches on money as a medium of communication:

"... money is a language for translating the work of the farmer into the work of the barber, doctor, engineer, or plumber.  As a vast social metaphor, bridge, or translator, money - like writing - speeds up exchange and tightens the bonds of interdependence in any community.  It gives great spatial extension and control to political organization, just as writing does or the calendar.  It is action at a distance, both in space and in time."

[McLuhan, 1964, page 136]


So as "money truly makes the world go round", let's turn to the origin of money as a communications device.  According to legend, King Midas bathed in the Pactolus river to remove his curse, leading to the river being full of gold.   Gyges the first of the Mermnadae suppressed private issue of metallic money in a society that used a variety of monetary forms, for example obsidian.  The Lydians used Midas' alluvial gold in exchange, but then struck on a key innovation.  Herodotus said of the Lydians:

"they were the first of men, so far as we know, who struck and used coin of gold or silver; and also they were the first retail-traders."

[Herodotus (480 BC? - 420 BC?, ca 440 BC), Volume I, Book I, Section 94; Translation by MACAULAY, George Campbell (1852-1915) - Source:]


Gyges' descendant King Alyattes is credited as the first person to mint gold coins.  The last of the Mermnadae was the most famous of the ancient moneybags, Croesus.  You see before you a Lydian electrum (alloy of gold and silver) trite or third stater (4.71g, 13x10x4 mm).  This coin was minted by King Alyattes, Croesus' father, in Sardis, Lydia, Asia Minor circa 610 BC to 600 BC and may be the oldest extant coin.  Historical numismatists don't all agree that Lydia was first.  Some credit other areas of the Near East, others China, but in any event non-barter transactions extend over 2,600 years.  We can easily extend Schramm's communication model to handle money exchange.  Money changed barter transactions forever.  Notice an interesting feature of early money; it was typically metallic, typically gold or silver or bronze.  From the start, money was also about counterfeiting, gold and its touchstones, clipping coins and degraded metals feature in a much longer history of money. 


"Money as communication" begs the question of whether money is time-binding or space-binding.  An old economics rhyme for money is "Money is a matter of functions four, a medium, a measure, a standard, a store."  Modern definitions of money tend to be more fastidious, stating that money is a medium of exchange with two properties - it can be used as a unit of account and it can be used as a store of value.  Of the many things that have been money, barley seeds are interesting, because despite the peculiarity to us today, the seeds exhibit the two properties of interest; a high degree of uniformity, thus making them an excellent unit of account; and they can be held over for another season's planting, thus providing a store of value.  To be money, the medium of exchange must be a standard of deferred payment.  This is why perishable fruit may be a medium of exchange from time-to-time, but has never really taken off as money.

One can rapidly conclude that money is both time-binding and space-binding.  To defer payment, the value of money must span time.  To be a useful unit of account, the reckoning of money must span space and communities.  Non-barter transactions communicate across time and space.

Commercial Diversity


Still, non-barter transactions take many forms.  As I mentioned in the blurb for this lecture, on Alderney the feedback loop for houses is doubled.  I am indebted to Bob McDowall, an Alderney resident, for pointing this out.  Traditionally in the UK, the buyer of a house puts up a deposit to show that they are serious about their offer.  On Alderney the buyer and the seller of a house must both put up a deposit.  Like England, under this Channel Island's system of conveyancing, should the purchaser renege the deposit is passed to the vendor, but unlike England, should the vendor renege the deposit is returned to the purchaser together with a like sum from the vendor.


Let's advance back to 1979 in Switzerland.  The second strange thing on my first business trip, at least for me then, was the currency.  Now I have great respect for Swiss currency.  Swiss currency was introduced in 1850 to replace the currency previously issued by the cantons of the Swiss Confederation. Up till 1926, Switzerland was a member of the Latin Monetary Union, through which the currencies of France, Belgium and Italy were interchangeable in a 1:1 ratio.  Back in 1979 I could find a lot of Swiss Francs in circulation, there were many more smaller value coins marked with centimes.  You had 50 centimes, 20 centimes, 10 centimes and five centimes.  Obviously 100 centimes equalled one franc.  But there seemed to be no 1 centime coin.  I had only worked in countries where the basic unit existed.  How could a currency be based on nothing?  If a franc was 100 centimes, then was it based on fiction.  I asked around, "was there a one centime coin?".  Many Swiss shrugged their shoulders.  Actually, it turned out that there was a small bronze 1 centime (or 1 rappen) coin, but it was rarely used.  The one centime coin was formally withdrawn from circulation in 2006.  By the way, for those of you hoarding old coins, you'll be pleased to know how timely this lecture is.  1 centime coins can still be exchanged at their nominal value at the Swiss Post or the Swiss Federal Railways until 31 December 2008, and at the Swiss National Bank until 31 December 2026. So is the Swiss currency since 2006 based on fiction? 


Having spent time as a child in Italy, perhaps I should have been equally curious then about trying to find a single lira.  At a time when people are talking about Bretton Woods II, it's interesting to remember that the gold standard lasted in various forms for some 26 centuries, and may even be making a comeback.  The early modern approach to money has been fiat money.  Fiat money is any money whose value is determined by legal means, rather than the strict availability of goods and services which are named on the representative note.  Typically, these legal means have been that the money is acceptable for the payment of taxes.

But people do act strangely.  In fact, if there is one thing you can count on in life it's that people are fickle.  Justin Wilson kindly provided me a story via email: "A contact of mine involved in heavy manufacturing tried three different suppliers when he first set-up in Russia in the late 90's.  They started slowly, and then ramped up production once the original business case had been confirmed. He called in the best of the three suppliers to negotiate an agreement to buy 10 times the volume that they had started with.  Being a Western businessman, he assumed a perfect local market [sic] and therefore found out what discount he would get for increasing his order size. Dealing with a Russian businessman, he got the reply that 'it will cost 25% more per item to increase the order size - you obviously like what we produce and need us'. He didn't tell me what they finally agreed, but he did pay more per unit for the increased volume."

It doesn't have to be private transactions either.  My old friend and Gresham lecturer, Ian Harris, pointed me to an interesting snippet about Italian tax mores in a book chapter by Arthur L Kelly. 

"The Italian tax authorities assume that no Italian corporation would ever submit a tax return which shows its true profits but rather would submit a return which understates actual profit by anywhere between 30 percent and 70 percent; - about six months after the annual deadline for filling corporate tax returns, the tax authorities issue to each corporation an "invitation to discuss" its tax return. ... a leading American bank opened a banking subsidiary in a major Italian city.  At the end of its first year of operation, the bank was advised by its local lawyers and tax accountants, both from branches of U.S. companies, to file its tax return "Italian-style", i.e. to understate its actual profits by a significant amount.  The American general manager of the bank, who was on his first overseas assignment, refused to do so both because he considered it dishonest and because it was inconsistent with the practices of his parent company in the United States.  About six months after its "American-style" tax return, the bank received an "invitation to discuss" notice -  About sixty days after receiving the initial "invitation to discuss" notice the bank received a formal tax assessment notice calling for a tax of approximately three times that shown on the bank's corporate tax return; - The bank's general manager again consulted with his lawyers and tax accountants - Instead [of following their advice to use an expert and negotiate], he responded by sending the Italian revenue service a check for the full amount of taxes due according to the bank's American-style tax return even though the due date for the payment was almost six month hence ... "


"... the bank received a third notice from the fiscal authorities.  This one contained the statement, 'We have reviewed your corporate tax return of 19__ and have determined that [the lira equivalent of] $6,000,000 of interest paid on deposits is not an allowable expense for federal tax purposes - Since interest paid on deposits is any bank's largest single expense item, the new tax assessment was for an amount many times larger than that shown in the initial tax assessment notice and almost fifteen times larger than the taxes which the bank had actually paid."


"The bank's general manager - immediately arranged an appointment to meet personally with the manager of the Italian revenue service's local office ... [that] went something like this:

General Manager: "You can't really be serious about disallowing interest paid on deposits as a tax deductible expense."

Italian Revenue Service: "Perhaps.  However, we thought it would get your attention.  Now that you're here, shall we begin our negotiations?'"

According to Kelly, the bank was forced to pay three times what it should have and the American manager was recalled.  As for the Italian Revenue Service, they truly know the importance of "ad-mini-stirring".


This leads me to another titbit of monetary fiat and diversity.  Ian Harris also pointed out to me the importance of the number "9" to Burmese currency.  The currency in Burma is the kyat.  Ne Win, who ruled the country from 1962 to 1988 imposed a "Burmese Way to Socialism" that included traditional socialist touches such as nationalisation, but also some odd ones such as numerology. Numerology apparently induced Ne Win to introduce 75 kyat notes in November 1985, probably to commemorate his 75th birthday.  But the odd denominations didn't stop.  In 1986 he introduced 15 kyat and 35 kyat notes.  In September 1987 he unexpectedly demonetised the 25 kyat, 35 kyat and 75 kyat notes, rendering about 75% of Burma's currency worthless.  From that point he apparently considered the number 9 to be lucky because his astrologer had told him that if he surrounded himself with the number 9 then he'd live to the age of 90.  Later that month Ne Win introduced the 45 kyat and 90 kyat notes based on his now favourite number, 9.  The 8 August 1988 uprising and military takeover ("8888 Uprising") was the result - so 8 was clearly a dangerous number for him.  Of course if he'd succeeded in moving the currency fully to base 9, then the number 9 would have been unnecessary and could have been saved for distinguished uses or even worshipped.  Ironically, by following his astrologer's advice Ne Win lived to age 91.

Paying The Piper


The Silent Trade highlights the problems of timing - when does exchange for services take place - remember the legend of the Pied Piper of Hamelin and his revenge on the townfolk who reneged on payment for eliminating the town's rats.  I'd like to touch on another aspect of information theory and money, at what time people pay for commodities or services.  Recently, my firm was asked to provide a tender to test a financial website's security.  Computer security services are tough to provide.  The client wants assurance that the entire site is safe, but the consultant cannot guarantee total security.  The client would like the consultant to indemnify, or insure, their work, but no firm or insurer will do this.  The client wants a fixed fee quotation, but the consultant is unsure how much time a quality job will take. 

In such a situation, we provide a quote based on a likely range of costs, tell the prospective client about our general approach, our credentials and the quality of our team.  But for a client, it's still buying-a-pig-in-a-poke.  Clients take a lot of note of the old saying that, "If someone says he will do something "without fail", he won't."  We could put our feet up, claim the website is safe and pocket the money.  So the clients typically probe our cost structure, what's our daily rate?  This may sound sensible, but in reality leaves the client even more confused.  If you compare two quotes of comparable days, are they really the same?  More competent people should do the job in less time and cost more per day.  But are they just trying to rip you off?  So, clients begin to haggle with the expensive crowd.


Our desire to know what we're getting up front structures many aspects of commerce.  Take milk bottles and cartons.  In many countries milk cartons are accepted.  However in the UK retailers have difficulty bringing out cartons where people cannot see the milk, e.g. the GreenBottle project of a friend of mine, Martin Myerscough, who is introducing a milk container from recycled pulp -  I presume this has to do with the introduction of homogenisation in the UK later than other countries, so that people still expect to be able to assess the state of the milk by looking at the cream formation on the top of a glass bottle before they buy.


I was involved in the early days of computer games building one or two myself and playing others, Multi-User Dungeon (MUD) in 1978 no less.  Further, in the 1990's I was involved again from the business end and found, to my surprise, that one of the most popular areas in games, especially online ones, are the markets or auctions where people trade game items or currencies or avatar powers.  A couple of years ago (16 May 2006) I was delighted to go to a Centre for the Study of Financial Innovation event where massively multi-player online role-playing games (MMPORGs or MMOGs) were discussed by us City financiers, while academics such as Richard Bartle and Aleks Krotoski pondered whether the cross-over in online payments and real payments was cheating. 

For most serious gamers, it's pay-to-play and their resource constraint is typically time, so they'd like to get ahead.  I knew that people made a living creating characters or obtaining devices such as the Sword of Everlasting Pain or the Codpiece of Doom and then reselling them, which many gamers find unethical.  I've argued that when players resell items it's a sign of poor game design - the game ought to punish newbies who use expensive weapons through a higher likelihood of losing them.  However, equipment fakery is different from achievement fakery as it's a lie to other users about your abilities.  Anyway,  what I hadn't appreciated was the sophistication of the off-exchange markets, such as Internet Gaming Exchange ( or Itembay ( or Second Life's Linden Dollar currency exchange (, meeting the demand of game players to buy, sell and trade in-game items and currencies.


Haggling and auctions are very interesting because they are all about information and communication.  If you have certainty, then haggling and auctions are unimportant.   If you have lots of uncertainty, then haggling and auctions come to fore and grow more complex.  This slide shows one way of categorising auctions, based on whether or not you have multiple rounds to buy and whether or not you have can multiple or interlinked purchases.

Looking across all of these markets a good rule of thumb is that the more certain you are you will get what you pay for, the more likely you'll pay the quoted price up front.  You're more certain you will get what you pay for if it's a basic commodity or a well-known brand.  You pay for things in advance in supermarkets.  You pay for well-known goods in advance, try getting an iPod on trial.  When you're less certain you will get what you pay for, you haggle and typically pay in arrears.  Website security work would normally be paid after the work has finished.  Possibly the best illustration of how payment links with certainty is to think of paying for a meal; at McDonald's the strong brand commodity is paid for before you consume, while a meal at a pricey establishment is almost always paid afterwards.  It would be interesting to see a pricey establishment try and compete by having people pay up front, thereby signalling there is little risk.  Another way to remember this is that "when failure is not an option, they take your cash".  So one clear link to "money as communication" and information theory might be: certainty brings payment forward and reduces haggling.

Crazy Islanders - South Pacific and North Atlantic


Well, it's fun to make fun of these crazy virtual-world gamers, but let's move to our final example, fei stones on the island of Yap.  Their story brings together the magnificent, and perverse, ways in which we interact with money.   The Yap Islands were formerly known as the Caroline Islands.  They lie in the southwestern Pacific north of Papua New Guinea.  Yap is basically a sandy, shale and coral island.  I draw heavily on Bernstein [2000] here, who says that "Furness points out, 'In a land where food and drink and ready-mad clothes grow on trees and may be had for the gathering, it is not easy to see how a man can run very deeply in debt for his living expenses.'"  Fei stones are large stone wheels from the size of saucers up to about eight feet in diameter.  The stones come from limestone quarries on the Palau island of Babelthuap, almost 300 miles away.  Limestone is unheard of on Yap.  Fei stones were all transported by canoe.  Smaller stones paid for pigs and fish.  Apparently the first stones were carved in the shape of fish, but the Yap-landers soon carved larger rounded stones in which they punched holes make them more mobile, though it took up to 20 men using poles.  To keep the stones from jingling in their pockets, the Yap-landers would leave them standing outside their homes as a sign of wealth.  When a big transaction needed to take place, rather rarely as Furness notes, the coin would often sit placidly despite a change of ownership. 


"In fact," says Bernstein, "the wealthiest family in the [Yap] community owned an enormous fei that no one could see or had ever seen. According to this family, their fei lay on the bottom of the sea. Many generations past, while an ancestor was towing it on a raft attached to his canoe, a terrible storm came up.  [T]his man had decided that life came first and money second: he cut the raft adrift and watched the huge stone sink below the waves. But he survived to tell the tale and to describe to everyone the extraordinary size and quality of the stone he had lost.  Nobody had ever doubted the veracity of his testimony. As Furness described it, 'The purchasing power of that stone remains, therefore, as valid as if it were leaning visibly against the side of the owner's house.'"


Fei stones silently demonstrate the importance of honesty and trust, as well as the imaginary nature of all money systems.  And the Yapese faced counterfeiters: "Around 1878, [the] Irish-American captain David O'Keefe was shipwrecked on Yap.  Discovering the local demand for these strange objects, he decided to use modern, European nautical and stonecutting technology to produce and transport the stones [from Palau] more efficiently, making a fortune in the process. Cut with metal tools, O'Keefe's stones were smoother and shinier than those the natives had crafted with primitive hand tools.  They were bigger, too, because they could be.  Carried on a regular ship, the newer stones reached diameters of up to twelve feet - Though bigger, the new stones didn't represent the effort and risk that made the earlier ones so valuable.  The sea captain flooded the market, but he didn't devalue the local currency entirely.  An older, entirely Yapese coin is worth far more than one procured with O'Keefe's help." [


And taxation rears its ugly head.  The Germans bought Yap from the Spanish in 1898.  The Germans wanted to move from coral paths to roads, but the natives weren't particularly keen on the work.  One enterprising German went round marking the most valuable fei with a black cross, a tax.  Furness [1910, page 100] relates "This instantly worked like a charm; the people, thus dolefully impoverished, turned to and repaired the highways to such good effect from one end of the island to the other, that they are now like park drives."  When the crosses were erased, the people rejoiced in their freedom and rolled in their wealth.  Societal delusion, or dare I say Marxist false consciousness, is rife.  In 1697 James Hodges located money firmly in the imagination:

"[the] whole Value that is put upon Money by Mankind, speaking generally, is extrinsick to the Money and hath its real seat in those good things, through the Estimation providentially put upon it, which it is capable to purchase." [HODGES, James, The Present State Of England As To Coin And Publick Charges, London (1697) page 147; quoted in Buchan, 1997, page 104]


Before you think we're very sophisticated with all our crazy derivatives, remember the Yap Islands.  By way of closure, Yap passed to the Japanese in 1919, then to the Americans in 1945 and finally became independent in 1986 as part of the Federated States of Micronesia.  Fei stones are still used as tender in traditional transactions.  People I know tell of seeing the Federal Reserve Bank of New York's gold stores - that changes hands constantly, but never moves.  Bernstein, after repeated requests, points out that only the US military can vouch for Fort Knox supposed holdings, despite what you and I believe we saw in Bond's Goldfinger.  In 1930, Keynes in a style reminiscent of Terry Pratchett and his Discworld poetically forecast:

"[Gold] no longer passes from hand to hand, and the touch of the metal has been taken away from men's greedy palms.  The little house-hold gods, who dwelt in purses and stockings and tin boxes, have been swallowed by a single golden image in each country, which lives underground and is not seen.  Gold is out of sight - gone back again into the soil.  But when gods are no longer seen in a yellow panoply walking the earth, we begin to rationalize them; and it is not long before there is nothing left." [Keynes, quoted in Bernstein, 2000, page 293]

Now fiat money is created when a type of credit money (typically notes from a central bank, such as the Bank of England) is declared by a government act (fiat) to be acceptable and officially recognised as payment for both public and private debts.  Perhaps the post-modern approach to money has been credit created by private sector leverage.


In the course of writing this lecture it was almost impossible to cut down the number of crazy ways we organise commercial transactions, and our crazy responses to them.  I don't have time to explore our predictably irrational exuberance once we see "free" on something. [Ariely, 2008, pages 49-65]  Or how when we see "all you can eat" our behaviours go haywire.  Or how mortgage companies pursue new business but ignore their customers trying to renew.  Some people pointed out to me that "Death" cigarettes are more successful at marketing than equivalent brands.  Recent research shows that people believe that wine tastes better when it's more expensive.  We could have rummaged happily through history, both recent changes such as open-access shop shelves or older innovations such as the 1780's introduction of fixed retail prices for clothes by Flint & Palmer on the Borough end of London Bridge itself.  Don't even get me started on why we don't use continuous compound interest and why we irrationally fixate on statements timed to coincide with our planet's satellite.  Yet each of us is truly homo economicus and these examples show we can't deny it.

Going back to Schramm's wider interpretation of Shannon & Weaver, everything in commerce is about encoding, decoding and interpreting offers to buy and sell, to store, and to retrieve.  We can see that clarity and integrity of communication matter in formal and informal situations.  It's all about "money as communication".  I'd like to close with a couple of comments.  First, commerce only exists within the context of social communication.  From Marshall McLuhan again:

"In a word, money is not a closed system, and does not have meaning alone.  As a translator and amplifier, money has the exceptional powers of substituting one kind of thing for another."

[McLuhan, 1964, page 142]

What McLuhan notes, as do I, is that Commerce and commercial transactions and money are inextricably linked to their societies.  This implies that antiseptic, neutral exchanges of currency don't exist.  Each transaction with another person links us just a little bit more to the other person's societal mores, and them to ours.  Increasing the number of monetary transactions results in increasing degrees of trust, and equally raises the spectre of a single point of failure - loss of trust.

And the second closing comment is to point out the potential terrors in "money as communication".  It's only a coincidence that "fei" as in stones resembles our words for "fay" as in fairy and "fey" as in fated or otherworldly, but money is fated.  Like "The poor Babel fish [in The Hitch Hiker's Guide To The Galaxy], by effectively removing all barriers to communication between different races and cultures, [money] has caused more and bloodier wars than anything else in the history of creation." [Adams, 1979, page 50]

Thank you.



1.        Your commercial stories.

2.        Are there "laws of commerce?"

Further Reading

1.        ADAMS, Douglas, The Hitch Hiker's Guide To The Galaxy, Pan Books (1979).

2.        ARIELY, Dan, Predictably Irrational: The Hidden Forces That Shape Our Decisions, Harper Collins (2008) - particularly the chapters "The Cost Of Zero Cost" and "The Power Of Price";

3.        BERNSTEIN, Peter L, The Power Of Gold: The History Of An Obsession, John Wiley & Sons (2000).

4.        BERRY, Helen, "Polite Consumption: Shopping In Eighteenth-Century England", Transactions of the Royal Historical Society, Volume 12 (2002), pages 375-394 -

5.        BOVILL, E W, "The Silent Trade of Wangara", Journal of the Royal African Society, Volume 29, Number 113 (October 1929), pages 27-38.

6.        BUCHAN, James, Frozen Desire: An Inquiry Into The Meaning Of Money, Picador (1997).

7.        CASTRONOVA, Edward, "Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier", Center for Economic Studies and Ifo Institute for Economic Research (CESifo) Working Paper Series Number 618 (December 2001) -

8.        FURNESS, William Henry, The Island Of Stone Money: Uap And The Carolines, J B Lippincott (1910) -

9.        HEATH, Robert L and BRYANT, Jennings, Human Communication Theory and Research: Concepts, Contexts, and Challenges, Lawrence Erlbaum Associates (2000), 454 pages.

10.     INNIS, Harold, Empire and Communications, Oxford University Press (1950).

11.     KELLY, Arthur R, "Chapter 2: Case Study: Italian Tax Mores" inEthical Issues in Business: A Philosophical Approach, Thomas Donaldson, Patricia H Werhane and Margaret Cording (ed), Prentice-Hall (2002), pages 54-56.

12.     LITTLEJOHN, Stephen W, Theories of Human Communication (2ndedition), Wadsworth (1983).

13.     MCLUHAN, Marshall, Understanding Media: The Extension of Man, Gingko Press (1964).

14.     SCHRAMM, Wilbur, "How Communication Works," in The Process and Effects of Communication, Wilbur Schramm (ed), University of Illinois Press (1954), pages 3-26.

15.     SHANNON, C E and WEAVER, W, The Mathematical Theory of Communication, University of Illinois Press (1949).

16.     SHANNON, C E, "A Mathematical Theory of Communication", The Bell System Technical Journal, Volume 27 (July 1948), pages 379-423, (October 1948) pages 623-656 -

Further Surfing

1.        Dr Bob Blain's Time Money Institute for Global Harmony -

2.        Fei stones and Yap -

3.        Fey & Fey - The American Heritage Dictionary notes that "The history of the words fey and fay illustrates a rather fey coincidence. Our word fay, 'fairy, elf,' the descendant of Middle English faie, 'a person or place possessed of magical properties', and first recorded around 1390, goes back to Old French fae, 'fairy', the same word that has given us fairy.  Fae in turn comes from Vulgar Latin Fata, 'the goddess of fate', from Latin fatum, 'fate'.  If fay goes back to fate, so does fey in a manner of speaking, for its Old English ancestor faege meant 'fated to die'.  The sense we are more familiar with, 'magical or fairylike in quality', seems to have arisen partly because of the resemblance in sound between fay and fey."  [The American Heritage Dictionary of the English Language, Fourth Edition, Houghton Mifflin (2000, updated in 2003)] -

4.        History of Coinage -

5.        Information Theory tutorial -

6.        Steven H Kaminski's excellent class notes on Communication Models -

7.        The Ultimate Machine -

8.        Virtual Economies -


I wish I could thank all the incidental contributors to this talk, but I'll focus on a few especial helpers, Ian Harris,

Andrew Hilton, Keith Smith and Justin Wilson.  Thank you!



©Professor Michael Mainelli, Gresham College, 17 November 2008


This event was on Mon, 17 Nov 2008

alderman professor michael mainelli

Lord Mayor Professor Michael Mainelli

Mercers’ School Memorial Professor of Business

Alderman Professor Michael Mainelli MStJ PhD MPhil BA FCCA FCSI(Hon) FBCS CITP FIC CMC MEI is Honorary Life Fellow of Gresham College and Emeritus Mercers'...

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