I looked over the class. Some were bored, some where mentally absent and a few of the front row people were busy taking notes. This had been a boring class, covering financial systems and economies. I’d been droning on myself, without realizing the effect I had on the class. So, I decided to step out of it.

That’s exactly what I did, I stepped out from behind the lectern and came near the edge of the student desks. The unprecedented activity sent waves across the class and attention rose by 45%. I spoke to the students directly, perhaps the first time since I started teaching the class, “Well students, I’ve been telling you about financial systems all this time, but there’s no better way to explore them than to have a full-scale example in front of us. So, here’s what we’re going to do.” A couple of pens quickly arose to take notes. “We’re going to have a discussion,” the pens went down just as quickly, “and we’re going to talk about a fictional world where cake is the currency.” A few puzzled looks here and there amused me, this was going to be a fun lecture.

“Well, let’s begin, what do you think the world would be like if cake was the currency?”

The class geek spoke first, uncertain of questioning my idea, “but ma’am, how can cake be a currency? It’s perishable!”

“Excellent question, how can something perishable be a currency?”

The one-timer’s hand was raised, so I let him speak. “Ma’am, you’d have to make cake that can last a long time. Maybe even plastic cake.” A couple of students laughed. The one-timer was a student who used his wit once in a while, but when he did, it was always a very good idea. Too bad that he didn’t use it all the time. Unlike cake, brain power is not a perishable.

“Well, let’s remember one thing,” I responded to no one in general, “cake is supposed to be cake, it’s supposed to be edible and tasty. You can’t have plastic cake just like you can’t use monopoly money to buy candy. But yes, you all are on the right track. Pretty soon, people would figure out preservatives to keep the cake longer and yet remain tasty.”

“But I’d just eat it all instead of using it to pay my rent.” Someone from the back had decided to join the conversation. After a few laughs, I answered that idea, “true, you’d try at first. But how much cake can you eat? See unlike money, which you can’t directly consume, cake is an edible commodity, but a rather heavy food, right?”

“And what about transportation?” a girl spoke out of turn, “you can’t lug all that cake around, so I guess you’d need cake banks.”

“Yes, you cannot take cake with you on travels. You cannot ship large amounts of cake without peril and wastage, so your currency would be subject to the laws of nature a lot more than traditional currencies.”

The class geek raised his hand and started speaking, lest someone else beat him to the idea, “and really, how can you have cake as a currency? It’s going to go bad so quickly. You can’t transport large quantities and there’s the risk that someone will just eat all your money!”

“All things true, but then, what is the effect of cake going bad quickly? How does that affect the economy?” I asked. The geek stared back at me without an answer. He’s not thought that far. Lucky for him, someone else answered, a girl sitting in the second row, “it would mean that transactions would be really fast. You cannot have any savings if your currency is going to go bad in a few days tops. You’d just keep buying stuff.”

“Excellent point! You’d have an economy where consumption is more important than savings. Banks would have no money to lend out to people! Now, what about the baking process itself? What about the ingredients?”

A boy in the back raised his hand and I let him speak, “Ma’am, the ingredients would be controlled completely by the government. The baking itself would be done by them and whenever you’d need to buy something, you’d have to go to the bank-bakery and get a new cake baked.”

“Excellent point! Governments love to control the flow and creation of money. So cake would become nothing less than a scarce commodity, which could only be baked by the government’s bakeries. Now, what about piracy?”

The previous boy’s girlfriend had her hand raised before I had finished my question, so I let her speak first. She said, “Well, ma’am, you’re not considering other things about the cake itself. There’s a variety of cakes out there. So many designs, so many flavors, so many ways to decorate them. Each cake would have to be evaluated based on those features and then it’s market value would be set.”

“An excellent point! You can’t just have bland cake. The government would try to standardize the cake, but there are always inconsistencies. Also, people have certain preferences in cake. In general, the government could enforce a vanilla cake with the government’s logos on it, but that would not prevent people from liking chocolate or red velvet cake. People would barter based on their personal preferences. Now, coming back to the question of piracy, does anyone here think that cakes can be pirated or forged?”

Someone from the middle rows answered, “Of course, people will try. But the government controls so much of the economy that they’ll also control the ingredients of the cake. It’d be very difficult for someone to procure the same ingredients.”

“True,” I replied, “difficult, not impossible. Then you’d hear about cake crime, where criminals and the mafia would go about stealing flour so that they can fake cake.”

“But then,” someone chipped in, “the government would set a single design for the cakes and make that a standard. If a cake has that design, it’s a legal tender, otherwise not.”

“Absolutely! The government would definitely try to do that. They would also try to make the cake secure by adding a secret toxic ingredient, which would evaporate during the baking process if bakes in the right conditions. Of course, this would be met with some resistance, since the government is not perfect at baking cake and they’d screw up the process a couple of times.”

“So, essentially,” said one of the boys in the back, “there could be a scenario where the government finds a counterfeiter and makes them eat their own cake to see if the person gets diarrhea or not.”

The class laughed a bit before settling down and I asked my next question. “Has anyone else got anything to say about cake as a currency?”

The rich boy of the class answered, “frankly, I wouldn’t be caught lugging cake around, I’ll just get one of my servants to do it for me.”

“But what if your servant isn’t there with you? You’d not be able to buy anything anywhere,” I interjected.

“Not really,” he replied, “All the usual places I go to know me well. They know that I can easily afford what they have on sale. So they’d let me buy it and pay later.”

“That means they’d be giving you cake credit?”

Someone else answered, “Yes, that makes sense. Just like in real life, I get credit as a means of knowing if I can pay off a loan, in the cake world, I’d be able to prove that I can procure that much cake at a later date. Cake credit would work, specially if people don’t want their cake right now but at the end of the month.”

“Excellent! Now, two more things – what about the rich folk? Right now the people who own mines or oil fields, essentially natural resources, are the ones who quickly get rich. Whenever they need money, they simply sell off a bit of their property, or lease it, and they get money in return. What about the cake economy? Who’d get rich quick?”

“Well, the government has to procure goods from somewhere,” someone on the first bench chipped in, “they’ll just go to the farmers and ask for their crops. That way, those people will have more to barter for than, say, a software engineer, who has very little to do with the production of cake.”

“Wonderful! Now, one last thing – What do you all think about the type of cake? Would you want every type of cake everywhere or would countries decide on National flavors and stick with those?”

The class unanimously declared that they’d want every type of cake everywhere.

“Well, if you guys are allowed, cake would become an international currency and be valued the same everywhere. But that’s not how the real world works, right? There might be some countries that produce more cocoa than others, so they’d hold chocolate cakes to a lesser value than, say, banana pound cake.”

A few murmurs went through the class. I continued to wrap up, “it’ been an interesting discussion so far. I hope you all have enjoyed it as much as I have. There’s no better way to understand economics than to pick up a somewhat real model. Now, let’s quickly review the actual financial terms and ideas that we’ve studied here.” I spent the next ten minutes summarizing some of the terms the class had just talked about and I noticed that they were more attentive than before.

“Class, it’s been a wonderful lecture and I love the participation that you’ve given today. I will be adding today’s participation points to your final grade. If there are still people who haven’t contributed, you should do so now.”

Before I could even finish my sentence, a hand shot up from the absolute back of the class. The gamer girl, Trisha, had suddenly woken up to the prospect of her classmates getting a few more grade points than her.

“Well Trisha, get up and tell us what you have to say.”

Trisha got up slowly and kept staring at me for a few seconds. I had noticed that she’d been tapping away throughout the lecture and realized that she’d probably not heard any of it. Just to help her out, I reiterated the question, “Trisha, we’ve been talking about how the world would be if we used cakes as a currency and have cake credit. Do you have anything to say about the cake economy?”

Without even blinking, she replied, “The cake? The cake is a lie.”

The class roared with laughter as I finished the lecture, knowing full well that now, they knew everything there was to know about finance.

This post is inspired by @neilco on ADN. The thread that inspired this post sits here. Others have written about the cake economy too.

On a quiet night, in a quiet neighborhood, twenty quiet police officers quietly broke into a quiet man’s quiet house, arrested him and quietly took him away.

When he woke up, he was alone in a large, dark room with a bright light shining on him. He called out, for someone must be listening, but no one replied. He called out again, then shouted, but no one came. He got angry and shouted, cursed and rocked his chair. His hands were tied to the back and his feet were tied to the legs of the metal chair and did not budge. He tried hard and long, but he could not move an inch. At long last, he noticed a small red light switch on, right next to the bright light glaring in his face. A voice spoke from somewhere behind that light, booming into the room, “Please state your name, age and occupation. Also state your reason for betraying your country.” Continue reading →