The Steady States of Equilibrium, described in an earlier tale, have passed through another sustained period in which not much of anything has happened. The banker Exnihilo has begun to miss the greater passive income he had enjoyed during the period of his contract with Entrepreneurial. Seeing no replacement for Entrepreneurial in the offing, he set about inducing another transient via an appeal to authority.

Introducing himself to SSofE’s Monarch, Exnihilo declared I see by your crown and scepter that you are in need of money, knowing the reply would be:

Yes, always. Keeping one’s crown and scepter always involves a difficult tradeoff. One taxes to a point of social unrest, and those exactions must be sufficient to pay for enough police to quell the unrest or all is lost. It scarcely leaves sufficient funds to make mischief in nearby realms, appease a mistress or two, or even buy a little renown from the scribbling vermin. ’Twas ever thus in my unhappy trade.

When Monarch inquired as to how the royal fisc might be enhanced by merely changing the domicile of his swag, Exnihilo sprang his trap: the agency of his SovereignBank was such that royal expenditures would no longer be limited by taxes deposited. When Monarch needed money, the desired sum would appear in his checking account — an act of prestigiation accomplished by nothing more than offsetting accounting entries creating new assets for SovereignBank.

These assets would need to be serviced, as only performing assets are seen as backing the enforceable claims against SovereignBank; and such claims would naturally arise from those receiving payments from Monarch. Interest on the SSofE’s sovereign debt would be paid from taxes — the amount thereof becoming the only factor limiting the size of the assets that might be created for SovereignBank in exchange for refreshing the royal account.

As ever-expanding uses were found for Monarch’s newly liberated funding potential, there ensued many compounding inflationary transients of the sort touched-off by Entrepreneurial's earlier innovation. Exnihilo again prospered; but the average citizen of the SSofE did not, as their sacrifice on behalf of Monarch was not rewarded by the introduction of any new economic instruments that might ease their labor — Monarch’s uses for his new money being simply different in kind from those of Entrepreneurial.

And neither did Monarch have Entrepreneurial’s instinct to liquidate his debt to Exnihilo in order to pass his realm on to a new generation unencumbered. Growth in the royal account required ever more taxation in order to sustain interest payments on the SSofE’s sovereign debt. Should these payments cease, SovereignBank’s offsetting asset would come to be viewed as ‘non-performing’, making SovereignBank, Monarch, and the entire SSofE insolvent.

This dynamic became self-inducing as more taxes had to be raised in order to provide ever more earnings to support an ever increasing sovereign debt. In the fullness of time, the police came to doubt that Monarch would ever be able to pay their wages (which by then had fallen into arrears) or continue paying for their children’s orthodontia — let alone continue making adequate provision for the policemen’s retirements. The police thereupon became insufficient to extract taxes, or even to defend the economic activity through which the SSofE earned enough to pay taxes while keeping body and soul together.

There our tale ends, but we do not quite know how, for reports of the former SSofE no longer arrive. Its telling has, however, certainly alarmed a great many people who had not known how their money came to be; which in turn has many agitating for an alternative to practices that can be so easily corrupted in secret. As an actual entrepreneur once warned:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.¹