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Welcome to USAGOLD's "Gilded Opinion" pages. We invite you to browse our index of outstanding gold-based commentary. Each article or essay is selected on the basis of its long-term relevance for understanding the role gold plays in the individual's portfolio, the overall political economy, or both.
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All Work and No Pay
by Paul Hein, M.D.
Table of Contents
The brief era of legal-tender,
fiat paper currency is rapidly drawing to its predictably sorry
close, propelled by the increasing instability of the system of
limitless central-bank credit expansion towards a world-wide financial,
economic, social, and political catastrophe of historically unprecedented
magnitude. That this catastrophe is unavoidable is beyond doubt.
But that its magnitude need not be equally severe in every industrialized
nation--and particularly in the United States--is also unquestionable.
For appropriate steps, taken in time, can mitigate the hardships
that the collapse of the fiat-currency bubble will impose upon
this country; and can provide the foundation for rebuilding America's
(and eventually the world's) economy on the basis of sound monetary
principles.
That these steps can be taken is not open to debate. Nothing prevents the government of the United States from acknowledging that Federal Reserve notes constitute only the irredeemable, rapidly depreciating paper "promises" of a private banking-cartel unconstitutionally manipulating the nation's monetary system. Nothing prevents the government of the United States from decrying Federal Reserve Notes as government "obligations," "legal tender," or "lawful money." Nothing prevents the government of the United States from re-issuing silver and gold coins as the nation's monetary media, and from declaring them the unique legal tender in payment of governmentally enforced debts. Nothing prevents the government of the United States from outlawing the inherently fraudulent practices of fractional-reserve banking. Nothing prevents the government of the United States from promulgating rules, for application by the courts, to smooth the transition from a price-structure based on Federal Reserve Notes to one based on silver and gold. And nothing prevents the government of the United States from exposing and punishing civilly and criminally the malefactors--in and out of public office--who have brought this country to the brink of financial disaster.
Nothing, that is, except the cowardice and antisocial self-interest of incumbent politicians and judges, who fear the power of those international bankers and others who control the fiat-currency racket, or who hope to profit (politically or otherwise) by aiding and abetting them to plunder the American economy. However, incumbent politicians and judges always remain subject to censure and removal by the people. So, in the final analysis, nothing prevents the necessary reforms in this country's monetary system except the people's ignorance of what is going on, or their willingness to tolerate it.
` In this book, Paul Hein has contributed significantly to the education of the American people, and to their arousal to action. His writing strips away the camouflage of complex jargon that obscures the reality of the fiat-currency system, exposing its absurdity and immorality in a way that any intelligent individual can understand, and that no politicians, judge, or banker can challenge, let alone refute. Not that politicians, judges, bankers, or the intellectual allies of the fiat-currency regime will try to challenge or refute what Hein says. To the contrary: In fashionable political and intellectual circles, this book predictably will be met with silence. But, ultimately, the refusal of the establishment to join issue on the legality and morality of fiat currency is irrelevant. For the common people of this country--not its cynically corrupt super-structure of politicians, judges, fonctionnaires, and leaders of special-interest groups--is the audience that Hein is attempting to reach, to convince, and to motivate. And it is that audience, becoming increasingly aware of the imminent demise of the fiat currency bubble, that is ready as it never was before to hear, understand, and act on Hein's message.
And how can the people act on this issue ? Hein summarizes the answer perfectly: "The solution to our monetary crisis is legitimate protest, both in and out of court." Legitimate protest, not the protest of revolutionaries--for, as Hein rightly asks,"Is there any wrong done in demanding that government officials live up to their oath of office?"
Whether the moment for legitimate
protest to succeed has already passed, only time will tell. We
must hope that it has not, and bend all our efforts to demanding--and,
indeed, forcing--governmental officials faithfully to perform
their duties. In this book, Paul Hein has given us one indispensable
tool to achieve that laudable end. Let us put it to good use.
Dr. Edwin Vieira, Jr.
Manassa, Virginia
Introduction
Because this little
book refers to money on virtually every page, it is inevitable
that money be considered the subject of this book. And, on a superficial
level, it is. For pagans, this is a book about money. The author,
however, is a Christian, and for him, this book is about morality,
and its message is a religious one.
At various times in history, men have believed that there was a God, separate and distinct from themselves, who created them; and whose will was know to them in the form of commandments which were to be obeyed if men were to live in harmony with their creator and their fellow-creatures. That belief shaped society and history. While there have always been transgressors, (adulterers, for example) in a Christian society, the adulterer recognized that he had sinned and thereby harmed himself and his fellow creatures; and Christian society agreed. Indeed, there were man-made laws against adultery. In an age which sees no god but man, and which regards sex as having no moral significance, the very term adultery is meaningless. And that belief as well has shaped society and history. For the better?
In the Christian era men observed the transcendent law "Thou shalt not kill." Their own laws made it a crime to deliberately take an innocent life. When the humanists explained that mankind was god, the situation changed. Can a god do wrong? Must a god endure inconvenience and aggravation? Thus was justified the declaration of war on the unborn, whose very existence merited death. And the beachhead, now established, has been expanded to include born children whose existence is deemed undesirable, and who are thereby starved to death in hospitals. The "law" doesn't seem to take note, but why should it? Why should a life which is expendable the day before birth be any different the day--or week--after?
When men regarded certain laws as immutable--Thou shalt not steal--they punished thieves, even if the theft was accomplished subtly and without violence. After they had been taught that the "law" was whatever they said it was, on any given day, prohibition against theft came to be seen in a more liberal light. Enlightened individuals formed a system to create and issue an "elastic" currency--rather like rubber! Their "money" was full of bounce, but it was acceptable because they said it was! And so be it! This book is about that money.
Oh, the niceties must be preserved! Where once we had the sense of sin we are now merely fastidious! Though God is dead, a certain moral inertia propels his memory--like a faint aftertaste--into our time. So indulge in all manner of sexual activity if you wish, but be discreet! And be an amateur, for professional sex is a crime.
Amateurism is out, however, if you wish your handicapped baby terminated. Bludgeon him to death at home and face the legal consequences. Put him in the hospital and let the professionals there starve him to death. Neat and tidy.
And if you wish to obtain your fellow-man's wealth without producing any of your own in exchange, don't don a mask and set forth armed to prey upon him. Rather, persuade him to exchange his production for your "obligations" or "liabilities," so that you can obtain his wealth in return for numbers which you write or engrave on a piece of paper. But be careful! Bills engraved in your garage or basement are counterfeit, and will get you into trouble. Those engraved in a certain building in Washington are "legal" and will get you anywhere you want to go! The "crime" of counterfeiting is not so much a matter of principle as of geography.
Has civilization benefited from the abandonment of Christian moral principles as regards adultery, murder, or theft? My own answer would be an emphatic "no!" Is there a remedy for the specific evil considered in this book; namely, theft via the issuance of legal tender? Not unless that issuance is regarded as evil. Laws can be passed, of course, requiring that money be a tangible substance, but unless the violation of those laws is regarded as evil, they will be no more permanent now than they were in the past. Chapter 17 outlines some mans which might be used to bring about reform. But for the Christian remnant among us, the answer goes much deeper. It involves the total acceptance of a law which transcends human institutions and which is to be obeyed at all costs. To return to sound money because it is expedient now to do so is dangerous, since in the future it may be expedient to abandon it again.
Every working man or woman in
this country exchanges his or her life, one week at a time, for
a promise of payment--the paycheck. But nothing is delivered to
the owner of the paycheck except other pieces of paper which themselves
purport to be a promise of payment. We give all our work for no
pay. The temptation is to cry, "Who benefits from such a
system?," and denounce those who can obtain our services,--
and everything else--in return for numbers which they write on
paper which in no way obligate or burden them. But such a denunciation,
unless based upon a "hunger and thirst for justice,"
is simply envy, pique, and resentment. A Christian desires a return
to honest money because it is honest, not because he is miffed
at not having enough of the dishonest kind, or is jealous of those
who do. The ultimate solution to our monetary problems, then,
is not in the legislature or in the courts, it is in the minds
and consciences of us all. Thou shalt not steal.
Paul Hein, M.D.
Ballwin, Missouri
Counterfeit: Made in
imitation of something genuine with intention to deceive or defraud;
forged. Feigned, dissembled. An imitation made to deceive. An
impostor, cheat. To pretend. Synonyms: artificial, false. Webster's
New World Dictionary.
This is a book about funny money, or counterfeit. It is not a detective story, and I don't plan to keep you in suspense until the last chapter before disclosing the truth. On the contrary, the truth in regard to our money is so incredible that I am going to reveal it to you at once, in the hope that by the time you finish this little volume it may have begun to sink in. And that truth is that: All of our money is counterfeit. It is all artificial, false. It is all an imitation, made to deceive. And that is what this book is all about.
Are you old enough to remember slugs? I don't refer to the slimy garden pests, but to those featureless discs of metal that were used in coin machines in place of coins. I am old enough to recall seeing them and being told that you could put in in a candy machine in place of a nickel and get a candy bar. The person who used a lug robbed the candy-bar vendor because, although nickels were never lawful money, a person with twenty of them could exchange them for a dollar of actual money, i.e., silver; but a person with a bushel basket of slugs could exchange them for nothing.
Have you ever noticed the ridges on the edges of some coins? It is called a "milled" edge and it has an interesting history. Gold and silver are rather soft metals. It didn't take unscrupulous people long to discover that one could shave some of the metal from the coin by running a knife around the edge and scraping off some of the coin's substance. If you removed 5% of the coin's weight by doing this, you could settle you debts at a 5% discount. The milled edge put an end to this practice--called "clipping the coinage," by the way--by making it immediately obvious if the coin had been clipped.
From these examples it is easy to see what "counterfeit" means with respect to coins. A counterfeit coin is one composed either of a base metal instead of gold or silver, or one which has had its weight reduced by clipping. In either case, the person receiving the coin is not getting full measure. Currency, or so-called "paper money" was, of course, never the money itself, but only a claim check for money on deposit with the issuer of the paper. When you gave goods or services for a piece of paper, you did not do so because you desired the piece of paper for itself, but because the paper was a claim upon something which was valuable; namely, gold or silver coin. The issuer of the paper had the actual money on deposit, ready to be claimed by the holder of the paper, which he found easier to carry about than the actual metal. Counterfeit currency was issued by people who had placed nothing on deposit for redemption with their paper. When counterfeit currency was presented at the bank for redemption this sad fact became known to the holder of the counterfeit, who then realized that he had given goods and services for a worthless promise. Thus, the counterfeiter robs his fellow man as surely as if he had used a gun, but much more subtly.
Now with these facts in mind, let's look at our present-day money. The coins themselves are slugs, but cunningly manufactured to resemble silver. Don't forget that the definition of counterfeit includes the words "with intention to deceive or defraud." Of course, I have no way of reading the minds of those responsible for issuing our coins, but I notice that the old silver quarter and the new nickel-coated copper ones appear, on visual inspection, to be the same. The currency also bears a remarkable resemblance to the redeemable bills of a generation ago. Yet behind today's dollar bill there is nothing anywhere, on deposit, which may be claimed by the holder. And checks, of course, are not payable in anything other than coin or currency. Thus, by the standards of a few years ago, all of our modern money is counterfeit. To put it another way, the word "counterfeit" no longer seems to have much meaning. It seems to boil down to geography. Currency printed in the Bureau of Engraving and Printing is "good;" that printed in your basement is "bad." Neither the "good" bill nor the "bad" one entitles its holder to a specified amount of anything. Neither the issuer of the "good" bill nor the "bad" one has placed on deposit anywhere anything to justify the issuance of the bill. It's just that your bill, printed at home, hasn't the proper pedigree. After all, there's no use counterfeiting if just anyone can do it! From the time of Genghis Khan, who used mulberry bark impressed with his seal as "money," counterfeiting has always been a lucrative business--especially when done as a government-protected monopoly! Think of it. The counterfeiter obtains everything for nothing. When you can take a few cents' worth of copper or paper and pass it off as one hundred cents, cost is no object! You simply produce a few more coins or bills than you really need, and use the extras to pay for the rest. For example, the Susan B. Anthony "dollar" coin contains about three cents worth of copper with a nickel coating. So not only will it very nicely pay for itself, it will pay for an additional thirty-two more "dollars" as well. It's like going to the grocery store to buy milk, only for every three gallons you "buy" you magically obtain ninety-seven more gallons which the grocer buys from you! In such a case, would you worry about the price of milk? For those who can successfully counterfeit, the word "price" has no relevance. You can see, however, that the success of the scheme lies in being able to do it yourself, while punishing anyone else who attempts it. Thus, counterfeiting on a really large, or national scale, is an operation that necessarily involves government. That same government which inveighs so ponderously against monopoly and pays frequent lip service to the ideal of free enterprise, with its resultant competition, certainly allows no competition in the printing and issuing of money!
Before we finish with the subject
of counterfeiting, let me anticipate an objection. Perhaps you're
going to tell me that if the government oversees the counterfeiting,
and if all the money is counterfeit, it doesn't really make any
difference. But isn't that the same as saying that if everyone
is robbed, then robbery is somehow OK? Remember, the counterfeiter
is a thief who takes what you have to offer and gives nothing--of
his own--in return. Is the loss any more bearable if the thief
has, in effect, a government franchise? Is the loss any less painful
because everyone else is being robbed as well? No, but the loss
is a lot less visible. A sore thumb doesn't stick out when all
thumbs are sore!
Chapter
Two - The Real Thing
All right, all the money
is counterfeit. It is designed to fool us into taking it for the
real thing, a task made easier when there is none of the real
thing around to compare it with. But in that case, what exactly
is the real thing? If our present funny money is the only game
in town, and the government approves of it, maybe the government
has made counterfeit money the genuine article. I don't think
so, for a couple of reasons. One is based upon common sense, and
the other upon the law.
Let's consider some elementary words which we use every day and may tend to take for granted. For instance, let's consider the words "money," and "dollar." Money is what is exchanged for other goods, or services. It is what pays debts; it is what we work to obtain. The dollar is an amount of money. Ordinary speech confirms this. Ask a person how much money he has in his wallet, and his answer will be, "twenty (or whatever) dollars." How much does a meal cost in a restaurant? "Oh, about ten dollars." Now this simple fact--that the dollar is a unit of monetary measurement, seems to me established beyond all doubt, yet many people, including those who should know better, do not seem to realize this. How often have you heard a newscaster declare that the dollar was lower today in foreign markets? But the dollar being a unit of measurement, that is like saying that the inch has shrunk! Perhaps you hear some government official describe steps which we should take to support the dollar. Do we need to support the gallon? Indeed, does it make sense to even consider such an idea? We hear daily of the dollar faltering with respect to the mark, or rallying compared to the yen; but do we ever hear of the foot declining vis-a-vis the centimeter, or the quart surging ahead of the liter? Terms such as "dollar," "yen," or "mark" are all terms of money measurement and are used in exactly that way millions of times every day. How is it, then, that they fluctuate constantly with respect to one another, and even with respect to themselves from day to day? How can governments use as terms of money measurement terms which have no fixed dimensions? If every doctor used the term "pound" to mean whatever he wanted it to mean, you might be dangerously overweight at one doctor's office, and in need to fattening up at another's! Moreover, the doctor who found you overweight this morning might find you underweight this evening, as his concept of pound "floated" during the day. The absurdity of such a system is self-evident, except as it pertains to our money!
But wait! It gets worse! If the term "dollar" means an amount of money, what is that money? To say that our money is dollars is to say that our milk is quarts, or our real estate acres. What is it that we use as money, measured out in dollar quantities? Nothing at all, dear reader, nothing at all! Just stop and think about it for a minute and you'll be forced to the same conclusion.
From the common sense approach, look at it this way: Whatever money is, five dollars of it has to be five times as much of it as one dollar of it, right? (Whatever gasoline is, a gallon of it is four times as much of it as a quart!) Does this painfully obvious relationship apply to anything commonly used as money in this country? Let's start by disposing of the coins: weigh them. The "dollar" coin weighs more than the "quarter" one. How much more? Fifty percent more! If you were selling candy bars for two bits each, you'd have to give four times as much candy to the kid with the dollar coin than the one with a quarter, but you'd be getting only 50% more of the same stuff; namely, nickel-coated copper. Since it is reasonable (to say the least) to expect four times as much money for four times as much candy, the coins you received obviously can't be the money, since there is no 1:4 ratio between them. So perhaps they are just proxies for the money. Well, we'll see!
Most people, if asked what money is, respond by producing one of the familiar green rectangles of paper labeled Federal Reserve Note and declaring it to be the money. They refer to it as "paper money," but the same objection can be raised to it as to the coins: there's no more paper in a five than in a one. Conventional wisdom seems to turn a blind eye to this important and self-evident fact. A clever fellow in St. Louis told me how he deals with people who believe we have paper money. "Go into a bar," he advises them, "and order a beer. Pay for it with a five. You'll get four singles in change. What a good deal! You'll have quadrupled your money (paper) and had a glass of beer in the bargain!" Even the staunchest believer in "paper money" will concede that he is no better off with one hundred singles than a single hundred, yet there is one hundred times as much paper in the hundred singles. Isn't that significant? When the Boy Scouts in your neighborhood have a paper drive, they sell the paper by the ton. The scrap-paper dealer pays more for twenty tons than he does for one ton--even if the one ton's marked twenty! So the pieces of paper can't be the money either. So what is? Here a bit of law and history enters the picture, but it's not very complicated.
In 1792 the founding fathers established a mint and a monetary system of the country. They had earlier, in 1787, established in the Constitution that no state was to make anything other than gold and silver coin a legal tender; but they had also prohibited the states from coining money. Congress, on the other hand, could coin money. So our money was to gold and silver coin. In the coinage act of 1792 they stipulated that the "unit" or "dollar" of our money was to be a certain weight of silver. (The dictionary, incidentally, defines "unit" as a stipulated amount to be used as a standard.) The gold coins of five, ten, and twenty dollars (the so-called half-eagles, eagles, and double eagles) would contain gold having the value of five, or ten, or twenty standard units (i.e., "dollars") or silver. In 1834, cognizant that the values of silver and gold relative to one another had altered, Congress changed the amount of gold in the gold coins to make them conform to the standard unit (dollar!) of silver. In 1873, the standard unit was redefined as an amount of gold. The silver coins did not equal the gold in value, but as a dollar of silver could be exchanged for a dollar of gold at the bank, it was not thought to be matter of particular importance. However, in 1933, we were taken off the gold standard, and the citizens were told that it was a serious federal crime to remain in possession of their own gold. The government at about the same time changed the standard for the dollar to about half as much gold, but for Americans it was academic, as gold ownership was not permitted them. Silver coins were withdrawn from circulation in 1964, and redemption of silver certificates ceased in 1968. Congress has named no replacement for the gold and silver coins, and could hardly do so in view of the utter clarity of the Constitution in prescribing them as our money. Thus we are left with slugs and non-redeemable bills, and the term "dollar" has, of necessity, become meaningless as a term of money measurement when there is no money. The "dollar," in truth, is a fiction of law.
Finally, present U.S. law (31
USC 459, 460) makes the use of minor (i.e., non-silver containing)
coins illegal for more than 25 cents of debt, and even the precious
metal coins can be used to settle only limited amounts of debt
if they are of less than $1.00 denomination. Thus there is no
way left for us to pay debt, which may just account for its constant
growth! But if debt cannot be paid, it can be settled, by means
of "legal tender," the counterfeiter's friend!
Chapter
Three - Legal Tender
So our "money"
is phony, merely resembling the genuine article of generations
ago. Money today is a figment of the imagination. Very well, but
if all that is true, why doesn't the system fall apart? Why do
people work--and even kill--to obtain the funny money?
Because most of them don't recognize it as phony, of course. (Did you?) The powerful and august institutions responsible for the counterfeit take their funny money seriously indeed. I speak, of course, of the banks and the government. And as for the system falling apart, it is--rapidly. The last word regarding the public's acceptance of the funny money, however, is not human custom or ignorance, but the brute force of government. The funny money has to be accepted because it is "legal tender."
All governments establish an "official money," or "money of account." How could it be otherwise? How could the government calculate its revenues if some people paid their taxes with chickens and eggs, and other with lumber and nails, and still others with silver and gold? If the account books are to understandable, there must be a standardized "money of account." You will recall that the founding fathers established that each state use gold and silver coins as money. Individuals, of course, could settle debts between themselves any way that was mutually agreeable, but debts owed to and by the state were to be settled with the official "legal tender," gold and silver coin. But governments have always sought to make their IOUs acceptable as money by declaring them legal tender as well, for reasons not hard to see.
Let's suppose that you want to buy some oranges. You go to the store and discover two bins. One is filled with plump, delicious oranges. The other contains pieces of paper, each labeled one orange. From which bin would you pick? The grocer, naturally, would prefer to sell you a "paper orange." After all, they cost him nothing--he made them himself in the back room; and they presented no problems of shipping or storage. But the "paper oranges" just didn't sell. So the grocer did something very clever. He persuaded his friends in the legislature to pass a law making his paper oranges a "legal tender for oranges;" thus, anyone paying for an orange in his store would be forced to accept a paper orange. Eventually, the grocer would do away with non-paper (real) oranges altogether.
Nonsense! Foolishness! Indeed, it is, but it is important to realize just why it is nonsense and foolishness. Oranges are to be eaten. Gasoline is to be burned. Houses are to be lived in. But gold and silver coin is expected to perform no specific service unique to gold and silver. It is a medium of exchange. It passes from hand to hand, unchanged, in return for other goods or services. It doesn't take long for the nature of the money to be forgotten. Gold, silver, copper, paper--what's the difference? Such, it seems, is the attitude of most people today. But it was not always so.
Governments have always had trouble with money, but when the money was gold and silver coin produced and owned by the people, the problems were worse. Politicians recognized the desirability of providing services for the people, but were naturally reluctant to take the people's wealth from them to pay for it. The people were quite content to have the government look after them, but naturally didn't want to pay for it. The best of both worlds would be for the government to pay its way by issuing IOUs. Yes, that would work for a while, but when the IOUs were presented for payment, what then? That problem could be prevented if 1) the IOUs were never presented for payment, or 2) the IOUs could pay for themselves. And both of these happy circumstances can be brought into being by simply declaring the government IOUs to be "legal tender." Legal tender laws compel you to accept a promise in lieu of payment, while easing the blow by allowing you to spend the promise, or, to put it another way, the issuer of legal tender tells his victims, "Yes, this is counterfeit that I'm giving you for your work, but I've made arrangements for you to pass it without penalty." So there is no point in presenting the IOUs for payment.
There's nothing new about the idea. During the Revolutionary War, the Continental Congress sought to pay its bills by the issuance of a paper currency called the continental. It was to be of the value of the Spanish milled dollar (that word again!) but of course, it wasn't. The continentals were printed so fast and so often that by 1781 they had fallen in value to one mil as compared with the dollar of silver, and they were abandoned. The federal government in those days didn't believe it had the authority to declare the continentals a legal tender, but urged the states to do so; and they did. There were penalties for refusing them. However, when it became obvious that there was an even greater penalty for accepting them, the legal tender laws were rescinded, and our language got a new expression: "not worth a continental." Of course, those thousands of people who had given of their goods and services for continentals were hurt. They had exchanged wealth for nothing. But for the issuers of the legal tender, the profit was 100%. Not a bad deal! And they didn't forget it.
The founding fathers were well aware of this debacle when they met, six years later, to draw up the Constitution. The first draft of that document contained these words,"The legislature of the United States shall have the power to borrow money and emit bills on the credit of the United States." the bills referred to, of course, were "paper money." Don't we call them "bills" even today? The words "and emit bills" were struck from the final version of the Constitution by a vote of nine states to two. Of the debate leading to that vote, James Madison wrote, "Striking out the words cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts.." Oliver Ellsworth, the third Chief Justice, said, "This is a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which have been made are now fresh in the public mind, and have excited the disgust of all the respectable part of America." He remembered the continentals! James Wilson, agreeing, stated, "It will have a most salutary influence on the credit of the United States to remove the possibility of paper money." George Reed, of Delaware, declared, "The words, if not struck out, would be as alarming as the mark of the beast in Revelations." And New Hampshire delegate John Langdon added, "I had rather reject the whole plan than retain the three words 'and emit bills.'" The historical record, therefore, leaves absolutely no room for doubt that the intention of the founding fathers was to prohibit a paper currency.
Don't be confused about this. The Constitution allows Congress to borrow money; and when money is borrowed, notes are issued. What is forbidden is for Congress to make those notes a "legal tender." Anyone, after all, can borrow money and issue an IOU, or note. But when that note is a "legal tender," payment of the note--should it be demanded--can be made with--another note! The injustice of this was obvious to our founding fathers. With the stench of the continentals still in their noses, the founding fathers wanted to be sure that never again would any American be forced to accept a substitute for the actual money to which he was entitled. They so provided in the Constitution, to which all of our public officials, elected or not, swear adherence. Wouldn't it be wonderful if at least some of them took their oaths seriously?
What difference does it make
what money is? Just this: unless you know what it is, how do you
know what you've worked for? And shouldn't you know?
Chapter
Four - Confusion
Modern money is not
a thing. It is nothing--no thing. It does not have length or breadth
or width or substance. Therefore, it cannot be measured; and the
term used to measure money when it was silver and gold, namely,
"dollar," is meaningless today. We referred to that
in the last chapter. What I would like to do now is to acquaint
you with some of the consequences of that fact. It is perhaps
easiest done by example.
An old man is talking to his grandson, who has applied for a job. If hired, the young man's salary will be $25,000 per annum, with periodic increases promised. The grandfather shakes his head at this news. "Why, in my whole working lifetime, I never earned more than $20,000 per year, and then only after many years of service," he said. "You're a lucky fellow to start off so highly paid." The young man nods in agreement.
I disagree. The two gentlemen are confused, and their confusion results from their unquestioning acceptance of the deceptive word "dollar." They are confusing a silver coin composed of 90% pure silver, weighing 412.5 grains, with a slip of paper two-and-a half inches by six inches, and weighing about a gram. Both objects are labeled "dollar."
When the old gentleman last worked, over twenty years ago, the twenty thousand dollars which he earned were dollars of silver. He didn't receive the actual coins each payday, but the paper currency he received entitled him to the coins. And those 20,000 coins had a purchasing power, in terms of today's currency, of about 200,000 "dollars." So you can see that the two men are quite mistaken in their belief that the younger man is receiving the higher income. He is receiving a larger number! Indeed, the problem of measuring the younger man's income is severe, since the "money" is not, as we mentioned above, measurable. You cannot say what "dollar" is in itself, but only what a piece of paper labeled "dollar" will purchase, and of course, that fluctuates constantly. In general, it declines steadily and inexorably with each passing year. It has become so confusing that the government itself publishes a large volume of wage-price indices which enable you to translate your current income into 1970 "dollars," or 1974 "dollars," etc., so you can determine whether you're holding your own or slipping behind. We may be able to gain a clearer perspective of the relative incomes of the two men if we look not at their paychecks, but how they lived. Grandfather, as we know, never earned more than 20,000 dollars yearly in his life. His grandson earned $25,000 from the start, and peaked at about $65,000. Yet: Grandfather built his own home when he was 30 years old, and had it paid for within fifteen years. The home was full brick, with a slate roof, and plaster walls. There was a sidewalk in front, with streetlights, and an alley out back. Grandson bought a tract house when he was about 30 years of age, and took another 30 years to pay it off. It had a brick veneer front, asphalt shingles, and dry-wall construction. There were no sidewalks or streetlights. Alleys? Those were found in bowling establishments. Grandfather can recall his grandfather reminiscing about the lamplighter, but it never occurred to him how affluent society was then that a man could be paid a living wage to come around each evening and turn on each streetlight, and then come around again at dawn and turn it off.
Today, Grandson lives in darkness in more ways than one.
Grandpa borrowed for the house, and for an occasional automobile. Grandson is perpetually in debt. Grandpa's company had a modest pension plan for its employees, but other than that Grandpa spent most of his working life without such fringe benefits as medical and dental care. He just took care of that himself. Grandson had, from the start, such fringe benefits as health coverage, plus much more; even so, he had trouble making ends meet. Grandpa sent only modest sums to Washington in taxes, and spent his life pretty much unconcerned with the activities of the federal government; Grandson sent nearly half of what he made to Washington, whose regulations, laws, and "guidelines" involved some aspect of his life virtually every day. In Grandpa's time, incidentally, the USA was admired, respected, and feared round the world. In Grandson's time, it was regarded with ill-concealed contempt as a paper tiger. Grandpa put two children through the colleges of their choice. Grandson's two children obtain student loans, which they are still paying back years later. Grandma never worked outside the home after her marriage. Grandson's wife worked full time since their marriage except for two full-paid maternity leaves. Grandma had a cleaning lady once a week. Grandson's children work during summer vacation.
Now which family enjoyed the higher standard of living? It is true that Grandpa and his family did not have the technological wonders of the later age; it is equally true that they didn't miss them. On the other hand, the older couple enjoyed an unhurried, tranquil existence relatively free from debt, while the younger scrambled throughout life to meet payments, despite the two paychecks each week. Yet, to the end of their lives, each man felt that the Grandson enjoyed the higher standard of living solely because the numbers written on his paycheck were so much larger than those written on Grandpa's!
Their confusion extended to prices as well. Both assumed that if an article cost $1.00 in 1960, and $1.00 in 1980, that its price had remained the same. Yet, in 1960 that number 1.00 on a price tag referred to about .78 ounces of silver. To what did it refer in 1980? To no thing at all. To compare prices, the substance exchanged for the goods must be the same, and denominated in the same units; anything else is comparing apples and oranges. It is worse: it is comparing apples with pieces of paper marked "oranges!" But neither man ever became aware of the rather obvious fact that you cannot make comparisons of price without a monetary standard by which to measure. In this they may be forgiven, for the nation as a whole never came to that simple realization, but continued to talk , as it still does, of rising prices, when, in fact, there is no standard by which prices today may be compared with prices of yesterday.
When Grandson was earning nearly $50,000 per year, he greatly impressed his grandfather by overextending himself to buy a Cadillac for $15.000. "Yes sir," he said, "this car cost me nearly one third of my salary, but it is worth it, don't you think?" Grandfather agreed. "It sure is a pretty car," he said. "I never paid more than $4,000 for a car in my life. You're a lucky boy." A lucky boy! Grandpa paid $4,000 in silver for his car, which, in terms of the currency used by his grandson, would buy two Cadillacs and a Honda! To put it another way, the Cadillac cost 1,500 of the units used by Grandpa to buy his car. Measured by the same criterion, therefore (and is there any other way to measure?) the older man's car was the more expensive by far. (It was also larger and heavier.) Yet Grandpa bought this car with twenty percent of his yearly earnings, while his grandson spent nearly 33 percent of his earning to buy a cheaper car. And both men think the younger man fortunate! Both would regard you with absolute incredulity were you to suggest to them that the younger man is working as hard or harder than his grandfather, to buy cheaper goods! Confusion!
It is agreed: money talks, but
what modern money says it a lie. It says that large numbers on
checks today constitute more money than the smaller numbers of
a few decades ago, which has not been true since money ceased
to be a thing.
Chapter
Four and a half - More Confusion, but Official
"Perhaps,"
you admit, "there is some reason for your confusion regarding
dollars, and money, and comparisons of price. But the problem
seems to exist mainly in your own mind, since nobody else seems
to be confused."
Well, yes and no. Should you go into federal court to obtain an official determination of just what constitutes the "money of account" of the United States, likely you would encounter a judge, who in dismissing your petition as "frivolous," seemed quite assured that he knew what our money was, and what a dollar was; but there would be a good chance that that very judge was on record of knowing no such thing. You see, when a judge is acting in an official capacity as an agent of the United States, he has a vested interest in staying on the good side of the boss. But when he acts as a private citizen, on behalf of himself, that's another matter! And just such a situation arose in 1976.
On February 11 of that year, forty-four federal judges--who were eventually joined by ninety-six more--went into the United States Court of Claims seeking a raise in pay. The one hundred and forty federal judges (and that's a fair percentage of all federal judges) based their arguments on Article 3, Section 1 of the Constitution, which states that the compensation of federal judges should not be diminished during their continuance in office. Well, it was a matter of record that the pay of a federal circuit judge was $40,000 annually, and had been such for a number of years. How could the judges claim, therefore, that their salary had been diminished? This is what they told the court of claims: "As a result of inflation, the compensation of federal judges has been substantially diminished each year since 1969, causing direct and continuing monetary harm to plaintiffs---. Thus, as measured by the consumer price index, the real value of the compensation for each United States district judge was diminished from $40,000 to approximately $26,000 between March 15, 1969, and October 1, 1975." What a remarkable admission! If an income of $40,000 in 1975 was less income than $40,000 in 1969, then surely the "dollar" must be a fiction! For if the judges knew what a dollar was--whatever it might be--then they would also know that 40,000 of them were 40,000 of them whether in 1975, 1969, or whenever. A rose is a rose is a rose, don't you know? But when the dollar is not a standardized amount of anything, nor even defined in the law, then income in dollars cannot be measured in any reasonable accurate way. That's what I tried to tell you in the last chapter. The judges have made it official. You cannot measure intangible income!
But you can measure what you can get for it--as long as people are willing to yield their production in exchange for a fiction. And that is what the judges did. Recall their words: "Thus, as measured by the consumer price index, the real value of the compensation for each United States district judge was diminished from $40,000 to approximately $26,000---." The judges were saying, in effect, "our income is intangible, but in terms of food, clothing, shelter, etc., we were only able in 1975 to get about 60% of what we got in 1969." The real (to use their own word) compensation of a federal judge is not to be discovered from looking at his paycheck, but from consulting the consumer price index. Your income is what you derive from your labors, and that can be measured in eggs, butter, shoes, electricity, fuel---you name it. The only thing in which income cannot be expressed accurately is "dollars," because the "dollar" is not a thing!
Were you to inherit 500,000 lire from a relative in Italy, would the check be worth taking to the bank? Would you be better off to have inherited 500,000 yen? Since neither the lira nor the yen is a specific quantity of anything, comparisons are meaningless unless converted into what you could get for the foreign funny money. Monetary names, such a lira, yen, or dollar, have no definition and can hardly be used as a standard of measurement. The federal judges seemed to see this quite clearly, for they said that the "real value" of their compensation was not to be ascertained from their "dollar" income, but from the commodities they could obtain with the checks.
But in lucidly setting forth this undeniable truth, the judges placed themselves on the horns of a dilemma. For although as individuals they acknowledged the uselessness of the word "dollar" in assessing real income, in their official capacity as judges they could do not such thing. It is probably that at some time each of the one hundred and forty judges had sat in judgment on some individual charged with the crime of misrepresenting his income. Without a doubt, they are still doing so. Do you suppose that in an income tax trial, with everything hanging upon the actual "dollar" income of the defendant, the judges disqualify themselves by admitting that they cannot give the real value of their own incomes in terms of "dollars?" In donning the judicial robes do they also put on the wisdom of Solomon? Is the whole thing a put-on? It gets worse! The judges themselves file income tax returns, do they not? At the bottom of the return, the taxpayer must sign a statement whereby he swears that the income figures provided are "true, correct, and complete." And those figures are all in dollars! The IRS doesn't care how much less food you could buy for your paycheck this year compared with last--it only wants to know how many of those elusive "dollars" you earned. And the measurement you give had better be true, correct, and complete! Not only that, but you had better believe it to be so. The Internal Revenue Code makes it a felony to put anything on a return which you do not believe to be true in every particular. Now what did the judges tell the court? They said that the real value of their compensation was not $40,000, but $26,000. Now if the real income is $26,000, isn't that what you had better put on your 1040 form? Remember, it is a serious crime to put on that form something which you don't believe true in every particular.
But if your bank deposits show that you earned $40,000, and you make a sworn statement that you earned $26,000, then expect the IRS to descend upon you like a pestilence. Because I have heard of no judges accused of filing "false" (meaning true!) income tax returns, I assume that the judges stated that their true, correct, and complete income was $40,000. But in that case, they lied in telling a United States Court of Claims that the real value of their compensation was not $40,000, but $26,000. No matter how you look at it, it seems that the truth took a beating at the hands of the one hundred and forty honorable judges.
I cite this case of the one
hundred and forty federal judges not to emphasize the frailty
of human nature, whether on the bench or not; but to remind you
that my concern for the absurdity of making monetary measurements
in terms of non-standardized units is shared by others who have
given the situation thought. And that, I think, is that.
Chapter
Five - A Line of Credit
Our discussion of money,
or what passes for "money" today, has concerned itself
so far primarily with coins and currency, which most people regard
as the "ultimate" money. Although credit cards are widely
used to make payments, they are slightingly referred to as "plastic
money." (It is amusing to hear this term of gentle derogation
applied to credit cards by people who find no problem swallowing
the term "paper money.") If money were once again to
be some material thing, plastic would probably be a better choice
than paper; it's more valuable and durable. But in fact, neither
plastic nor paper is now, or ever has been, money.
Checks are used to settle the majority of debts in this country, but even checks are not regarded as money. This is probably because a check can be refused. It might, after all, be "bad"." The time has come, I think, to talk about checks, to see what they represent, and what can make one check "bad" and another check "good."
When you deposit your paycheck for, say, $1,000 at your bank, does your bank send an armored truck and a guard to your company's bank to obtain the $1,000? Were you to "cash" the check, would you receive one thousand standard units of money--whatever that might be? Of course not. What checks transfer is a record of the issuing bank's liability. In other words, your paycheck is a written notice that your company's bank owes you one thousand. When you deposit that check in your own account, it becomes your bank which then owes you the thousand. Should you cash the check, you will receive Federal Reserve "Notes," which are "obligations" of the United States. In that case, Uncle Sam would then owe you the thousand, but you can press your claim no further since Uncle's IOUs are "legal tender" and are thus capable of settling the debt which they themselves represent! Thus, there's not much point in bothering to cash your check, especially when checks are accepted by just about everybody.
Where do the numbers on these checks come from? They do not represent, as we know, any tangible material which had to be dug from the ground or extracted from the sea or air. You can transfer the numbers from one person to another by writing checks, but how do new numbers enter circulation? The answer is: as a loan. You may have naively assumed that when banks lend "money" they lend numbers already on "deposit" in their institutions. No. The literature of the Federal Reserve System--which is free for the asking, by the way--explains how it works.
"The actual process of money creation takes place in commercial banks," says the book Modern Money Mechanics, from the Chicago Federal Reserve Bank. To create, of course, is to make from nothing, and that is precisely the sense in which the word is to be understood. The booklet I Bet You Thought--from the New York Federal Reserve Bank--spells it out in detail.
"Commercial banks create checkbook money whenever they grant a loan, simply by adding new deposit dollars to accounts on their books in exchange for the borrowers IOU." So you see, if you go the bank to borrow $5,000 for a new automobile, the bank will not lend you $5,000 already there on deposit. No, it will take your IOU for $5,000 and simply add that number to your balance, which you can then spend. But the $5,000 must be repaid with interest. This is in striking contrast to gold and silver money, which had to be dug from the earth and refined before being coined and entering circulation interest free. A citizen bringing precious metals to the mint received coins of equivalent amount in return (less a small amount, called seigniorage, for the service) which meant that new money (gold and silver coin) was then entering circulation, but not as a loan to be repaid with interest. In our present system, there is no provision for new money to come into being save as a loan. Thus, every "dollar" in your checking account--or anyone else's--was originally borrowed. And the source of such "dollars"---their creator--is the commercial banking system. Think for a minute of the consequences of such an arrangement.
Compare modern money with rain. The rain falls from its only source, the clouds. Once on earth, it ends up in many places: "on deposit" in lakes and oceans, "in circulation" in rivers and streams, and eventually it returns, via evaporation, to the sky. There is a balance between the amount leaving the earth via evaporation and the amount returning as rain. Were that not the case, we would end up either flooded or a desert. Suppose now that the only source of rain, the clouds, were to regard the rain which fell upon the earth as a loan, to be repaid with interest. In other words, more water would have to evaporate than was provided by rainfall. How could earth return to an only source more than it was given? That is the question to ask regarding our money. How can the borrowers of the country return to the banks more than was borrowed? Principle, after all, was borrowed. But principal plus interest must be returned. How can this be done? It can't.
Or can it? Maybe there's a way. I've got it! Let's borrow the money to pay the interest! And that, my friends, is what is done. The fact that interest must be borrowed is not apparent because it is not the borrower of the principle who borrows the interest. Consider the case of an automobile manufacturer who borrows millions to retool for new models. If he doesn't have the cash on hand to pay the retooling, where will he obtain it to pay the interest? The principle, which he would have to pay in any case, is simply "deferred income." But the extra cost--interest--he will simply add to his other costs and pass along to the consumer. The consumer, in turn, will borrow to buy the car, and he will borrow more than would otherwise be necessary because of the added cost of interest. Thus, the consumer borrows to pay the interest owed by the auto maker. The consumer, in turn, will pass along the cost of his borrowing in demands of higher wages because of the "increased cost of living." The higher wages will be paid by the employer raising his costs to his customers, who will, in many instances, meet those higher costs by--borrowing! But each new borrowing becomes principle--to be repaid with interest.
Now perhaps you understand why gold is referred to in banking circles as a "barbaric relic." Anyone could obtain it and place it into circulation as money without paying tribute to a bank! Modern money, on the other hand, represents a debt which cannot, as a whole, be paid--ever. The continuous "rolling over" of the debt by borrowing to refinance keeps the public in perpetual thralldom to the creators of money. The mounting debt (or money supply, depending upon how you view it) means mounting interest, however, and more and more of the country's productivity is being expended just to make interest payments. What will happen when the total productivity of America is not enough to meet interest due?
Here's another thought about money creation: were you to borrow ten thousand for a year, you might pay one thousand in interest. Were you to borrow one thousand, you might pay one hundred in interest. In either case, what you "borrow" is merely a number added to your account by the bank--a fact which the banks themselves freely admit. That number represents nothing whatever owed or risked by the bank. Do you think that for writing the extra "0" (10,000 instead of 1,000) the banker is entitled to nine hundred more in interest? How much does it cost to write "0?"
Before leaving the subject of checkbook money, or bank liabilities, we should examine the difference between a "good" and "bad" check. Once again it is largely a matter of geography. A "good" check transfer numbers written in a bank by a banker making a loan. A "bad" check transfers numbers written anywhere else by anyone else, creating interest-free money. In other words, should you take a deposit slip and write a number on it, that number is simply a doodle. But if the banker initials it and approves it, it is "money" which you have just borrowed! You can spend it. Were it not for the participation of the bank, there would be no distinguishing between "good" and "bad" checks. Suppose, for example, that you had a checking account which "contained" ninety-nine "dollars." You wrote a check for one hundred. A merchant gave you one hundred "dollars" worth of merchandise for your check. And instead of taking that check to the bank, he endorsed it and spent it like cash at the store of a merchant who trusted him. This merchant, in turn, endorsed the check and used it as "money" also. You can see that this check is perfectly "good" until the last holder, with no more room on the check for further endorsements, takes it to the bank. At this time the check is discovered to be "bad"---although, of course, it is 99% good! Even a single number created by a non-banker renders "bad" an otherwise blameless check!
Isn't it ironic? A "bad" check transfers numbers not written by a banker--hence bankers will not honor it. A "good" check, on the other hand, transfers numbers drawn from thin air by a banker, who will therefore accept it and issue currency in return. The currency, of course, is an IOU of the federal government. The "goodness" or "badness" of that IOU--Federal Reserve Note--cannot be tested by presenting it for payment, because it is legal tender and will "pay" itself. Thus, in order to be "good," everyone else's IOUs must be payable in Uncle's IOUs which are not payable in anything. Sure gives Uncle--and the banks which get his IOUs for nothing--an advantage!
If the notes (or IOUs) of the
Chrysler corporation, for example, were a legal tender, do you
think Chrysler could have found itself on the brink of bankruptcy?
Why should Chrysler have to redeem its notes with currency (IOUs)
or "good" checks (liabilities of banks) when neither
the banks nor Uncle Sam have to redeem their "obligations"
at all? Where is equal justice under the law? Of course, one of
the debts which drove Chrysler to the wall was the burden of interest
on money created with the stroke of a pen by bankers. But the
"money" crated and lent by the bankers was--debt! Don't
your wish your debts were money?
Chapter
Six - What's the Difference?
The information I have
given you is factual. Indeed, there is no justification needed
for the statement that there is not one hundred times as much
paper in a one hundred dollar bill as in a one. And if you challenge
the statement that neither bill is a claim upon, or title to,
anything, you can easily verify for yourself that it isn't. The
Federal Reserve Notes are designated in Title 12 of the United
States Code an "obligation of the United States." If
you wish to learn of what that obligation consists, do as I did:
send a Federal Reserve Note to the Secretary of the Treasury with
a request that the obligation be honored. I did not make any specific
request for gold, silver, United States notes, etc. I merely asked
that the obligation be honored. The response of the Secretary
was to return my bill with a terse note informing me that the
government's only obligation was to return my property. The dollar
bill was enclosed.
And you already know that you can get nothing for a check when you cash it except Federal Reserve notes. In ages past people realized that the pieces of paper which stood for the money were not the money, but only proxies, or claim checks. It is, of course, still true today that the pieces of paper are not the money. Nothing is. But perhaps you still have the feeling that it doesn't make any difference. Can't we just do away with those clumsy heavy gold and silver coins?
My answer is an emphatic no! And the reason we can't do away with the metal is that unless money is some tangible, material thing, one who works to obtain it doesn't know what he has. He can be cheated and not know the difference. Suppose you work as a craftsman producing furniture. Would a customer be likely to give you an order for a chair without stipulating what sort of chair he wanted? With arms or without? Upholstered or not? French provincial or Danish modern? Dark wood or light? The customer would, I am sure, stipulate exactly what he wanted. And if he ordered a Morris chair and you delivered a plastic kitchen chair, do you think he would be satisfied with your explanation, "A chair is a chair. What difference does it make?" Now look at it from the other side. Your customer wants a chair. But you want something for making it. You already have enough chairs for your own use; you make them to trade for other things. Shouldn't you know what you are working for? Don't tell me you are working for "dollars." There is no such thing as a dollar. Remember, the term "dollar" was a term of measurement of the gold and silver content of coins. And it was a very specific term. The silver coin weighing a dollar left the mint at 416 grains. When, through handling and wear, its weight fell below 409 grains, it was no longer a dollar, even though the word "dollar" was stamped upon it. It could no longer be used to pay a debt of one dollar, for the obvious reason that a person entitled to a full weight coin (a dollar's worth!) wasn't receiving what he bargained for when he accepted an underweight coin, whether it bore the word "dollar" or not.
Isn't that logical? When you purchase a gallon of gasoline, don't you have a right to a full gallon? The government even takes it upon itself to check the pumps at the station to make sure that you get the gallon you pay for, and that the seller does not give up more than the gallon he is getting paid for. What could be fairer than that? The same government agency checks the scales at the butcher shop so that when you buy a pound of hamburger you can be sure you are getting a pound.
So what does the seller get? He gets "dollars!" Can you seriously content that it doesn't make any difference what that dollar is? And lest you think that I exaggerate in saying that the term is without meaning in our present monetary system, let me refer you to a letter received by a citizen from the Internal Revenue Service. The citizen had requested the Service to supply the legal definition of the word "dollar," inasmuch as the service requires citizens to make sworn statements (1040 forms) about "dollar" income, which statements must be "true, correct, and complete" to the best of the taxpayer's knowledge and belief. The reply of the Service was that there was no definition of "dollar" in the Internal Revenue Code. Isn't that significant? Since returns are not even required of people earning fewer than 750 "dollars," the term would seem to be of paramount importance.
Perhaps you still feel that it makes no difference what a dollar is, as long as you can take the bill to the store and get a gallon of milk. (You would, of course, expect the gallon to be a full gallon, and the milk to be milk, not chalk water.) But what if you don't want to spend your "dollar?" What if you want to save it? Will you still get the gallon of milk for your "dollar" five years from now? If you reply by saying that you don't know what you would get for a silver coin five years from now, I would agree that neither of us can foretell the future. But if we ignore the crystal-clear lessons of the past we are fools. And the lesson of the past is that paper "money" has steadily lost its purchasing power, while silver and gold have steadily maintained it. Even today, a silver dime (translated into Federal Reserve Notes) will buy a gallon of gas. That's as much as it bought in 1939. When you trade your goods or services for a so-called obligation, and then learn that the issuer of the "obligation" can redeem his IOU to pay, say, twenty "dollars" by giving you two tens, why then, friend, you've been flim-flammed.
The point can easily be seen as regards life insurance. Suppose you took out a policy on your life in 1939, payable to your wife upon your death, for the sum of 10,000 dollars. That would mean that upon your death, she would receive 10,000 times 412.5 grains of silver coin. Had you died in 1939, she would have received that mountain of silver. Had she bought gasoline with her inheritance, she would have received about 100,000 gallons of the stuff. Should you die today, she would get about 10,000 gallons. If she wanted the silver coin, it is still available; but she wouldn't get 10,000 of them, but closer to 1,000. Yet, her check from the insurance company would still be marked 10,000 "dollars." Is your widow receiving what you had in mind when you took out the policy? Today, of course, you don't know what you have in mind as regards payment to your heirs when you take out an insurance policy, unless you know what a dollar is. Do you? Does it make a difference?
And what about contracts? Labor unions and management spend hours upon hours wrangling over the terms of contracts without once asking the really significant question, "What are we to receive (or pay) under this new contract?" The worker on the line knows exactly what his job is. If he doesn't, he will find out fast. Isn't he entitled to know just exactly what he will receive for his labors? How about the landlord who provides housing in return for "obligations?" For providing more than a promise of shelter perhaps he deserves more than a promise of payment--especially since the promise has no meaning and needn't be kept.
We said earlier that money, unlike other commodities, performed no function. The gold and silver coins just "sat there" in bank vault or purse. They could easily be represented by paper proxies,, and if those proxies themselves came to be mistaken for the money, so what? Well, we were wrong. The precious metal coins did indeed perform a function, similar to that performed by a weight in a balance being used by a druggist to measure out a precise dose of medicine. The weight just "sits there," but nonetheless provides an important service, and one that cannot be performed by a paper proxy. Gold and silver coin money, even though it just "sits there," performs a role essential in society: it acts as a measure of profit, loss, and productivity.
Ultimately, it's a question of justice and logic. There is no justice if a man does not receive that to which he is entitled; and there is no logic if he cannot find out just what it is that he's entitled to! And he cannot find out to what he is entitled if words have no meaning.
Does it matter what we use for
money? Perhaps not, so long as we use something, and everybody
knows what it is, and what amount of it is a "dollar."
But if you don't know what money is, or what quantity of it constitutes
a dollar, how do you know when you've received it, and whether
it's the real thing, and whether you've gotten the right amount?
And isn't that something you ought to know?
Chapter
Seven - Fiscal Fallacies
From the vantage point
we have attained let's look at some commonly held conceptions
about our monetary system, its problems, and their "solutions."
Fallacy #1
THE GOVERNMENT PRINTS TOO MUCH MONEY. Among people with just a touch of economic sophistication, this is an extremely popular idea. It is untrue, both in what it says and what it implies.
First, as regards what it says: the government does not print money because money is not and never has been printed. The role of the printing press has been to print receipts for money on deposit. The printed currency might be referred to as warehouse receipts, or claim checks for wealth available for redemption by the holder of the currency. Of course, there have been receipts printed which were not claim checks for money on deposit. These were referred to as counterfeit when that word still had significant meaning, but actual money was never printed, only coined. I'm sorry if this seems like pedantic quibbling, but if you do not understand this point, you fail to grasp the most important single fact of our monetary system. May I suggest you re-read Chapter One?
The implication of Fallacy #1 is that the government prints money for its own use, thus flooding the marketplace with increasingly useless currency. This is also untrue. Although the actual manufacture of Federal Reserve Notes takes place on government property, with government personnel operating government presses, the currency is printed at the request of the Federal Reserve System, a private banking cartel. It is printed in denominations requested by the Fed and turned over to the Fed for distribution. The Fed "pays" for the currency, incidentally, at cost, which is a few cents per bill, regardless (of course) of the denomination. The bill on top of the stack, in other words, will "buy" the rest. (It's as though you could pay for grapes with grapes. Select a nice bunch at the produce counter and give the check-out girl two or three of them to pay for the rest. Nice deal!) Proof that the government does not use the currency it prints for its own needs is the national debt. To whom could the government owe money if it were the source of money?
Fallacy #2
A BALANCED BUDGET WOULD SOLVE OUR ECONOMIC PROBLEMS. I believe that there are some people who believe this and who also believe Fallacy #1, yet if you believe that the government prints money, how can you believe that it can have an unbalanced budget?
The problem with this fallacy is also more in the implication of the words than their literal interpretation. A balanced budget, per se, is a fine thing; but those who propose it fail to suggest any way by which it can be accomplished, or what benefit would result if it could. The blind spot in their thinking if the factor of interest. Interest must be paid by the government on money previously borrowed (which was borrowed to pay the interest, which was borrowed to pay the interest, etc.). It is simply an incontrovertible fact that government borrows to pay the interest due! A balanced budget, under such circumstances, is unthinkable. Should the government decide to settle its account with the bankers once and for all by using its armed might to simply seize the people's money (taxation), where would the people obtain the money? Why, by borrowing, of course. Even now, many people borrow to pay taxes. Those who don't are perhaps in that enviable position because they borrowed to meet other expenses. So if the government decided to balance its budget by taxation rather than borrowing, the people would have to do the borrowing instead. Thus, the national debt would remain, but now it would rest directly upon the people, instead of indirectly, through their government. The problem which must ultimately be faced is that of debt repayment when no money is provided. When debt is "paid" with IOUs and "obligations" it is not paid at all, but merely recycled. When the debt (money) accumulates to the extent that it can no longer be taken seriously, the system collapses. Balancing the federal budget is thus irrelevant.
Fallacy #3
WE CAN'T USE GOLD AS MONEY BECAUSE THERE ISN'T ENOUGH OF IT AND THE RUSSIANS CONTROL MUCH OF IT. Yes, the Russians, among others, control much of the world's gold. But they can't eat it! Don't they want our wheat? Don't they want our technology? Then let them spend the gold to get it. And once they do that, they don't have the gold any more. The world's gold, were it to be used as money, would soon become distributed among the people. A miser, it is true, would simply hoard his wealth; but miserliness is a mental aberration, not a national policy! Gold--or any other precious material used as money--gives its possessor power only when it is spent.
Isn't it remarkable that so many people believe that there isn't enough gold to use as money? Do these same people ever worry that there isn't enough steel for our refrigerators or automobiles? Do they wring their hands with worry that we might run out of wood for our homes and furniture? Do they fret lest we run out of salt for our soup? Not that I've heard. So why do they think that we might run out of gold? I think that their fear is based upon the fact that when gold was used as money, the people who issued currency redeemable in gold often--perhaps usually--issued more claim checks for the gold than they could honor. In other words, had everyone tried to redeem his currency simultaneously, there would not have been enough gold. And this occasionally happened, of course, in those situations termed a "run on the bank." But the very reason that runs on banks occurred is that people suspected that the bank was counterfeiting. The prevention of runs on the bank lies in the enforcement of laws against counterfeiting. In other words, a paper currency should be 100% redeemable. When the Federal Reserve System first began issuing its notes a 50% backing in gold was required, and this was later reduced to 25%. Such a system seems to work very nicely because there are never many people demanding redemption of their currency at any one time. But as regards the currency as a whole, it means that 75% of it is counterfeit, i.e., not issued against the deposit of anything available for redemption. Of course, as we have seen, a run on the bank can mean disaster for such a system of partially-honest currency. But 100% redeemable currency leaves control of the economy in the people who produce the gold and silver used as a medium of exchange. Therefore, the possibility of a run on the bank was eliminated in another way: by making none of the currency redeemable. What's the point of taking your claim check to the bank to claim your money when the bank is going to tell you that the claim check is the money? More importantly, when the claim checks (now fraudulent, of course, because they can "claim" nothing) are accepted as "money," control of the economy--and of the people--passes to the printers of the paper.
Fallacy #4
OUR CURRENCY IS BACKED BY THE GROSS NATIONAL PRODUCT. What nonsense! Who produces the gross national product? We, the people, product it. Who produces modern "money?" The bankers, every time they make a loan. They get it from thin air. Now can you seriously accept the idea that the banker's liabilities (checkbook money) are backed by---our goods? That's like trying to pay your rent with an IOU. When asked what backs your IOU, you reply that the landlord's property backs it! Pretty good arrangement, isn't it? You can pay your bills by issuing notes based upon other people's wealth. But isn't that what you believe when you believe that the Fed's "notes" are backed by our own goods? And what about consumption? If the gasoline in my car's tank is backing for the currency in my wallet, what happens when I burn up the gas? Do my Federal Reserve "notes" somehow disappear? A very great proportion of the gross national product is consumed. Is someone adjusting the amount of "money" in circulation to compensate for this fact? And are new Fed "notes" only issued except as more goods are produced? The answer to these questions is obviously "NO!" Our modern "money" comes into existence, as we have seen, when a loan is made, and that loan is not necessarily to increase production. Indeed, it is far more likely that the loan is made, in part at least, to pay the interest on loans previously made by others and passed along as an added cost of doing business. This is a vicious circle that can only lead to disaster. Our present system provides no means of escape.
Fallacy #5
AMERICA IS THE LAND OF THE FREE AND THE HOME OF THE BRAVE. Don't confuse reality with the lyrics of a song. When you and I are obligated via legal tender laws to accept scrip for our goods and services, then we are under the thumb of the printer of the scrip. The control that is exercised over our lives may be much subtler than that exercised over the lives of black slaves a century and a half ago; but it is there, nonetheless, and its subtlety makes it all the more pervasive. Consider just how free you are: can you send your children to the public school in your neighborhood? Can you sell your home to whom you wish? Can you even be said to actually own your home, or is that "ownership" dependent upon perpetual payment of taxes? Can you put the type of gasoline into your car that makes it run best? If you sell natural gas or electricity, can you determine for yourself what your charges and fees will be? Can you fly where you want, and set your own charges, if you own an airline? Can you write a book advocating the treatment of cancer with apricot pits, and send it through the mail? Can you buy a tire without giving identification? Can you, as a farmer, raise as much as you please of what you please? Can you decline to provide financial support for total strangers?
This is a very abbreviated list.
If you are in business, you could no doubt add dozens of things,
proscribed in this "land of the free." Most of the things
which we are forbidden to do are proscribed via the various regulatory
agencies which issue "guidelines" having the force of
law. These hundreds of agencies are made possible--like war--by
the government's access to unlimited money in the form of its
"obligations" which oblige the government not at all.
Money, they say, talks. When it is real wealth, produced and owned
by the people, it speaks loud and clear, telling the government
that the people are paying the piper and calling the tune. When
it is counterfeit issued by a group of citizens immune from prosecution
for that crime, it also speaks loud and clear. Its message then
is that we had better live our lives as the issuers of "money"
think best. And the agency by which the counterfeiters' desires
are translated into our actions is the government, which, as George
Washington pointed out, is not reason, but force. For counterfeiters,
money is no object. They can buy anything--including a government.
And, sad to say, in the land of the brave, the power of money
creation has replaced those who once said "Don't tread on
me!" with a new generation which whines, "You can't
fight city hall."
Chapter
Eight - The Dollar
We spoke in an earlier
chapter of the dollar, which had always been defined in law as
a quantity, by weight, or gold and silver in coin form. Let's
look at the "dollar" a little more closely.
Truth in advertising is a wonderful thing, most of us would agree. Black's Law Dictionary says that to advertise is "to give public notice." Shouldn't that notice be true? When a soap manufacturer advertises that his jumbo size package contains twice as much soap, shouldn't that be true? When an automobile manufacturer claims that his latest model gives 10% better fuel mileage, shouldn't that be true?
Now take a good look at a Federal Reserve Note. Presumably its manufacturer intends to "give public notice" by the inscriptions which it bears. Well, what do those inscriptions say? First we see that the paper bears, once in very large type and once in small, the word "note." We turn again to the law dictionary for the definition of "note:" "A unilateral instrument containing an express and absolute promise of signer to pay to a specified person or order, or bearer, a definite sum of money at a specified time." Now does the Federal Reserve Note contain any stipulation of what is to be paid to whom? You will not find any promise to pay any amount of anything to anyone on the Federal Reserve Notes printed in recent years. In the unlikely event that you have a quite old note which in fact promises to pay a bearer a unit of gold upon demand, why then you actually possess a genuine note--except that you won't get the gold, which it promises to pay. In other words, as regards the inscriptions upon Federal Reserve currency, there are two possibilities. Most of the "notes" are fraudulently labeled, not being genuine notes at all; while those which are in the form of genuine notes are also a sham, inasmuch as the solemn promise made upon them by the government of the United States is not honored. Thus the government is totally contemptuous of those standard of truth in advertising which it upholds against individuals and corporations--except only the Federal Reserve System, which is privately owned.
Let's look now at the word "dollar," which, by my count, occurs once on each side of the bill. It is such an important word, used so often every day in so many important ways, that it should be clearly defined somewhere. You will recall the concerned citizen mentioned earlier who wrote to the Internal Revenue Service, a branch of the United States Treasury, to request the definition of the word "dollar." His thought was that since citizens are required to provide sworn statements (1040 form) to the government setting forth the "true, complete, and correct" amount of their income in dollars, and that such statements are to be according to the citizen's best "knowledge and belief," the definition of the word "dollar" should not be a matter of conjecture or guesswork, but rather of clearly stated law. He was rather surprised to learn from the IRS that there is no definition of the word "dollar" in the Internal Revenue Code. Another request, again asking the definition, from any source, in U.S. law, was ignored. Government agents, testifying under oath in court, have admitted that there is no definition of "dollar." Treasury Department executives have acknowledged in writing that Federal Reserve Notes are not dollars. The term is meaningless.
Does that surprise you? It really shouldn't. In everyday language, we speak of dollars as equivalent to amounts of money. Thus, a large number written on a price tag, preceded by a dollar sign, is interpreted as a "lot of money." The question, "How much money does that cost?" is always answered in terms of dollars. For this reason, there cannot be a definition of dollar today. For if there were, it would have to include two aspects. First, it would have to set forth just what the money is; and second, it would have to define the quantity of that money to be designated a "dollar." For example, as we have seen, when money was 90% silver coin, the dollar quantity was 412.5 grains. When the weight of the coin was reduced through wear to 409 grains, the coin was no longer legal tender for a dollar, although it could still pay debts in proportion to its weight. But today there is no thing which is used as money. And if money is not a measurable thing, how can there be a specific quantity of it? The significance of this is mind-boggling. We have seen how the lack of a definition of the word "dollar" makes the terms of almost all contracts indefinite, when they certainly ought to be specific. What I should like to point out to you now is that it is all totally unnecessary for this confusion to exist. Indeed, the fact that this confusion does plague us would almost seem to be deliberate. And here is why I say that: let us return to the days when our money was gold and the paper currency redeemable in gold. The money (i.e., the gold) is expressed in units called dollars which, for the sake of simplicity, we shall define as 10 grains of pure gold. If, now, the government issued more currency than it could redeem (in other words, counterfeited) no one might be the wiser, but if the practice were continued to the point of arousing the suspicions of the people, the government would face the embarrassment of being caught in the act by a "run on the bank." This embarrassment could easily be avoided by merely redefining the word "dollar" as, let's say, 5 grains of gold. With the passage of this law, the government would have doubled its supply of "dollars." Then, when you took your paycheck to the bank, you would get exactly the number of dollars that you did before. (If you did not redeem the currency, you would notice no difference whatsoever; you would get the same lovely banknotes promising to pay dollars of gold.) Only if you redeemed the currency would you discover that you were getting exactly half the money (gold) that you had gotten the week before. Thus, you would suffer a loss of fifty percent of your income, and you would have no recourse whatever, because you were getting the same number of dollars called for in your contract. The question you might ask yourself is, "Is this all just some unfortunate quirk of fate, or am I being robbed?" It all hinges on that word "dollar." Do you know of anything other than money which is measured in dollars? Hamburger? Lumber? No, not even gold and silver are measured in dollars, except when used as money. When a jeweler orders gold, he orders it by the grain or ounce. And of course, innumerable other substances are measured in those units. Only the banker, with the connivance of the government, provided precious metals in "dollars." Thus, when necessary, the term "dollar" can be redefined with little or no notice being taken of the fact, even though that definition is so momentous because it means that you are being cheated of what you expected to receive for your labor.
Now let's suppose that the government, which is concerned with truth in advertising, labeled its currency and money as accurately as it insists that cornflakes be labeled. Gold coins would be labeled "gold .999 pure, 20 grains." Or "silver .90 pure, 412.5 grains." Your contract would stipulate that you were to receive so many grains or ounces of gold or silver per week. Your rent--indeed, all prices and fees and charges--would be set forth in grains or ounces. Contracts also would stipulate exactly what was to be paid. No politicians could reduce what you were to receive in payment by the stroke of a pen. The word "dollar" would have no relevance in such an economy. The government could attempt, I suppose, to stretch its supply of gold be redefining the word "grain" or "ounce," but that would cause such pandemonium as to be unthinkable. In fact, it would instantly alert people as to what the government was about. It might even make them laugh at the government; and a government which is not taken seriously by its people is in trouble indeed.
Conversely, a government which can pay its debts with anything it chooses to label "dollar" without ever being required to define the term, is a government which can do exactly what it wishes without any accountability to the people whose wealth it does not need for its operations. The only thing such a government need fear is even a small percentage of the people awakening to what is happening.
Remember, the founding fathers
took so seriously this matter of having a clearly understood definition
of the money that in the Coinage Act of 1792 they established
the death penalty for anyone found guilty of debasing the money.
Obviously, you cannot debase the money unless there is some standard
by which to measure it. Our present monetary system is clearly
not that envisioned or intended by the Constitution.
Chapter
Nine - The Price of Money
While the idea of precious
metal as money, and the dollar as a stipulated amount of it, is
still fresh in our minds, it might be a good idea to briefly consider
the "cost of money."
You will eventually encounter this argument: "The dollar had to be devalued because the price of gold had simply gotten too high." Thus might be justified President Roosevelt's redefining the dollar, from 25.8 grains of gold, to 15.24 grains of gold. This action was necessary, you see, not because the government wanted to renege on its debts, but because the price of gold had increased to the point that the government could no longer give 25.8 grains of it for a dollar. Now isn't that reasonable? Doesn't that make sense? If you think so, you're not thinking straight. Let's look at it very simply.
In the first place, let's consider the phrase "the price of money." The word "price" designates what is to be paid for a certain item or service. And how are such items or services paid for? With money, of course. How, therefore, is the price of money to be paid? The same way all prices are to be paid--with money. How absurd! Why would one give money to buy--money?
Specifically, when money was gold, how was one to measure the price of gold? Why, in terms of money, of course. But because gold was money, the price of gold was measured in gold. Nonsense! What would one pay for a dollar of gold? Would anyone pay more than a dollar (of gold, of course, because gold was the money) for a dollar (of gold)? Would anyone sell a dollar of gold for less than a dollar of gold?
Even now, when our money is imaginary, it is foolish to talk of its cost. Would you sell a FIVE "dollar" bill for less than five "dollars?" Would you pay more than five for it?
Now let's look again at the statement that the price of gold had risen too high for the government to give 25.8 grains of gold for a dollar. At the time that statement was made, 25.8 grains of gold was a dollar. Hence, the government was saying that the "price " of gold had risen so high that the government could no longer give 25.8 grains of it for---25.8 grains of it! And the people believed it! Oh, the mischief that has been wrought by that confounded word "dollar!" What the government was actually saying, of course, was that it had been counterfeiting, and had printed (or allowed to be printed) so many claim checks for 25.8 grains of gold that it couldn't begin to honor them. The people, very conveniently, had come to regard the claim checks themselves as "dollars," and they used these "dollars" to make purchases of things--including gold. Of course, the government and the banks encouraged people to think of the pieces of paper as dollars. Wouldn't you go into the poultry business if you could make people believe that a piece of paper bearing the word "chicken" would taste good with dumplings? Naturally, you couldn't get away with that because people know what a chicken is. But do they know what a "dollar" is? Apparently not, for if they did they would have known that the price of gold could not have risen--because there was no such thing as a price of gold. To repeat, who would offer more, or accept less, than 25.8 grains of gold, for 25.8 grains of gold? Indeed, if you had 25.8 grains of gold why would you wish to use it to buy 25.8 grains of gold? What would be the point? There is one thing which has no price (in any meaningful sense), and that is money. To ask the price of money is to ask the number of ounces in an ounce, or the number of pounds in a pound.
In the preceding chapter we saw the desirability, from the citizen's point of view, of having the coinage clearly labeled for what it actually is, rather than in terms of some nebulous "dollar," or fraction thereof. The same is true of the currency. "Truth in advertising" would never permit a bank note to be labeled "dollar" when in fact there were four such notes printed for each unit (i.e., "dollar") of gold on reserve for redemption by the notes. Today's paper currency would almost defy accurate labeling. Each bill is about 2.5 by 6 inches, and weighs about a gram, but if it were accurately labeled as such, what would the numbers--ONE, FIVE, TEN, TWENTY, FIFTY,, etc., mean? After all, the bill labeled FIFTY is not fifty of anything, nor does it confer upon its holder title to or ownership of fifty of anything. Many people, I know, would say that the numbers represent "dollars," but we know that the dollar is a unit of measurement. Would a piece of paper marked FIFTY OUNCES be more valuable than a similar piece of paper marked TEN OUNCES? Not if the ten ounces were of gold, and the fifth of copper. And if neither bill were redeemable from its issuer for ten or fifty ounces of anything, what meaning could you attach to such numbers? Certainly, to make such numbers the basis of all economic calculations, and the foundation of the economy, is inexcusably stupid.
The expression "cost of money" is also used to mean interest paid for the temporary use of the banker's numbers. As so often happens when monetary matters are involved, language here is somewhat special. The fee paid for the use of tangible property is termed "rent," but the fee paid for the use of money is "interest." How interesting! Money has its own language, and it purpose seems to be not enlightenment, but quite the opposite. Only money, for example, is measured in "dollars," which "dollars" eventually come to be regarded as the money itself, allowing the issuer of "dollars" to use that word on any bit of paper or slug of metal and have it accepted by the public as an amount of "money." Although used in contracts many, many times every day, it is a word without legal definition. Yet those who demand to know what it is that they are expending their lives to acquire are regarded as kooks by the general public, and as enemies by the government/banking axis.
And, when one borrows these mysterious "dollars" he doesn't receive delivery of anything which he can hold in his hand and weigh or measure; nor does he pay rent for the use of the stuff; but rather, he pays a percentage as interest. This interest is often spoken of as the profit of the banker, but this again is somewhat misleading. If the banker lent ten ounces of gold and received half an ounce of gold as his fee for this service, he would certainly be receiving five percent. But when what he "lends" is a number, which represents no claim upon any of his assets, nor any tangible property which he owns, how can his profit be computed? I recall learning in grammar school that zero divided by anything is infinity.
In truth, the so-called interest rate might be more accurately labeled the money-creation rate. We understand that interest can only be paid by the creation of more money for that purpose, and the higher the rate of interest, the more money must be created to pay for it.
No matter how it is used, therefore,
the expression "price (or cost) of money" should put
you on the alert. When you hear it the chances are good the speaker
doesn't know hat he's talking about, or seeks to mislead you.
Chapter
Ten - Barter
Poor barter gets a pretty
bad press nowadays. It is almost always referred to in denigrating
terms, as a system used by primitive peoples and not at all suitable
to modern life. It simply won't work in our complex society.
But is that true? Do you provide goods or services in return for nothing? Not knowingly. But if you provide goods or services in return for another's goods or services, haven't you bartered? Those who oppose barter, or do not understand it, cannot seem to think of bartering except in the most simple, direct fashion. I have an orange but want an apple. You have an apple but want an orange. We swap: barter! But how often do I have precisely what you need, while you simultaneously have just what I want? Therefore, barter, we are told, is obviously an unsatisfactory way for modern people to make exchanges of their goods and services. But why does barter have to be so direct? Is there some immutable law of nature that requires that I immediately use or consume that for which I have bartered? Can't I trade the chair which I have made for a side of beef which I will freeze for future consumption? Perhaps I will encounter someone who has a bicycle to trade, but doesn't want a chair. If he will trade for a side of beef, we've got a deal. In that case I used the beef not for food, but as an intermediary between the chair which I produced and the bike which I desired, or, in other words, I used the beef as MEDIUM OF EXCHANGE. In fact, I may have accepted it with the idea of future trades, rather than consumption, in mind.
Men have been doing this since the development of civilization, with its subsequent division of labor and specialization. And in that time, some things were found to be more suitable as media of exchange than others. Food eventually spoils. Liquids are hard to store and may evaporate or burn. Precious metals quite naturally and spontaneously came to be accepted as nearly perfect media of exchange. And when men accepted precious metals for their labors, they were bartering, albeit indirectly. The gold and silver could always be used for and in themselves, in art, industry, medicine. But they were excellent for making trades (bartering) as well. They did not lose their value when divided, as would diamonds, for example. They were impervious to decay and rust. A small amount had great exchange value, thus simplifying storage; and virtually no one was reluctant to take them in exchange. Eventually the actual metal was replaced with a paper claim check, and that opened the door to all our problems, as we have seen. So many claim checks for gold were counterfeited by the government that in this country, in 1934, the government almost simultaneously redefined the dollar, and made the ownership of gold a crime. This meant that the government simply repudiated its obligations to its own citizens, while paying off foreign holders of its obligations at a nearly fifty percent discount. Silver remained in circulation until 1964, but was subsequently withdrawn and the silver certificated declared non-redeemable in 1968. But up until that time, we bartered with one another. Hardly a primitive system.
Even today we barter, in this sense: I have to do a certain amount of work to obtain the piece of paper marked FIFTY. When I give it to you in return for your work or goods, I am in effect trading the time I worked for the time you worked, since no material changes hands when modern money is used. But the defect of this modern barter is that neither party can determine exactly what is being traded--merely numbers which do not signify any thing. If it is barbaric to trade material goods among ourselves, it is insane to trade nothing! And we manufactured the material goods, but the numbers were borrowed from a third party who obtained them by simply writing them on a piece of paper, a "job" which we were not allowed to perform for ourselves.
But if this modern type of money is so inferior to barter in the sense of exchange of tangible goods, why do we have it? For the same reason, I believe, that we have muggings and burglaries; namely, the profits of the perpetrators.
Gold and silver were part of the people's production. Banks and governments no more produced gold and silver than they did refrigerators or window glass. Producing gold and silver is hard work. It would be much easier to pay one's bills with promises of gold and silver. You and I, of course, could not make people accept our promises of payment in lieu of the actual metal. But government could, via legal tender laws.
And if people came to suspect that too many promises were being printed and sought to use them to claim the actual money, the government could declare that redemption of its promises was "against public policy." These are the actual words of President Franklin Roosevelt, spoken on January 15, 1934: "Certain lessons seem clear. For example, the free circulation of gold coins is unnecessary, leads to hoarding, and tends to a possible weakening of national financial structures in times of emergency. The practice of transferring gold from one individual to another or from the government to an individual within the nation is not only unnecessary, but is in every way undesirable. Therefore, it is a prudent step to vest in the government of a nation the title to and possession of all monetary gold within its boundaries---."
What the President meant by a "possible weakening of national financial structures" is that the people might well lose faith in the government and the banks when they discovered the extent to which these institutions had been counterfeiting. What the President termed "hoarding" is nothing more than the people's desire to keep their wealth in their own control, rather than placing it with the government in return for its IOUs. (Presumably, once the government had seized the gold and placed it in its vaults, that would not be "hoarding.") Naturally, the President regarded the actual exchange of a gold between individuals as "in every way undesirable" because when the people used their own gold as a medium of exchange, they didn't need the government's IOUs; moreover, the stable purchasing power of the gold would provide a standard against which the paper currency would look rather shabby. That is precisely what happened to the government IOUs issued to finance the Revolutionary War. The people preferred the dollars of silver to the government's promises. When the continental "dollar" fell to about one-thousandth of the value of the dollar of silver the people stopped using it. It became "not worth a continental." Continental currency is still in existence. So, for that matter, is Confederate currency. And it would probably not be too difficult to locate some of the German currency of 1923--such as a hundred-million-mark note. None of it will buy you anything today. Bushel baskets full of it will buy you nothing. But a coin of gold or silver will still get you a suit of clothes or a meal. No wonder governments hate it. What Mister Roosevelt was saying in his speech was that people must not be allowed to barter with their won production.
Banks, of course, despise barter too. When people used their own gold as money, the banks could only lend at interest gold in their possession, lest they be caught in the embarrassing position of having loaned something which they did not possess. Therefore, it became necessary that money not be some thing. As we saw earlier, when money was gold, new money came into circulation interest free. It was from the mine, not the bank. The earth didn't demand its return, with interest. But with the use of tangible money prohibited, where would "money" come from? Why, from the banks, not the mines. But it would come into existence--as a number entered into the books--only as a loan. Profitable? Consider this: total debt,--private, corporate, government--in the United States in 1960 was $779 billion. The figure for 1980 was $4,652 billion! Where did the $3873 billion come from? From the banks--where else? Where did the banks get it? Out of thin air, of course. Money, after all, is not a thing. How much of the $4652 was created (i.e., loaned) in order to pay, indirectly, the interest on money borrowed previously? I don't believe there is any way of knowing, and the banks certainly would not wish that aspect of the situation discussed. How is the $4652 billion being repaid? By borrowing, how else? Interest, you must now realize, is the perpetuating factor in money creation. Until the system collapses, people will return to the banks to borrow because there is no other way to meet the higher prices required to service the debt. We saw how this works in Chapter Five. Peter borrows to pay Paul, who borrowed to pay Tom, who borrowed to pay Harry, who borrowed to pay Sam, etc., etc. Previously we referred to the argument advanced by some that our money is "backed" by the gross national product. But there can be no doubt that a very substantial part of the 4652 billion debt represents borrowing to pay the interest on previous borrowing, and does not represent "dollars" created to pay for new goods or services provided by the marketplace.
Perhaps this is a good spot to give some thought to the idea of "backing." Our friends with just a little bit of economic sophistication are apt to say that the problem with our money is that it is not "backed" with gold. Just a minute! Our money was never backed with gold. Our money was gold. Gold does not need any "backing!" What was "backed" was the paper currency, which was a promise to pay money, not the money itself. Personally, I don't care about gold "backing" for a currency. When Mr. Roosevelt took the people's gold--and it was theirs, beyond any doubt, not his--it became a crime to own gold, and naturally, those people who held currency bearing the government's solemn promise to pay a dollar of gold were left holding just a piece of paper. But they were told that that piece of paper was "backed" by the gold which they could no longer possess. Presumably, the government would not create any more pieces of paper than it had "backing" for. But how would one know that?
Do you remember the saving stamps craze of a few years ago? There were pink stamps, green stamps--a whole galaxy of stamps--which merchants would give their customers as an inducement to buy. Once a suitable number of stamps had been saved, they could be taken to a redemption store and traded for goods. In a very real sense, the merchandise in those stores was the "backing" for the stamps. Now suppose you took your book of trading stamps to the redemption store and found it padlocked and guarded. The stamp company had seized possession of the goods in the redemption store and would no longer issue them in redemption of its stamps; however, the goods would remain there as "backing" for the stamps. Now just how many people would continue to save those stamps? What is needed, in other words, is not "backing" for a currency, but redeemability. No one would save trading stamps for which no merchandise was obtainable--unless, of course, the trading stamp company could compel other people to provide their goods for the stamps. But trading companies do not have the power to do this. Governments, however, do have this power. They exercise it via "legal tender" laws. Got the picture? You cannot use your own wealth as a medium of exchange, but only the government's "trading stamps." Barter be damned. After all, what is the advantage of counterfeiting if people won't use the counterfeit? And what better way to insure that they'll use it than to pass a law: a legal tender law.
An historical note: The continental
currency referred to above was a "legal tender" by act,
not of the federal government, but the states. That did not prevent
the people from refusing it when its deficiencies became obvious.
The is no power on earth that can compel people to exchange their
lives, 40 hours per week, for a piece of paper once the true nature
of the exchange is apprehended.
Chapter
Eleven - Deflationary Exchange
We have referred several
times to the collapse of the economic system. I can see no alternative
to that collapse unless there is a fairly prompt return to a tangible
monetary system in this country, and there seems little likelihood
of that. The system will collapse because the growing burden of
debt means ever-increasing borrowing, which means, in turn, still
more borrowing, until the productivity of every working man and
woman in this nation is being utilized merely for the payment
of interest. Then, with no more work available to pay for still
more interest, additional borrowing must cease. When that happens,
the whole system falls apart.
I suggest you reread the above paragraph until you fully understand it. It is a condensed history of the economic collapse of every government since ancient Rome which attempted to force its citizens to use dishonest money. Our government is vastly more sophisticated than that of ancient Rome, which means that it can prolong the use of its fiat much longer than could Rome. Doesn't that suggest that the collapse, when it comes, will be much worse? Rome, we recall, was overrun by barbarians. Are our barbarians waiting in the wings? Perhaps it is more diplomatic--and certainly more fashionable--to refer to them as third-and-fourth-world nations.
I want to remind you again that you do not need to have a loan outstanding at any bank in order to be paying interest. Interest, or "debt-service," is a part of the cost of doing business, and is passed along to you by the producers of raw materials, the manufacturers who use those raw materials to make the things you buy, the retailers who sell them, the delivery man who delivers them, etc. Faced with these ever-rising prices, we eventually reach the point where we must either borrow, or do without. If enough people decide to do without, business will suffer. As sales slump, interest payments are harder to make, loans are called in, hastening the contraction of business. On the other hand, should most people decide to maintain their standard of living by borrowing, more money must be created, and more interest costs added. This can lead to such rapid growth of the "money supply" that it far outstrips the production of real goods, leading to such high prices so quickly as to bring to mind the expression "runaway inflation." When it takes a basketful of currency to buy a loaf of bread, people begin to lose confidence in the money, and when that happens the money quickly assumes its intrinsic value, namely, that of a piece of paper. Moreover, once people begin to question the soundness of their money, the temptation is strong to withdraw that money from savings accounts and spent it while it will still buy something. And that is the coup de grace, with explosive price increases. The total amount of money spent in the United States each day is roughly thirty billion--just a small fraction of the money presently in savings, retirement, annuity, etc., accounts. With that money withdrawn from savings and thrust into the marketplace, shelves would be emptied in hours.
It is for this reason, of course, that the government sets "penalties for early withdrawal" of the numbers which you have left in some non-checking bank deposit. As an inducement for you to keep your numbers from the marketplace, the government will give you a tax break. The banks gladly cooperate by tossing in a free toaster, or even a color TV, if you leave a large enough number with them long enough. The government and the banks (and it is hard to separate the two sometimes) work hand-in-glove to keep excessive numbers from hitting the marketplace. If the relatively mild measures referred to above seem to be failing, they can drastically reduce the buying power of individuals by a deflationary exchange.
This would almost certainly take place on a weekend, when the banks are closed. Perhaps the government would make some announcement to the effect that to combat inflation, protect the American public's buying power, and to strengthen the "dollar" in world trade, a new "dollar" would be issued starting the next Monday morning. This new dollar would be issued for ten old dollars. Checking and savings accounts would likewise be reduced to 10% of their former "value," so that if you entered the weekend with $10,000 in the bank, you would start the next week with $1,000. The effect, obviously, is to prevent the possible flooding of the marketplace with money by simply annihilating the money. After all, if our modern money can be (and is) created with the stroke of a pen, it can be destroyed the same way.<