Stable Money

“Just a Citizen” or JAC for short is an old netizen friend from “Stand Up For America’s” blog” (see my Favorite’s list under “My Second Home”) and occasionally on “Electric City” as well.

We’ve been discussing Money – and the monopolization of money by central banks and government.

I’ll pick up the dialogue after a quick background.

The discussion began about money, how much should “be made available” in an economy and who should control it.
The Austrian economist holds that money is simply “the most desired good in an economy”.


It is acted upon by the exact same laws of economics that acts upon all other goods and services in an economy.

However, because it is the most desired, the actors in an economy will trade their goods for it with the greatest ease because when holding this good, they can then trade it now or in the future to other people for other goods they really need or want with no discount or extra fee. There is no (or little) barrier to trade when this good is used as money.

The question of “what good becomes money” is answered “what ever people desire the most”.

Gold has traditionally been desired the most – for many reasons that we don’t have to go through – but so has salt, pearls, sticks with notches in them  and still today in parts of the world, huge unmovable rocks.

This theory of money really sets apart Austrians from Monetarists and Keynesians.

The latter two theories have a very difficult time or can’t  at all with any coherency explain why large rocks is ‘money’ in some cultures. Only the Austrians hold a robust and complete theory of money that naturally includes these cultural phenomenons.

This good, now defined as money, is central to the economy. Though there is no force behind it to do so, almost all other goods in the economy become measured in a price relative to it. “This costs two and a half notches on a stick”.

Pricing of goods is central to an economy. It allows consumers a way to measure their value of goods and producers a way to price their goods.

With no surprise, government and central authority see that controlling the extent, creation and interactions with money is the easiest way to control the economy and the lives of their subjects.

I advocate that money does not need to be ‘created’ by a central authority, nor managed by it nor controlled by it.

Since money is an economic good, the laws of economics and the free market will manage this good with the same optimum efficiency and effectiveness as these laws of economics manage all other goods and services.

No stirring required.

In fact, if a central authority begins ‘stirring’ the money, its actually begins to destroy money.

Because money is central to the economy (as everything else is priced relative to it), in a complex economy where billions of items are interlinked in the pricing and hence supply and demand, the destruction of the money in a complex economy will destroy the economy and likely society and civilization.

JAC raises some alternative thoughts, so I’ll quote his own words.

I have given some hard thought on what I believe is your concept, namely the local folks figure it out on their own, but see some problems.

While the concept works locally it would be very difficult to work our across a large are such as the USA where our commerce is so rapid.  Would we not all fall victim to EXCHANGE efficiencies and demand issues?

Observationally, we see already a wide, long and varied list of goods that constitutes money all over the world.  But that doesn’t stop trade.

Money traders flourish everywhere. And with free market money, they would flourish in that economy too.

Going back to the theory of money – it is just another good.

So efficiency of exchange between goods is really nothing more than negotiation of price. Money as a good is no different. It is merely negotiation of price.

Demand issues is vitally important and required. It is precisely this component that creates the stability in money!

If there is a large demand for a particular good,  while supplies are static, the price for that good goes up.

Conversely, if there is a decrease demand with static supply the price goes down.

If that good is ‘money’, a sudden demand for that money-good means that good is in high demand. What does that mean in the context of money? What makes money “more valuable”?  Well, it’s exhibiting better fundamentals for why it was money in the first place!

And those that are trading their money for some other different money are demonstrating that theirs exhibit lower fundamentals of money.

So the money supply itself is subject to laws of economics. Its increase or decrease in value by individuals in the economy is a measure of that value – just like all other goods are measured.

Montana needs NY dollars to trade with S.D. for example.

JAC, you may have accidentally embedded a different premise then what we started this conversation with – “Montana” creating different money instead of people creating their own money.

However, just taking this comment at face value, what this simply says is “S.D.” values the “New York” money more than it values “Montana” money.

Seems like a massive complication with huge potential for corruption.
So, let’s take this up one more conceptual notch.

Because it is unnatural for 95% of the people reading this blog, they may have a hard time seeing money as just another other good/service following the laws of economics, so let’s move to more typical goods for this discussion.

What about the condition where Montana has a lot of wheat to trade and wants  for South Dakota beef? Do you expect S. D. – already awash in its own wheat – would see much value in Montana wheat?

So what is corrupt and complicated to say the S.D. doesn’t see value in Montana wheat, but see lots of value in New York shirts and ties?

Montana trades its wheat to New York for ties, and then the ties to S.D. for the beef.

Now, it appears to be complicated in my example, because by their physical nature, wheat, ties, shirts and beef are difficult commodities to transport, store, and divide – which will tend to reduce their desire to be money.

They would have discounts and commission on the exchange because of these difficulties – they have huge storage costs, for example, like refrigeration and humidity issues.

So really, using these items as money is unlikely, since there would be discounts for loss and expenses – thus, would be easily displaced as money by another good that would not suffer as severely these costs and losses.

But the example still holds – it is merely one good of Montana not valued in S.D. where as S.D. sees large value in the goods from New York.

Probably to facilitate such a cow/grain/clothes system, a speculator would appear – willing to handle all the problems with Montana wheat delivery and New York tie deliveries, pricing and money conversions – for a small fee from all the players.

So how would he handle commodity exchange today between ties, cows, and grain? Commodities exchanges! And with no surprise, we have them – today – in currency as well.

With hundreds upon hundreds of currencies and commodities – and thousands of companies and their shares  already exchanged in today’s market – why would a few more ‘currencies’ or other money make it more complicated or corrupt?

I know we have that at the international level but it creates issues there as well.

What issues? The issues on international currency trade are almost wholly around uncertainty due to government manipulation – artificially increasing or decreasing costs of money (interest rate) or producing money out of thin air via debt.

Where money is freely chosen by the People, this naturally prevents such manipulation – since if such manipulation existed “somewhere”, people would abandon that commodity as money, the prices of that commodity would fall, its worth would fall, and the value of that manipulation would decrease

These would be moved to the local level.

Eventually, all delivery of goods and services is individual. If this works for apples, cars and TV’s why not for “money”?

But then I was wondering if your money proposition requires the negation of “national” boundaries.

No.

Gold has traditionally been viewed as ‘money’ historically. Its use today is to transcend national boundaries as nation’s central banks transfer the metal between themselves internationally to meet obligations.

Now, this is done inside a building in New York – where bars are moved from one bin into another, but the effect is international transfer of obligations and payments.

Many nations use the US$ inside their country adjacent to their own currency.  I myself often traveled with three or four different currencies at the same time, and used all sort of different currencies within countries as convenience arose. (Local currency, US$, EUR, and currencies from neighboring countries all accepted at the same till)

If that were the case then regional currencies would probably develop.

Perhaps. Or one of the local currencies bubbles up as the most desired commodity. Or some other currency in use far, far away becomes the most desired – (like the US$ in middle of Asia, etc.)

There is no planning or predicting – there is good guesses, but the point is ….

…it doesn’t matter.

Whatever is used as money, is – money.

It is a trade good – the most traded and the most desired.  It is desired because it is so easily traded and it is traded because everyone desires it.

“We”, – you and I -, do not need to ‘design’ it.

We do not need to design how it will be traded.

We do not need to design how it will be carried, transferred, stored, measured, etc.

The free market will – as it does will all its goods and services – do that naturally through the aggregate solutions of the desires and needs of all the people in the economy. What will be, will be. No stirring nor extra spices required.

Then that got me to thinking about MONEY SUPPLY again.  I have said I think supply should grow slightly to allow for availability.  The idea of course could stabilize money effect on price.  Your concept as I understand is to keep supply fixed.

No, not at all.

Again, let’s move away from money and into another good/service.

Would you say:

“Let’s manage our apple supply centrally through a committee.

We don’t want a sudden rush of purchasers to buy up all our good apples in one day – because that would mean some of you would go and plant more trees to supply those highly demanded apples – but some of us are happy with the number of apples we are already growing and don’t want to work any harder than we do.

We will force all apple growers to grow only a specific number of apples – a quota – so we can manage the supply.

Of course, that means we can’t allow any new growers of apples. That would upset the apple cart! So, we must license apples growers.

Of course, that also means we can’t allow any apple growers in the next county either – if we manage our supply – they could cut in on our plan. We’ll have to organize raiding parties to burn them down. True, that may mean they organize raiding parties to burn ours down, too – but that’s the risk we have to accept if we want to manage apple supplies.”

You can see where I am going. Kind sounds like our current system.

I am neither saying we ‘need’ to stabilize the money in free market system – nor am I saying that if the money goes up in value (prices fall) is bad – nor am I saying that if the money goes down in value (prices rise) is bad.

Money in a free market is merely a commodity. Its value is in the eye of the beholder and it moves up and down with supply and demand.

As long as the commodity is free from manipulation of those that would use violence to enforce their will upon money, money will, all by itself, take care of itself.

This would create deflationary pressure over time.

Back to some reality; apples won’t be money very soon because of many limitations – it rots and they are easy to make grow with few barriers.

Gold has been used as money because it has some of the fewest limitations.

It can’t be made out of thin air, it doesn’t rot, it is divisible, it is desired, etc.

So, let’s resume our economics with gold instead of apple – while keeping in mind that 100% of the laws of economics still apply to gold as they did with apples.

As a prosperous economy grows, it has the potential of outgrowing the increase in supply of gold.

Yes, this is deflationary. There are more items in the economy wanting to be traded for gold. This creates a higher demand for gold, raising its price in relation to all the other goods.

But since gold is the measure of price, the higher demand of gold will be seen as a drop in prices of all other goods. Simply, it takes more goods to buy the same amount of gold – therefore, the unit price of those goods must go down.

1 gold= $1= 2 goods= $0.50 per good.

More valuable gold takes more goods to buy:
1 gold=$1=4 goods=$0.25 per good.

The price of the goods falls when money is more valuable.

But…. so what? Eventually the price of gold gets too high – no one will trade 5 goods for 1 gold. Gold price then drops to the level the market place will bear.

But what does that mean in the market? Again, replace money with…cows.

So, cows – being rare vs. apples – has a new price in apples. Is this a problem? Why does a change in the price of cows per apple (or the other way around) make an economy good or bad? All that is changing is the price of goods. – not the goods themselves.

Price helps the economy supply and consume resources that exist to solve the problems of people. That is all that changes – the existance and purpose of the economy doesn’t change at all.

As I recall there were in fact money shortages in colonial, early American times due to rapid growth and a fixed supply.

And this is a problem…. why? Money is a commodity. A shortage naturally will bring in more supply.

And this is exactly what you want!

So I’m a pioneer out in the old West. I dig up my ground, plow my field and make grain. But, grain isn’t money. The town 100 miles away that has jam that I like isn’t interested in my grain – they are awash in it themselves.

So I sell my grain where there is no grain for money that the town wants. I export my grain (where there is demand for it and less for money) and import money back here where there is demand for money and less for grain!

Because I do a lot of work to deliver that grain to somewhere – the money I bring back is really, really valuable – so I can buy a lot of jam, bed sheets, axe, better plow – out here in the wild West than I could have bought in New York.

It makes me want to export my goods and import money. Over time, the money becomes less rare here – but, because of the money, there is a lot more civilization (ie: goods for sale) in the West too. I don’t have to go as far to find a buyer for my wheat or a seller of jam.

The world goes around pretty nicely all by itself.

Maybe my memory is off but I still see potential problems.

There are always problems. That is why we must work every day to feed ourselves. The Universe doesn’t drop our wants and needs already answered at our feet.

The question really is: What problem do you want?

If you replace the problem of ‘shortages of money’ with ‘wholesale creation of money’ to try to fix the shortage problem – you create a new set of problems – ‘making the money to be worthless’ problem.

The natural order of the free market system creates the optimum solutions to the problems that the free market created when it solved other problems.

They might be limited to geographic regions but still a problem.  For example, Idaho may be short of dollars causing huge deflation in Idaho not matched elsewhere, making trade outside the are difficult.

A huge shortage of money in Idaho means there are far, far too many more goods for sale in Idaho then anywhere else. Utah doesn’t have that problem (let’s say) – it has too few goods and too much money.

At some price, the abundance of money (and shortage of goods) Utah would stagger over to Idaho and trade their (abundant Utah)  money  for the abundant (Idaho) goods.  Idaho goods supply goes down, money supply goes up – prices change. Utah money supply goes down, goods supply goes up – prices change.

Perhaps, Idaho will introduce another unit for money. Why not? Just as there is an infinite number of goods and services in an economy, why not money too?

So its not just gold, but silver too – maybe platinum or maybe Madonna’s used underwear…. who knows?

But the solution would bubble up – naturally from the people themselves – to solve the money supply problem.

I am also concerned with rapid deflation.  While your views on the large scale effects of price and thus consumer buying power are true, it ignores the impact to individual business operations.  If I am inventory dependent, deflation means I am paying more today for inventory than I can get in return tomorrow.

In a free market money, rapid inflation and deflation almost can never occur, and when if it does, it removes the distortion as fast as it came.

This is fundamental.

Austrian economic theory demonstrates that bubbles\crash economics occurs when money is artificially manipulated – it is the Keynesian economics that creates bubbles\crash business cycles.

Any rapid change in money supply inside a wholly free market would suddenly be corrected with the same speed.

It is a natural law – the speed at which the system is disturbed away away from equilibrium will have an equal negative feed back force to move it back to equilibrium.  This is in biology, physics, chemistry … and economics. The faster the disruption of the system, the quicker and harder the feedback, the slower the disruption of the system, the longer and more slower the feedback.

So, in a free market, a gold asteroid gently lands on earth. Gold is not that rare any more. The prices of goods suddenly changes to the amount of gold – mass inflation – people quickly move out of gold and into some other alternative form of money.  They would start to reprice their goods in services in reference to another commodity – Madonna’s underwear. This would happen over night.

Certainly there would be some disruption for those that stored gold. But so what?

There exists no such thing in the Austrian economics that says there exists a ‘store of wealth’. It really can’t exist.

Since all wealth is merely a perception of value, and value is subjective to men, what you may believe is wealth today maybe nothing worth dirt tomorrow. Some things appear to carry value for a long time, but that is not to be confused to mean something will always be valuable.

All of  this gentle feedback loops do not happen today in our economy because  it is prohibited by law!

Thus, we are forced into the Keynesian bubble/crash because there is no escape by avoiding Keynesian fiat money. The best we can do is move into another fiat or gold temporarily. At some point, though we are forced back into fiat money by government decree – it is the only ‘legal’ tender.

I could well be bankrupt before the whole thing stabilized and I could recover the average cost.  I know on the macro scale this all balances out.  But on the micro scale I have limited demand once price drops low enough.  Marginal utility after all.

You could go bankrupt for a million other reasons too. That is not a measure for either a good or bad choice – freely made – for money.

As I stated above, there are always problems. Which one do you want to face?

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11 Responses to “Stable Money”

  1. Birdman Says:

    Good article. I’ll try to come to this site on a daily basis. I need to learn more about austrian economics.

  2. anita Says:

    Watching & learning

  3. G-Man Says:

    That is the best explaination of Austrian economics I’ve ever read and understood. Black Flag, well done, sir!

    G!

  4. Life Of Illusion Says:

    Flagster,

    An interesting article, I see little to challenge. I think the gold standard did not come to be until the mid 1800’s, after the California gold rush. Although traded, gold was in such short supply, other trade goods had to be used. There was a movement in the late 1800’s to adopt a silver standard in the US. If I have to buy Madonna’s used underwear in the future to trade with, it will be interesting explaining that to my wife. I suspect there will be such an overabundance of that item as to render it valueless.

    I will try to check out your past articles in the days to come.

  5. Black Flag Says:

    Thanks to all!

    I’d hope to try to explain things in a way that doesn’t require a PhD.

    I believe it’s important for the People to understand their natural world and the forces that drive it – so that they can make the best decisions for themselves about themselves and their loved ones.

    I’m honored that my friends are here to challenge, hone and bring clarity to my thoughts and idea!

  6. G-Man Says:

    BF,

    I was pointed in a direction to look something up and see what it’s all about. I’ve watched and read about this throughout the day, but would like your input on the subject. It’s about a book called “Cracking the Code”. Since I don’t have the book, and you have a great mind when it comes to these things, your opinion would be welcome. Here’s the link to a video (part 1):

    G!

  7. Black Flag Says:

    G-Man….

    There is no doubt that the IRS as an agency and the current tax law are invalid and unconstitutional.

    There is no doubt that the Tax Amendment was not properly ratified.

    There is no doubt that no American citizen should be be subject to an income tax.

    But – and this is the important point – it doesn’t matter.

    The courts -regardless of logic, reasoning or evidence- has declared that any argument regarding the validity of taxation is “frivolous”. Until the courts actually begin to hear arguments (and they won’t), tax law exists firmly and with great force.

    These guys who make videos and books about taxation and its lack of validity are probably correct.

    But should anyone actually use their strategies, they will in all likelihood find themselves in jail.

    Just because one or two may appear to have escaped such consequences does not mean they ‘won’ their case based on the arguments of invalid taxation.

    The real lesson here:
    Government decides what laws exist.
    Government decides which laws it will obey.
    Government decides which laws it will enforce upon you and itself.

    …and if the Government decides to ignore the Constitution and its own law, who is going to enforce compliance on the government?
    Answer: no one and nothing.

    So these books and videos are very important – not for any strategy to avoid government taxes – but to demonstrate, in plain sight, that the government will do whatever it wants, to whomever it wants, at any time it wants, for any reason it chooses.

    And the People can’t do a darn thing about it.

  8. G-Man Says:

    Thanks Flagster!

    I didn’t want to make an issue of it, for fear that someone might actually try it. The old addage “If it’s too good to be true, it probably is”, makes sense here. I wonder, If it’s too GOOD to be true, it usually is, would it only make equal sense to sy “If it’s too HORRIBLE to be true, it probably is” . Putting one of each side by side, could really challenge ones thinking. This could be used as a good point in debate.

    G!

  9. Birdman Says:

    This is a long article on money that I found interesting. Black Flag, what do you thing about this article?

    Exclusive to STR

    Your philosophical musings begin at lunch with friends as the bill arrives. The sight of the total on the check sparks a question in your mind: “What exactly is a dollar?”

    You throw the query out to your friends, and you receive various responses based on the same vague premises. A dollar measures value, but value is subjective, so the measure is itself subjective (try convincing the IRS of that) . . . . A dollar is money, and money is just some arbitrary substance that is based on the faith placed in that selected monetary unit . . . . Money is an abstraction . . . .

    And so on.

    The fuzzy answers all seem reasonable enough, but not quite satisfying. And so upon your return home, you consult your Black’s Law Dictionary, (6th Edition), that revered, definitive legal resource, which informs you thusly:

    DollarThe money unit of the United States of the value of 100 cents, or any combination of coins totaling 100 cents.

    “But what’s a cent?” you ask yourself aloud, paging back through the C’s. And you find:

    CentA coin of the United States, the least in value of those now minted. It is the hundredth part of a dollar.

    Ah-hah. The trail has apparently ended but you don’t feel especially enlightened. What gives?

    You decide that more formal research is required. Luckily, the library is not far away, and so you make the short trip on over to see what you can find out.

    You discover that there actually does exist an original, official definition of the dollar—the Coinage Act of 1792 formally defined the dollar as 371.25 grains of pure silver.

    Therefore the dollar, by its original legal definition, was a unit of mass describing a fixed quantity of pure silver. Those old-timers didn’t seem to think a dollar was some fuzzy idea subject to interpretation—it had a precise definition without any circular references or vagaries involved.

    Further research discovers that the last legal definition of the dollar exists in an amendment to the Par Value Modification Act from 1973, which defines the dollar as precisely 9/380 of a fine troy ounce of gold.

    Interesting. Every paper dollar is legally equivalent to gold, and yet the government only accepts paper dollars, and not gold, as money. Theory does not seem to translate into practice here for some reason.

    Returning home, you sit at your dining room table contemplating a scrap of greenish paper that everyone refers to as a dollar. Supposedly this cottony pulp is money. Black’s Law Dictionary says that the term “money” refers to coins and paper currency used as circulating medium of exchange, and does not embrace notes, bonds, evidences of debt, or other personal or real estate. You notice that the words at the top of the scrap of paper you are contemplating read FEDERAL RESERVE NOTE. Since it is a note, it cannot be money.

    And what does Black’s have to say about Federal Reserve Notes (FRNs)? It says they are a form of currency issued by Federal Reserve Banks in the likeness of noninterest bearing promissory note payable to bearer on demand. The federal reserve note (e.g. one, five, ten, etc. dollar bill) is the most widely used paper currency. Such have replaced silver and gold certificates which were backed by silver and gold. Such reserve notes are direct obligations of the Unites States.

    So they are only a likeness of a noninterest bearing promissory note payable to bearer on demand. Sure enough, in order to be a real promissory note, it has to be redeemable for something to someone, and the FRN certainly doesn’t promise anything to anyone in that it has no redemption clause. So although it says it is a note, perhaps it isn’t.

    But then you recall from your library research that current law as stated in the United States Code, Title 12, Chapter 3, Subchapter XII, Section 411 declares that Federal Reserve notes are redeemable in lawful money at any Federal Reserve bank. So perhaps they are indeed promissory notes. But it turns out that in the real world, Federal Reserve notes are only redeemable in more Federal Reserve notes, contrary to the printed law. If they are in fact “redeemable” only in more Federal Reserve notes, then they are by definition non-redeemable.

    Imagine having saved hundreds of cereal box tops in the hopes of redeeming them for a microwave oven or some other product the cereal company promises. If that company later declares that they would only “redeem” your collected box tops with an equal amount of the same type of box tops, how redeemable would you consider those little pieces of cardboard?

    So FRNs cannot be notes after all, because they are not redeemable in anything other than more FRNs. So perhaps they are money after all?

    Well, if they are said to be redeemable in lawful money, this implies that they are not lawful money themselves. Are they then unlawful money? Is there such a thing? Or are FRNs simply not money at all?

    Referring back to the Black’s definition of money, we see that FRNs are stated to be direct obligations of the United States. Since an obligation is a debt, and money cannot embrace evidences of debt, we can state quite definitively that FRNs are not money. They in fact represent United States debt. They can be referred to as currency, or legal tender, but not money.

    You remember that the dollar was originally defined as a weight of gold. Are gold coins money according to Black’s? They certainly do seem to qualify by the given definition.

    So let’s sort all this out: Gold is money, and a dollar is, by definition, gold, and the FRN claims to be a dollar, and thus also money, but we saw that FRNs cannot be money. Every FRN also claims to be a note, but it isn’t since it is non-redeemable. How can there be so many conflicting statements and ideas swirling around what should be a simple, straightforward concept? Why all the contradiction and confusion?

    Well, as your day of philosophical thinking winds on down, you decide to pursue one final logical thread: People began exchanging goods and services long ago. If a person gave up a good or service, he certainly expected something in return. Who would want to give up something for nothing—one would justifiably feel cheated in such a transaction.

    Money developed as a way to get around a direct barter economy, and money simply was a commodity that was so universally accepted that one could be sure that if he accepted it in exchange for goods and services, then he could later exchange it for other goods and services of equal value. The money commodity had to be—besides universally desired—durable (not easily destroyed and stores value over long periods of time), fungible (does not lose its value when divided into small pieces), portable (high value in relation to weight), and relatively stable in supply. If the money commodity was so composed, then one could be sure that goods and services exchanged for money would eventually bring in goods and services of equal value when the money was later exchanged with another person.

    Salt, tobacco, cattle, shells, and rocks have all served as money. But the free markets of the planet Earth have selected—over a span of thousands of years—the precious metals gold and silver as the most widely accepted and enduring monetary commodity.

    When our nation was young, the government didn’t invent the dollar and then declare it to be the national monetary unit. The dollar was the coin that was circulating in the market at the time, and so the government was simply defining the exact amount of silver that should always be present in the coin. Beyond that, their only other role in the matter was to create dollar coins of uniform silver content. This was a service for the people so they would not have to weigh and chemically test coins whenever a transaction took place.

    But over time, people began to associate the word dollar with the coin itself, or with the paper surrogate that served as a warehouse receipt for actual silver or gold coin on deposit at the United States Treasury. When the word “dollar” became synonymous with any base metal token or scrap of paper that had government-endorsed words and pictures on it, when the people forgot that a dollar was a fixed amount of silver or gold in the same way that a gallon is a fixed volume of liquid, then the point was reached where the government could debase and eventually take away the money from the people and substitute it with fiat (imposed by decree) coin and currency.

    And the people would have no idea that anything at all had happened. Amazing.

    And so here we find ourselves, embarrassingly, without any money. But if not money, then just what do we have? Unfortunately, the answer to that question is debt. Our system “monetizes” its debt into pieces of paper, which include those fancy little green exchange tickets that we pass around. Every FRN in circulation is in reality a tiny little portion of the mounting $10-plus trillion national debt floating from wallet to wallet. We give our goods and services to others in exchange for scraps of paper that represent debt owed by our government. We are thus cheated in that we give value but do not receive value in return. We accept an irredeemable IOU instead of actual payment. Why do we tolerate such a state of affairs?

    Perhaps only because we know that we can cheat the next guy in line when we give him those same scraps of paper for the goods or services he gives to us in exchange. Nice.

    You further realize that debts therefore are not paid when FRNs exchange hands—they are discharged. There is a difference. When you give someone an FRN you are discharging a small piece of the national debt that you were holding to the person who receives it. Nothing has been paid. No debt has been extinguished. It has been discharged—transferred from you to someone else.

    If each and every American sent in all his FRNs to the Federal Reserve in an attempt to pay off the national debt, the entire supply of FRNs in the United States would disappear and there would still be debt remaining. Of course, at that point, there would be no “money” left to circulate and so the entire economy would immediately collapse.

    But so what? Congratulations, Einstein, you discovered that the United States has no monetary system, just a debt system. As long as it works, what’s the difference? Quit worrying already.

    Well alright, you think to yourself, let me count the ways it makes a difference.

    It makes a difference in that the current debt system cannot last indefinitely. Any economic system dependent upon perpetually-increasing debt is unsustainable. When people try this at home, the end of the line is when they can no longer acquire more credit, and things usually do not end well. Why should the process end differently if we consider the case of nations behaving in such an irresponsible manner instead of individuals?

    It makes a difference in that the current debt system deceptively substitutes fiat currency for real money. This is not the first time that government has imposed fiat currency on its citizens, and if history is any guide, it won’t be the last. History also teaches us that each and every time that a government has debased its currency and followed that inevitable slippery slope on down to pure fiat currency, the end result has always, invariably been exactly, precisely the same—the fiat currency becomes worthless.

    It makes a difference in that the current debt system, based on credit expansion, has a “money supply” based on that debt that expands faster than the economy grows. This is called inflation. FRNs put aside as “savings” devalue over time due to inflation, and so people are unable to use savings to reliably provide for their futures. Work done 30 years ago that was put aside as savings has lost over 70% of its value due to this hidden tax. People are not free to provide for themselves with savings accrued from their own labor.

    It makes a difference in that the current debt system is based directly on the fifth plank of the Communist Manifesto, which demands centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly. Why is our entire Capitalist economy based entirely upon one of the basic tenets of Communism? The State must control the capital, not the people? Guess you must have missed that particular day at school.

    It makes a difference in that the current debt system encourages war. Wars are expensive, and without unlimited credit, a government must tax its citizenry to raise funds for war. Unless the situation is extremely dire for the nation, the people usually are not supportive of such funding. When funds can be raised by government simply asking for more credit, then entering into wars that are less than direct self-defense becomes much easier. Our country is currently involved in wars that will cost trillions. Were taxes increased to fund this war? Where did the money come from? Just add it to the tab, please.

    It makes a difference in that the current debt system is morally repugnant. When a person realizes that he has been deceived in order to participate in an unethical system that is bound to fail—a system wherein he believes he has money but actually has none—a system that demands that he be cheated and only by cheating others can he be recompensed—what is that person to do if he would rather not participate in such a dishonorable system?

    And so now you’ve finally come to the heart of the matter. You have defined and analyzed the problem at length. You have griped and complained. Now, what can you do about it?

    Can you single-handedly change the system? No. Can you convince a large number of people to become involved in changing the system? Probably not. Can you write a letter to your representative in Washington so he can get the ball rolling on fixing the system? (insert sarcastic remark here)

    You decide that the best course of action is to take care of yourself and don’t assume that someone else is going to fix things for you. Now that you understand what money is and what it is not, you see a fairly simple and obvious first step to take.

    Get money.

  10. Black Flag Says:

    Birdman,
    See new post on this subject.

  11. brian Says:

    Thank you birdman.

    Yes Coins are money!. Old ones. The new ones are just tokens.
    The Penny is copper coated aluminium.

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