What is Money?

Birdman posted an article by some other author  about “What is Money”?


That author is a fine example about how utterly confused most people are about monetary theory.

The confusion always starts around the definition of money (or the dollar). For many people, money is some mysterious economic ‘thingy’ that exits to help transactions occur.

This incomplete thinking causes problems – if it exists to just facilitate transactions and trade, why is money still valuable when it is not traded?

This leads into the attempt of trying to assign an alternative value to money. “See, this piece of paper, called money – used for transactions – isn’t valuable in of itself – it holds value because it represents a piece of gold/silver/claim on taxes, etc.”

But, when they investigate money even more – they find that in the past it was a measure of some sort of metal – it isn’t any more.  So, suddenly they find themselves a drift again – because it doesn’t represent anything other than itself, it is still money!

Then they really become confused.

Mises defined money very easily and completely. His definition completely answered all the questions, quirks and existence of all money in the whole world over all times.

Money is whatever is the most desired commodity in an economy.

So as I crack apart this incomprehensible mess of an article, keep that definition forefront in your mind. It will give great clarity to the questions that author is asking.

“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 . . . .

So the confusion starts.

A dollar is a unit of currency, as the author later learned.

But he automatically assumed that a dollar is money!

Big mistake.

We can figure that out quite easily through an experiment. A Bolivar is a unit of currency of Venezuela. It is also money in Venezuela.

But try using the Bolivar in Smalltown, USA.  Though it maybe a currency, and maybe money somewhere else, it is not money in Smalltown, USA.

In our journey, we now know that money and currency are not the same thing. One does not beget the other.

We touch Mises’ definition – ‘most desired in an economy’. Well, the Bolivar is not desired at all in Smalltown. Thus, it cannot be money – and as we’ve seen in our experiment, it isn’t.

So we have 1) refuted that dollars are automatically money and 2) Mises’ definition continues to give us the best information regarding money.

Carrying 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:

Dollar The 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:

Cent A 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?

Some people maybe surprised that the Law according to Black directly and with no confusion fits precisely into Mises definition of money. How?

By not defining the dollar to be money! This author was seeking exactly that – that the law will define what money is so he looks up defining a dollar – believing that the dollar and money are somehow intrinsically linked.  But they are not.

But he did  find the definition of a dollar.

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.

At this point, he furthers his confusion – that the dollar he has in his pocket is the same dollar that is being discussed here.

He can be forgiven for this confusion – because these two different items, the one in his pocket and the item referenced in Act’s use the same name, but are not at all the same thing.

This is a dollar bill from 1928. It is called a dollar. This dollar represents an amount of silver.

This is a dollar bill from 1929. It is called a dollar.  This represents 100 pennies or 20 nickels or 4 Quarters.

The author then falls victim to more confusion. The government only accepts ‘paper’ dollars instead of gold for payments.

That is because gold is not money. It is an ore. It was once money, but it is not money in the United States today.

This, below, is money

A Federal Reserve Note (FRN) called a dollar. If you take this bill to a bank and ask for it to be redeemed, they will give you Ten (10) $5 Federal Reserve Notes (or some other FRN that will make up $50).

But this one has something the others do not have, which is why the author is confused about why suddenly the FRN became money.

Look at the writing of the $50, on the left side of the picture: it says

“This note is legal tender for all debts public and private”.

In the United States, if you owe someone a debt, you can use this FRN to pay them, and they must accept payment. They cannot refuse you. If they refuse you, you can leave this FRN at their feet and leave. You are no longer in debt.

By an act of law, the government declared that this piece of paper was a whole and complete way to legally discharge debts. But this law did not make it money. The people made it money by using it as money.

So, while the author is confused about dollars, money, silver and Federal Reserve Notes, the government is not!

Returning home, you sit at your dining room table contemplating a scrap of greenish paper that everyone refers to as a dollar.

He is trying to infer that the dollar, as a name, is exclusive. But it isn’t. Canadians call their currency a ‘dollar’. Does that confuse anyone?

So there is no need to confuse the three different types of currency above while they all share the same name.

PS: The use of the name of dollar for all three (well, actually six different currencies of the United States) was to confuse the people into thinking that they were all the same thing.

The look the same, are the same size, use the same color, share the same Presidents as pictures. But they are not the same!

This slight of hand was purposeful to create the desire to use the FRN instead of the silver and gold dollar bills. This unhitched the “dollar” from representing  the “dollar” gold. This tactic accomplished that goal very quietly.

But now we are smarter. We understand that there are many different things all using the same name – dollar – as a name. But only one of them today is money – the FRN.

So how can a piece of paper be money?

Let’s ask Mises (again): because it is the most desired commodity in the economy.

Mises does not judge the choice for money – so what if it is a piece of paper, or a rock such as the Rai stones in the island of Yap, Micronesia.

All that counts is the desire.  In the situation of the USA, the government created that desire by making it a law that this paper paid debts – including your tax debt.

This same method was used in England. The “Tally Stick”  was used back by English tax payers (starting in 15th century) to pay their taxes.

The King would take the peasants grain and animals and pay them with Tally Sticks – sticks with a notch in them representing the ‘value’. The stick would be broken in half, and the ‘short end of the stick’ would be given to the peasant (this is where that phrase began).

At tax time, the peasant would pay his taxes by giving back tally sticks. The stick ends would be matched up (the anti-counterfeiting component!), and taxes would be declared paid.

These tally sticks would be bought and sold between the peasants depending on their tax debts. Soon, they become money – traded for all goods and services.

Tally sticks were still in use up to 1870, and  legal to use in England until 1970.

It is very common tactic for government to create money by simply making that money required to pay one’s taxes, and accepting nothing else.

This is how FRN became money in the USA.

But because most people do not understand the definition of money, paper currency, stones or tally sticks becoming money seems bizarre.

But it should no longer appear bizarre to us. Money is simply another commodity, whose feature of being the most desired turns it into money.

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.

This is what happens when a lawyer attempts to be an economist, he gets the wrong answer.

Coins, paper, notes, bonds, evidences of debt, real estate, rocks, shells, salt, or anything else can most certainly be money.

But the reason they are not is because it is not the most desired. A lot of commodities are difficult to transport, or divide or use. Thus, there is a discount in using them for payments, because the debtor would have to somehow dispose of these non-money commodities in a manner unsuitable for his own purposes.

If you paid me your debt to me in wheat, what am I going to do with a bag of wheat? I would have to trade to someone else for something I can use. Thus, I would charge you – the debtor – a fee for the annoyance of having to do another additional trade before I could get my needs or desire filled.

If you paid me with a debt note from another person? What am I going to do with that? I have to collect the debt for me to have something useful. It is these things that dissuade the people from using these other forms of commerce as money.

So, we know that a certian commodity is money when there is no discount in using it for a payment. If you paid your debt in dollars, I accept them straight away. Why? Because I can use that money directly to buy what I want for my needs without a discount either!

So money is the most desired commodity, and we know something is money because there is no discount necessary when it is used to pay for something.

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 because the author holds a terrible definition of money, he runs smack head first into a wall of understanding.

The FRN is money in the United States (and almost everywhere else in the world). Money is not money because it is an ore, or jewels.

Money is ‘money’ because other people want it. Other people today want FRN. They will accept FRN without requiring a discount. Therefore, it is money.

After this, the author goes into circus flips to prove that money (as in FRN) are not money, but something else.

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?

He so confused himself that he undefined “notes” to be nothing. Since it is nothing, now it becomes money!


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?

Loop-da-loop! I think he is getting dizzy!

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.

He is correct. Just like a Tally stick, FRN does represent an obligation held by the USA. A Tally stick was an obligation (or debt) of the King. He took a cow and gave you a stick. The inferred promise was he’d give you back a cow for that stick.

But the King ate the cow. Hard to give back. The USA government ate your ‘food’, too. Hard for the USA government to give it back, too.

So both entities used taxes. Taxation creates an instance of obligation of you, the citizen, to the government or crown. “Poof” – you owe the government money ‘right out of thin air’. The government demands that you use its currency – tally sticks or FRN depending on where you live – to pay of your debt!

The tally stick is returned to the King. All debts are square.

Yes, your debt to the government or King came out of thin air and you get stuck with the short end of the stick (bad deal) – you lost your cow. But that is a discussion about government, and not a concern right now in our economic discussion of money.

But the point here – whether it is a Tally Stick or FRN – and whether it represents an obligation of the government – the stick or the FRN is still money. Hold onto Mises definition, and you’ll be able to wade easily through this authors muddled thinking.

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.

Yes, a piece of paper that represented some gold was called a dollar. My neighbors dog is called “Dollar” too. Does that mean that dog has some gold value? Probably not.

Don’t get thrown off by labels. The word “dollar” is a label. Yes, its use was purposeful to confuse the People. But it is still just a label. You can relabel all of these things if it helps to un-confuse you, such as “silver-dollar”, “gold-dollar”, “FRN-dollar”, “dog-dollar”.

But gold, today, is not money – regardless of what Black and that author  may think. It is a valuable ore – but it fails, today, as money. If you took a gold coin to the grocer and attempted to use it to pay for your food, he probably would ask you to go to a gold dealer, sell your gold, and then come back with FRN to then pay for your food.

That means gold is not money. The grocer did not desire at the same degree as he did FRN . FRN is money, gold is not.

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?

Now, you can understand how this poor fellow got confused. And it is a lesson I have and will repeat all the time.

Watch your definitions!

Because he started with faulty definitions about money, and then applied other definitions to labels called ‘dollar’  inappropriately, he ends up here contradicting himself and in 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.

And away he goes, again, with more faulty definitions.

Money was not developed!

This makes it sound like some ancient Einstein sat down and said “Hey, I’ll invent money to solve the problem of trade!”

Well, go and find out who invented money. You won’t find anyone, because no one did.

Money has always existed since the day men traded goods. It was spices, then silk, or salt, or whatever at that time was the greatest desired commodity. Gold has always been at the top of the list, but not because gold is money, but because gold has always been very desired.

The money commodity had to be—besides universally desired

By accident, he got one right answer. Universally is not a requirement – not everyone accepts the US dollar FRN. But we still call it money.

—durable (not easily destroyed and stores value over long periods of time),

Durable helps a commodity become desired, but it doesn’t make it money.

fungible (does not lose its value when divided into small pieces),portable (high value in relation to weight),

Again, each of these improve the desirability of a commodity, but it doesn’t make it money. I’ve already shown the Rai  stones – not very darn fungible or portable – but they are money!

and relatively stable in supply.

Salt was money in ancient Rome. The supply was very unstable – but salt was very desired. The root of the word “solider” comes from Latin for salt – it was a man who fought for Rome and was paid in salt.

or 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.

Do not get into the trap of trying to evaluate commodities based on ‘value’. Value is subjective. You may value water right now because you are dying of thirst, whereas I see no value in water as I am drowning in it.

Value is measured by the individual, not by money. Money gives us a way to price commodities for us to exchange them in a coherent way.

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.

That may be true, but because it was true in the past does not make true now or in the future.

Today, gold is not money. FRN are money. This author does not know why.

But hopefully, by now, you do.

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.

Now he is evaluating the ability of currency and its properties. But so what?

So you can’t counterfeit my platinum ring easily – doesn’t make my ring money.

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.

Yes, this was the process that turned FRN into money – but that does not mean they are not money now.

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

And so here we find ourselves, embarrassingly, without any money.

I wonder what he thinks all those numbers in a bank account or bills in his wallet are?

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?

All money, in any form, is some form of IOU. It doesn’t matter if it is paper or ore.

As many have often said, you can’t eat gold. And they are right. You can’t eat paper (easily, anyway) either. No matter what is money, it is used to trade for the things that we do need or desire.

Any commodity that becomes money does so because it is so easy to trade for things that a person really wants or needs.

We don’t look at money as ‘the thing that I eat’. We look at money as ‘the thing that I can trade to get things I can eat’.

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.

Without money in a complex economy, it would collapse.

But another form of money would appear (if the law allowed it).

Again, consider a prison. There are no FRN running around there to facilitate trade.

But what is the most desired commodity available in prison? Cigarettes. Cigarettes becomes money. And now, knowing Mises, you can see that is perfectly understandable!

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.

What is real money vs unreal money?

Utter confusion.

His dialogue of debt doesn’t prove or disprove any theory of 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.

Yes, government action can destroy money. But that doesn’t disprove that it wasn’t money in the first place.

We stopped using salt as money because we discovered lots of salt instead having to make it out of salt water. Salt became inflated and eventually lost its money status.

Yes, FRN will become worthless one day, and yes that will cause huge economic problems, but that is due to actions. Whether this commodity or that commodity is or is not money really isn’t the point.

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?

Debt is a problem. Inflating the money supply is a problem But that doesn’t dismiss FRN being money.

You notice that though the author thinks he as proven that FRN are not money, he can’t help but continue use the term money to describe the situation.

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.

So, now that you understand what money is – you can reread this article with a new eye.

Understanding what is money is the first step in protecting yourself from those that pervert it.



45 Responses to “What is Money?”

  1. Birdman Says:

    Black Flag:

    Once again, an excellent review of this article using the Austrian school of economics. Reading your dissection helped me understand what money is. Mises definition is very simple and explains everything very well. Thank you for your review.

  2. Birdman Says:

    Black Flag:

    I just noticed that the time is off. It is not 3:20 PM. I have 10:22 am, EST.

  3. Black Flag Says:

    Thanks, Birdman.

    Time has been updated.

  4. USWeapon Says:

    Excellent article BF. You have so much knowledge to pass on to those who are willing to learn. I may provide a link to this article during the open mic night and point people towards reading it.

  5. rowe Says:

    Great piece! The 10-year old could comprehend.


  6. Mathius Says:


    You must think I’m made out of time to be reading something like this. Alas, you know I will, though I haven’t yet. Damn you for being so wordy.

    grumble.. grumble.. grumble..

  7. Birdman Says:

    Black Flag, I have more work for you. Could you look at this series of videos and give us your opinion. There are 4 parts. I am posting part 2 but you should watch them all.


  8. Birdman Says:


    The article that I originally posted was on Strike the Root:


    The article is getting favorable reviews. Would you be willing to post your response? It would draw attention to your site.

  9. brian Says:

    If it doesn’t keep me warm and dry, shelter me from the wind, the rain, the cold or the heat, feed me , quench my thrust ,transport me or entertain me, I probable don’t have a use for it. If I have no use for it. It has no value to me. If it has no value to me, it’s not worth trading. if it’s not worth trading it’s not money. I too have a Blacks Law dictionary. Words express ideas and they are always changing. It’s up to you to decide what money is or is not.
    Money is that which in its own substance has intrinsic value. Copper coins can be made into wire for electrical transmission lines. Nickel is used to plate other metals to prevent corrosion. Silver can be formed into a long lasting drinking mug. Gold can be spun into angle hair to transmit electricity to and from the integrated circuit.
    Paper is used to express words and ideas.

    • Black Flag Says:


      You contradict yourself in your theory of money.

      You claim money must have some “intrinsic” value. But in your dialogue, you claim that value is merely what you determine for yourself based on some use – and that such a claim of value is personal to you – in other words, you don’t care if I value it or not.

      The same holds for your copper coin. There is no intrinsic value – that is, it is only valuable because some human believes it to be. Take that coin somewhere else, and someone else will not value it at all. Therefore, there is no such thing as an intrinsic value – there is only personal value.

      Since all things of value are wholly based on personal value, paper is no more or no less a ‘thing’ of value (or not) as your copper coin or gold.

      For example, you claim paper is merely ideas, thus has no “intrinsic value” and hence not money.

      I bet you’d feel very different if I gave you a piece a paper that was a $10 million lottery ticket. I would further suppose you’d probably fight and kill to protect that ticket from being stolen from you. It has a great deal of “intrinsic” value, not?

      Test you economic theories on simple examples – and you will find you hold a number of contradictions.

  10. brian Says:

    What is Money?
    Coins are money. Coins made from metal. Lots of things have been used for money but metal coins for more than a thousand years has always been used as money. The commonly used coins circulating in America today are not money. When I was a kid they were. I remember the half dollar was pure silver. The quarter of a dollar was pure silver, the dime was too. A penny was pure copper valued at 1cent. The 5cent coin was pure Nickel. Some of the green paper currency was redeemable for real money, which are coins. They are also refereed to as species metal. The currency that was redeemable for Silver coins (real money) were called silver certificates. They differed from the other notes because their was a blue insignia in the place of the black ink and it said on the note that it was redeemable for the equivalent amount worth of silver. My parents had a whole stash of silver certificates. Their were gold certificates too, they had a red insignia on them. America got of the gold standard. The new coins were debased. The silver ones were sandwiched with copper in the center. The penny is now aluminum with a copper coating. I don’t know what was done with the 5cent nickel. Metals were used as money because they have always been the most stable and useful material for all men. No matter what county you live in all men like to make things with metal. If you took your stash of coins to another country the metal could be smelted and a new coin could be made to accommodate that country’s money system. The coins could also be smelted into brass to make boat parts. Coins are useful because metal is useful in the sense that you can make things with it.
    I remember when the pure copper penny’s value was worth more then 1cent. People started smelting them. The government then passed defacing laws making it illegal. I remember when people made jewelery from coins. They just brazed the coins together and sold them for more than the coins value. Money changers were also used to convert your foreign coin to the locally excepted ones.
    Today the American currency is debt based. Currency is put into circulation using a fractional expansion system through the use of loans. Currency gains its value when products are produced and the loan is paid back. Other wise it’s a minus on the balance sheet. The currency from the past was backed by gold and silver. Now it’s the honer of the borrower to pay back the loan. It’s a promissory note. Banks lone credit. Their is no longer a real money system. The word money is still used but it’s actually misused. The definition of what money was has now changed to fit the new system. The old timers remember what money was. I still consider money to be something more tangible then a promissory note. I realize folks all over the world put their fate in the American dollar and it is traded and valued the same as the gold and silver backed system, but will it remain stable? I was working in Japan saving my hard earned paper Yen and just before I was ready to leave the Yen fell drastically against the American dollar. I took a four thousand dollar loss when I went to exchange my Japanese fun tickets for the American ones at the airports fun ticket exchanger booth. If I would have been buying gold or silver I wouldn’t have taken as much of a loss. Currency is most definitely more convenient then coin type money. Currencies are only as stable as the people are that pay back the promissory note. You don’t need to listen to a financial expert to tell what something is or is not. Figure it out on your own. I remember when I moved to Phoenix Arizona their were beautiful orange trees that lined the city streets. I thought to myself, wow this is great free oranges everywhere. I pick one peeled it and took a bite. It was beyond sour, completely not eatable. If you actually at it you would probably get sick. The question is, is it an orange? Technically and esthetically yes, but you wouldn’t be able to pawn it off on anyone that lived in Phoenix as an orange. I don’t clam to have any theories about what money is, but I do remember what is was. brian

  11. Black Flag Says:

    Hi Brian,

    Coins are money

    Test your theory.

    Take a Roman coins or some British pence coins or some Russian Czarist coins to your local grocery store and see if the cashier will trade you food for them.

    Oh? They declined the trade? Hmmm….

    Therefore, coins by being merely coins are NOT money.

    Money by definition must be something else, then.

    The commonly used coins circulating in America today are not money.

    Now test this theory. Take a handful of American “today” coins to precisely the same gocery, and plunk them down in front of the cashier as payment for your food.

    They traded food for those coins? This must utterly shock you, right?!

    I sense you do not have a coherent definition of money, and have confused the definition of commodity to be the same as money.

    A commodity maybe money but being a commodity does not necessarily make it money.


    Money is, simply, the most desired commodity

    Their is no longer a real money system.

    What is the difference between “real” money and “non-real” money?

    Money is — money.

    Money is what you trade to get a service/good that you desire. Money is what you get when you trade your service/good to another person.

    You know “money” because it is the most desired good – which makes it the easiest trade for and to trade with. Using it for trade carries NO cost – that is, there is no extra ‘fee’ to use it in a trade. Further, prices of all other commodities in that market are referenced by it.

    Money can be (and has been) salt, stones, copper, cows, tulips, paper, metal, land, deeds, women, sheep, ….. and so on.

    We know GOLD and SILVER are not money. You do not buy your apples in terms of oz. of gold. You buy your apples in terms of “dollars”. Therefore, “dollars” are money and gold is not.

    The definition of what money was has now changed to fit the new system.


    First, you do not hold a coherent or comprehensive definition or understanding of what “money” is. Therefore, when certain commodities become and/or lose their money label, you do not understand why.

    Second, the commodity that is money DOES change depending on the marketplace and other forces (typically, political forces). Things that were money, such as salt and gold, are no longer money. Things there were not money in the past, such a Federal Reserve Notes prior to circa 1930, were not money and now they are.

    I don’t clam to have any theories about what money is, but I do remember what is was.

    …and once it was salt. The term “solider” derives from it – meaning “a man whose services were paid with salt.”

    It is important, Brian, to understand that ALL MONEY, no matter the underlying commodity, can suffer the same distortions as Federal Reserve Notes.

    Romans debased their gold – do you know why the coins you use have ‘ridges’ along the edge? This is a monument to the time when the Roman governments cut minute shavings off the edge of coins, slightly lowering its true weight, but not so much you could tell by feel. The ridges were created to prevent “coin shaving”.

    We have examples of gold being replaced by titanium – nearly the same specific weight – or silver.

    All money can be debased and typically this debasement is done by government. It does not matter whether it is gold or it is paper. Gold is harder, and paper is easier but that does not make Gold money and paper not money. All it means is gold would be a better money and paper an inferior form of money (if reduction of the opportunity of debasement was a highly desired feature).

    So, to paraphrase your post, your entire complaint is really not about money but about the ability of governments to debase money.

    I am confident if government did not debase paper currency, you would have no complaint as you posted here.

  12. brian Says:

    I stand corrected

    Criteria for money

    Their is only one criteria necessary for something to considered money.

    Legal determination has no barring. Governments also cannot make definition.

    What it was in the past, what it is today and what it will be tomorrow doesn’t matter and is bound to change.
    The substance it’s made of doesn’t matter. Whether it is based or backed by some tangible valuable substance doesn’t matter. Its value is determined by the two parties making the trade and is subject to change.

    I will illustrate.
    Real butter comes from an animals milk, usually cows. Margarine is used in the place of butter. It spreads on toast. You can use it for making cookies and cakes. If you ask some one to pass you the butter and they pass you the margarine, now margarine is butter. Whether it is real milk butter doesn’t matter because it is used like butter.

    Same with processed cheese. yes it’s true it doesn’t come from a cows milk; However it is used in the place of real dairy cheese and people call it cheese. As long as the people think of it like that and are willing to except it; Then that is what it is.

    “Money is what every someone or a group of people are willing to except for trade, at that moment.”


  13. Black Flag Says:


    There is a difference between “barter” and “money”.

    Trading my car for your cow is barter. Trading my car for your Federal Reserve Notes is using “money”.

    Definition of money:
    “The most desired commodity in the marketplace”.

    So it is a bit more than merely the “thing” we trade “right now” with – it is the thing “everyone” in the marketplace wants to trade with and trade for.

    Not everyone wants to trade with my car or your cow.

    However, everyone will trade money (the FRN, today).

    We “know” something is money when there is no discounting in using it for trade.

    If you trade a cow for a car – one of the participants will discount the value of the other. That is, if you traded your cow for $1500 (if you traded for money) and I traded my car for $1500 (if I traded for money) – when we trade a car for a cow, I probably would discount the cow to be worth only $1000 – (thus requiring you to offer a cow AND a calf) since I really can’t use a cow. I would have to convert the cow to beef – costing me money.

    There is no such discount with money (note: this is not “bargaining” – that is “setting the price” – this is a discount because you are using a NON-money in the transaction) – you “know” this is money, because you do not need to convert the item into something else for someone to accept it for trade.

    Gold is not money for this reason. You go to a store and pluck down a gold bar as payment – they will either (1) discount the gold bar to pay for their need to convert it into another form or (2) send you away for you to convert the gold into money.

  14. brian Says:

    I understand your point. I was describing a barter system and calling it money too.
    I’ve always understood a commodity as being something more like container full of oranges, raw iron, screws, rubber ect. What is the commodity part of money? is it the human resource?


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  17. lacithedog Says:

    This is a truly brilliant post! I need to read more of your stuff since I think you are on the right track here.

    Definitely very good analysis of money.

  18. lacithedog Says:

    I should add this comment which is a paraphrase from the TV show Jute City:

    Money is great when it’s used as an accounting tool, but it becomes evil when it becomes a commodity.

    • Black Flag® Says:

      Hey Laci,

      “Oranges are great when used as an accounting tool, but evil with it is an commodity”

      That makes about as much sense as your comment regarding money.

      Money is a commodity and an economic good – no different than any other commodity or economic good.

      Being the most valued, humans tend to reference the value of other things with it.

      If you valued clocks, you reference oranges by the number of clocks necessary to get one.

      “That orange is worth 1/40th of my favorite clock!”

      Because you “account” the rest of your wealth by the equivalency to clocks does not change the nature of the wealth, other goods or clocks.

      • lacithedog Says:

        Your response shows you understood the “Money is great when it’s used as an accounting tool” part, but misunderstood the second part “evil with it is an commodity”

        The point of that quote was that money, as an accounting tool is useful.

        It becomes evil when it is traded in a way that is out of control, for example the current complex financial instruments that caused the recent financial disaster. In the show, the point was that crime was driven by the desire for money in and of itself.

        Of course, it makes much more sense in terms of the TV Show where it was used in relation to making money through whatever means necessary.

        A better example is from the Original Survivors, basic plotline 9/10s of the world’s population has died in a plague. In one scene a man is jealously guarding a bag. The next morning he is dead, one of the survivors opens the bag to find it is full of cash, which is worthless due to the economy having collapsed.

  19. Black Flag® Says:

    Hey Laci!

    It becomes evil when it is traded in a way that is out of control, for example the current complex financial instruments that caused the recent financial disaster. In the show, the point was that crime was driven by the desire for money in and of itself.

    Money is just another economic good, and obeys exactly the same laws of economics like any other economic good – no more and no less.

    As such, simple substitution of one economic good for another into our economic theory should result in the same economic outcomes.

    So, replace money with “oranges” in your statement, and see if it makes sense.

    Oranges becomes evil when it is traded in a way that is out of control, for example the current complex Oranges instruments, like Orange juice (instead of the fruit itself) that caused the recent Oranges disaster. In the show, the point was that crime was driven by the desire for Oranges in and of itself.

    It most certainly wasn’t the existence of “complex” financial instruments that caused the disaster.

    It was the consequences of government interference into the financial market place that caused the disasters.

    When you use a tool of legitimized violence to create artificial credit, overly reward risk by taking that risk away from the actor and placing onto innocent people – you create the conditions for the abuse – whether it is with money, cars, TV or oranges.

    full of cash, which is worthless due to the economy having collapsed.

    Worth is always in the eye of the beholder and nothing more or less than that.

    You would believe that money was worthless, but if it full of oranges you would say it worth something.

    Yet, if you didn’t need oranges, but say needed water – you would say a bag of oranges is worthless too.

    All value is subjective and personal.

    What is important to you is may not be so to me.

    Because we have different values on objects, we have an economy – we can trade – if we held exactly the same value on the same object, trade is impossible.

    It is because you value what I have more than me, and that I value what you have more than you, we trade what we do not want for the things that we do want.

    And trading for money and with money is no different

    • Laci the Dog Says:

      As I said, that quote makes more sense in relation to the TV Series, Jute City, which was broadcast 20 years ago. It’s also a paraphrase due to the passing of time.

      But,I can tell you that you seriously miss the point, If I so value money in and of itself (or oranges, or clocks, or whatever) so much that I would kill you, or I would kill in order to acquire it, that’s what makes it evil.

      When trading money becomes so much of a goal in and of itself that someone will do anything for it and values it for itself that they will do anything, rather than see it as merely a mode of exchange.

      It’s really more than a commodity, its an object of obsession and desire.

      This goes beyond laws of economics (although might get into the realm of behavioural economics) to a form of psychotic obsession.

  20. Black Flag® Says:


    Remember this from my article when you are looking at that bag of money….

    We don’t look at money as ‘the thing that I eat’.

    We look at money as ‘the thing that I can trade to get things I can eat’.

  21. Black Flag® Says:


    But,I can tell you that you seriously miss the point, If I so value money in and of itself (or oranges, or clocks, or whatever) so much that I would kill you, or I would kill in order to acquire it, that’s what makes it evil.

    How can oranges be “evil”?

    No, you are evil if you kill me.

    You are the actor, not the orange.

    You are merely using the oranges as a justification – but the oranges are not fooled by this, and neither am I.

    You would be the killer -you did the act – and it matters not the justification you want to use to do the killing.

  22. Black Flag® Says:


    When trading money becomes so much of a goal in and of itself that someone will do anything for it and values it for itself that they will do anything, rather than see it as merely a mode of exchange.

    You can say exactly the same thing about anyting.

    “When trading oranges becomes so much of a goal…..” – yeah, people are crazy and do crazy things – but “money” in of itself is nothing but a economic good.

    It’s really more than a commodity, its an object of obsession and desire.

    For others, it is art or oranges or special types of wood or colorful rocks….

    This goes beyond laws of economics (although might get into the realm of behavioural economics) to a form of psychotic obsession.

    There are people who have psychotic obsession with movie actors.

    Do you blame the movie actor or the psychotic obsession?

    It appears if you substitute money for the movie actor, you change the onus for reasons that I do not understand.

  23. lacithedog Says:

    As I said, it makes more sense in the TV show/movie.

    But, you do try to keep economics as more of a rational scince, which it is not.

    Look at bubbles such as Tulip Mania, whch fits both our paradigms.

    People tend to get more irrational toward money due to its symbolism than what it really represents. In other words, they see the power, material benefit, and whatever else they associate with money. That leads to greed. Sure, one can get greedy over oranges, lemons, and the bells of st. clemons, but more people exhibit irrational greed toward something that they see gives them a social benefit, the way money does.

    There are more crimes commited in regard to money than in regard to oranges: even though it would make more sense to steal food rather than money if one is hungry.

    It would be nice if people were rational about money, but they aren’t.

    That’s my point.

  24. lacithedog Says:

    If money were rational, we could have a system such as communism or socialism since people would realise that there is indeed something such as too much money rather than have a hoarding mentality.

    I know we are a couple of old school economists, but how familiar are you with behavioural economics?

    • Black Flag® Says:


      I’m a pretty simple guy.

      There is “Economics”

      There is no such thing as “Macro” economics
      There is no such thing as “Micro” economics
      There is no such thing as “Supply side” economics
      There is no such thing as “Demand side” economics

      There is no such thing as “Behavioral” economics

      There is just plain ol’ Economics.

      But …what do I know? 😉

    • Black Flag® Says:


      There is two, and only two, ways to allocate resources.

      By price
      By ration

      By price, we trade

      By ration, we use violence

      There is no third way.

      Pick one, excludes the other.

  25. lacithedog Says:

    Even more debatably, Capitalism might work if economic decisions were totally rational. (yes, I am post Marxist).

  26. Black Flag® Says:


    But, you do try to keep economics as more of a rational scince, which it is not.

    It is a human science, it is knowable, it has universal laws.

    Look at bubbles such as Tulip Mania, whch fits both our paradigms.

    There is nothing “non-economic” about the Tulip Mania.

    I believe you attribute an incorrect understand to economics.

    Economics is not a science that says “Everything you do will turn out good”

    Economics is a science that says “IF you undertake this course of action, THIS will be your consequence”

    It does not judge whether the consequence is “good” or “bad”.
    It does not mean you WILL act that way.
    It does not mean you WILL NOT act that way.

    It merely assigns a consequence to a particular action.
    If you desire that consequence, do the act.
    If you do not desire that consequence, avoid the act.

    If you still want to do the act, but deny the consequence will not occur so you ignore it – that is NOT a problem of economics – that is a human problem called “denial”.

    People tend to get more irrational toward money due to its symbolism than what it really represents.

    What does “money” really represent?

    It is merely a commodity that everyone desires.

    Everyone desires it, because it is so easy to trade for other things with it

    People really like money because of what they can trade money for.

    In other words, they see the power, material benefit, and whatever else they associate with money.

    They see if they have this commodity, everyone wants that commodity and is willing to trade for it.

    They also see that there is no discount to using it for trade.

    They also see that everyone prices their own value in terms of reference to it – so it is easy to compare different economic goods in their sale value.

    That leads to greed.

    Money has nothing to do with greed.

    Greed is not evil nor wrong.

    Greed is the reason you work to get a raise from your boss. You want a better life than you are living today.

    Envy is the evil. It is the wanting of your neighbor’s property.

    There are more crimes commited in regard to money than in regard to oranges: even though it would make more sense to steal food rather than money if one is hungry.

    Well of course!
    Money is the most desired commodity – it is not a wonder that people desire it – including willing to steal it.

    It would be nice if people were rational about money, but they aren’t.

    People are rational about money – but the vast majority do not understand it.

    They make claims about money that is absolutely dead wrong.

    Then they make further “corrections” to money based on utterly dead wrong ideas.

    Then they blame the consequences of applying terribly wrong solutions to problems that do not exist …. on money!!

    And that’s my point.

  27. Black Flag® Says:


    Even more debatably, Capitalism might work if economic decisions were totally rational. (yes, I am post Marxist).

    Capitalism DOES work – so well, it has provided you with wealth greater than King Henry VIII – who was the wealthiest man in the world of his time. It works, because Capitalism and its Mother, the Free Market scales infinitely with human affairs – it is applied in an economy of two people as well as an economy of 7 billion people.

    Free market systems are capable of this, because the underlying core of trade is value for value

    Communism DOES work – but it does not scale because the underlying core of trade is subjective emotion whim.

    I use “communism” in my house – I earn all the necessities of life for my family. I give those necessities and wants to my family – not in trade of value – but by degree of need.

    I do this, because I gain emotional benefit.

    But I do not love “everyone” – 99.9999% of humanity, I do not even know them to love them.

    Thus, there is no emotional benefit.

    The evil of communism is attempting to scale it beyond the limits of emotional bond – about the size of a family – because to accomplish this, violent force is used – resulting in the needless deaths of millions.

    Keep your communism at home, where it works wonderfully.
    Use Capitalism at work and in society, where it works wonderfully.

  28. lacithedog Says:

    Yes, economics is a science as we learned it, but people do have irrational attitudes toward money.

    I’m not so simple these days.

    But it is nice to live in a simple world.

    Altough, I think you hit the nail on the head with:

    People are rational about money – but the vast majority do not understand it.

    They make claims about money that is absolutely dead wrong.

    Then they make further “corrections” to money based on utterly dead wrong ideas.

    Then they blame the consequences of applying terribly wrong solutions to problems that do not exist …. on money!!

    We may be talking at cross purposes.

  29. Black Flag® Says:


    I think we are talking – and that’s a good thing!

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