Let's Talk Money

With all this talk about the economy and the potential collapse of the dollar, maybe even the government, I believe it's time to take a cool headed appraisal of just where we stand with respect to money. My favorite definition of money which I learned in college economics is: Money is anything that has value.
But somehow that doesn't say enough. A realistic assessment of money matters depends upon identifying value. Currency, regardless the source, is not truly money in that it has no intrinsic value: it merely represents value. Therein lies it value, but value nonetheless. The value of a currency may be considered as three distinct kinds;
Comparative Value: This is the measure of the purchasing power of a currency compared to its purchasing power at some time(s) in the
past. Example: The dollar was at maximum value in 1911 and has diminished over the years.
Relative Value: This is the measure of the purchasing power of a currency relative to other currencies; Euros, Pounds, Yen, Wan, Pesos.
Exchange Value: This is the measure of value of a currency with respect to what it will purchase in its domestic market. That is all that matters to the members of society: What can I buy with x units of currency?

Exchange value is everything, nothing else truly matters, and the true test of any currency is its acceptance by the issuing authority, primarily the government but any source of the several forms money takes. Store and manufacturers coupons are money in this sense, use of these result in a consumer paying less than retail for the item covered. But most people do not regard coupons as money and most of them are unredeemed; the result is that people who do purchase the product end up paying more for the product than they otherwise would, as the item is generally marked up to absorb the "saving". Other forms of money are; Money orders, traveler's cheques, gift certificates and gift cards; all redeemable in exchange for goods and services. All these forms of money have the same thing in common: they are subsidized, they exist as created instruments for which actual money may have been paid to secure them. The cautionary nature of this observation is due to the prolific use of credit cards. Credit cards are not a form of money.


Credit in any form creates money from thin air and is the source of the ever rising inflation that we have been experiencing for the last ninety years. Inflation is inevitable in any growing society, necessary to avoid the natural tendency toward depression when a money supply is held constant. If a million dollars is divided equally among ten people each would have $100,000; divided among a million people each would have only one dollar. Now imagine this same million people with credit cards, each having a $10,000 limit. If each card is maxed out we're talking a billion dollars - just like that! But these obligations have to be repaid in currency; where does this specie have to come from? Why the printing press of course! And these presses are operated by Central Banks, ours being the Federal Reserve System.

Critics of the Federal Reserve call for the return to sound money: that is, money that is backed by gold bullion. That is very unlikely to happen simply because there isn't enough gold in the whole world to support the volume of currency necessary to the economic functions of a population of nearly seven-billion people. There is no way around the fact, supported by one of the axioms of Systemantics which states that a system will expand to fill its universe, that populations will grow until that growth is curbed by unbreachable barriers: available land being the ultimate curb. But land itself is only the basic consideration; on top of that there is the matter of developing that land for whatever purposes that are deemed necessary. All land cannot be used for habitation; some must be preserved in the natural state, other areas for agriculture, manufacturing, and recreation. And all this development takes money to finance it. The proponents of hard money fail to take human nature into account. People will reproduce despite any efforts to control the global money supply; that's why there is so much poverty in the world, and human nature makes the creation of so-called fiat money inevitable. We will always generate more money in the effort to raise the less fortunate to a higher standard of living rather than do with less ourselves.

So where do we stand? The much debated national debt, now grown to many trillions of dollars (no one is quite certain how many: estimates range from 18 to 70 trillion) is not the overwhelming burden that many economists make it out to be. It is the amount of money the taxpayers owe the government for the funds, plus interest that it borrows from the Federal Reserve System. It's called debt money and is nothing more than a bank creating money the way all banks do: by lending money. It's that simple. The US Congress can abolish the Federal Reserve anytime it chooses, turn the operation over to the Treasury Department, and most of the debt would be abolished at a stroke. Will we ever do that? I believe we will when pushed to the wall. But we must keep in mind that most of this money is air-money, money created out of thin air in this credit economy that trades time for commodities. Time is money: We trade a portion of our future time for money in the present; but it isn't really money. It's debt which must be redeemed in currency, hence the printing presses keep rolling. The currency itself means nothing; Confederate money would have value if enough people were willing to accept it.

Gresham's Law states that cheap money drives out dear money. There is a propensity on the part of Americans to hold dollars but not to save them. It's a conundrum, one that is unfortunately true in this case. While people will not save, most of the time because they are in so much debt they will nonetheless add to that debt rather than spend currency. The credit card is a form of cheap money while cash is relatively dearer. It's a foolish notion when one takes a realistic look at the situation. The consumer buys goods using a credit card and saving the cash, which he then deposits in a checking account from which he pays the credit card balance. The problem is that the credit balance soon outruns the capacity to accumulate sufficient funds in cash, the end result being default either of a payment or of the whole balance. People just have to get smarter when it comes to handling money. The present system of consumer credit stands Gresham on its head: cheap money ultimately becomes dear money when the time comes to pay off the credit card balances.

The dire prediction of a depression deeper even that the Great Depression seem somewhat far-fetched but bears consideration. What would it take for things to get that bad? One suggestion by some economists is the continued printing of currency by the Federal Reserve. But that's bee going on ever since the Fed was established. In fact the Great Depression in America was exacerbated precisely because the Fed drew down the money supply by one-third; that would have been the time to crank up the printing presses. The reason given for this move was to preserve the value of the dollar; in the long run this value has diminished greatly and is now worth about 4 cents, but that is a Comparative Value; Exchange Values have remained fairly constant the whole time. Looking at the present situation we see the prices of consumer goods falling, gasoline is now cheaper that it has been in a decade as people are cutting back on fuel consumption. What we are seeing in this sector of the economy, falling prices, is the way the market economy really works. And people are working, despite what the unemployment figures show. Yes, there's a lot of downsizing in corporate America but that doesn't mean anything at the grass roots level of the economy: people will still find ways to earn money, and there's plenty of money (currency) floating around out there.

In sum let me state that the dire predictions of the naysayers will come true only if the wealth of this nation is wasted and lies untapped. Money is anything that has value, and our greatest value is the will, energy, drive, and resourcefulness, of the people. There is nothing like crisis to bring out the best in people, and I believe that this co-called "meltdown" will spur people to rally to the colors, to finally admit that the form of government we have today is a failure and should collapse, to be replaced by a new system; one that adheres to the philosophy of the Constitution, to protect the sovereign citizen from the encroachments of a strong central government. We have made a lot of mistakes, but we have learned and the coming weeks and months, perhaps years, will provide ample opportunity to profit from the lessons we have learned. One of these is that the people can be victimized by the encroachments of even a weak central government, like the criminal regime of G. W. Bush and company.

Keep the faith.