23A012 Money: a Primer by Jim Davies, 3/21/2023


Take a look at the picture of this familiar sight. Is it a dollar?

At the foot it seems to say so, but in plain bold print across the top header it proclaims itself to be a "NOTE", so let's take it at its word. A "note" in money matters is a bit of paper to say we owe someone something, an IOU. I owe and promise to pay... one dollar. So this is a promise to pay a dollar, and so obviously it's not itself a dollar; it cannot be both a dollar and a promise to pay one. Why then do we call it a "dollar"? And since it isn't one, what is a dollar and where can we find any?

We'll come back to that but first, a note may still be useful in making payments. Suppose you are rich and famous and write a note to John that promises to pay him 1,000 dollars. John knows you're good for it so accepts it in payment of what you owe him, and a day later finds he needs to pay Roger the same amount so he offers him your note, perhaps writing on it "Pay Roger, signed John." Because Roger too has heard of your fame and fortune, he accepts it.

So it might change hands in that way several times, but after a while it becomes ragged and Susan, rather than passing it on further, brings it round to your mansion and says Hi, I've come to claim your 1,000 dollars please.

What exactly do you hand her?

This is the same question we might ask of the US Treasurer, who signed it. That's confusing anyway, because it's very clearly labeled as a "Federal Reserve" note, and the FedRes is technically separate from the Treasury, not one of its departments. So who exactly is making the promise to pay the note? And when presented, what will the Treasurer hand you?

Right; another dollar "NOTE", perhaps more recently printed, together with a sideways look, just as if you're the one who's being irrational. Just as if the fresh note consisted of a true dollar, when the ragged one didn't, whereas neither can - as we saw above.

The reason for this odd response is that they have no true dollars. Those used to exist, but have not done so for a very long time. The entire money system is a house of... paper notes.

Prior to 1913 (when Congress chartered the Federal Reserve) there were dollar notes, but those IOUs were genuine; issued by a local bank, the holder could obtain silver or gold in its place. Money was real. Result: what cost $1 in 1800 could be bought in 1900 for about 60¢; so money was worth saving (it would buy a little more next year) and that promoted investment and economic growth.

By 2000, however, the same stuff would cost $60. The NOTE had been printed so wantonly that it had lost 99% of its purchasing power. So, today, money is not worth saving; it will buy less tomorrow than it does today. Paper is easy to print; but nobody has yet printed gold or silver.

Why do governments resort to this trickery? - partly to defraud their creditors by paying back loans with freshly created "money" that will purchase less, but also to avoid the embrassment of raising taxes openly, which costs them votes. To preserve power, all of them must fool the people into supposing government is a magic box that gives out more than it takes in, and unlike silver or gold coins paper money can be printed at will. So they pump this bogus money into the system. It's a neatly-concealed tax, for it makes prices rise, hence lowering real, spendable wages just like a visible tax, and discourages saving, being worth less tomorrow than today; that in turn chokes growth.

Once government has evaporated, this wicked deception will vanish with it. Then, with a restored incentive to save, the zero government society will enjoy a leap of growth and prosperity such as has never yet been seen.

For further reading, an excellent article by Doug Casey appeared last week to explain banking: sound and unsound, deposits time and demand, money real and artificial. Here's the link.
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