Friday, December 12, 2008

What is money?

Money is an issue which is on almost everyones mind lately. Namely, that they find they have less and less of it and that it isn't going as far as it used to.
So what is money? What constitutes honest, sound money?
Money is a medium of exchange and store of value. Money came about because of the problems associated with bartering as a means of effecting trade. Trade is the lifeblood of a sound economy. Free trade, meaning exchange of goods and services without government interference or regulation conveys the greatest benefit to a society and its participants.
We all use money to buy the things we want and need and in exchange for our time and labor.
Honest, sound money should have certain characteristics which have been confirmed over thousands of years of use across almost all civilizations and societies.
They are:
Money should be scarce or rare
Money should be valuable
Money should be easily divisible
Money should be durable
Money should be portable
Money should be almost impossible to counterfeit.
Why should money be scarce or rare? Because if it wasn't the supply of money would continue to increase easily, causing inflation. This monetary inflation would decrease the value of all money which existed before the introduction of the new supply.
Money should be valuable intrinsically so that people will trade their time, labor, and goods in exchange for it and hold it as a store of wealth.
Money should be easily divisible so that it can be used in both large and small transactions simplifying free trade.
Money should be durable and long-lasting so that it can't be destroyed by the elements, pests or accident.
Money should be portable so that it can easily be used in trade. Ex. If a horse was money it would be very hard to take it with you whenever the possibility of trade existed.
Money should be almost impossible to counterfeit for obvious reasons.

We use printed paper as money. How many characteristics of honest, sound money does our paper fulfill? By my count it fulfills two of the six; it is easily divisible and it is portable. 33% isn't so good, is it?
How about gold and silver. How do they stack up? I get 6 out of 6. Gold and silver fulfill 100% of the requirements for sound, honest money.
What does our constitution say about them? Don't know? Maybe it is time to read it.
Technology has advanced to the point where it is possible and viable to make "paper" gold and silver money which would look no different from the paper notes we currently use as money but with one very big difference. Federal treasury notes are nothing but paper with a little ink on them. Gold and silver notes would have a stated, verifiable weight of gold and silver embedded in the notes themselves. Based on todays gold prices($827 per oz. or 480 grains) a gold-filled note worth about 1 dollar would contain roughly 1.72 grains, lets make it a 2 grain gold note for simplicity. 9 grains would be about $5 and 17 grains would be about $10. And so on. Probably would be much simpler to make a 2 grain, 10 grain, 20 grain, 40 grain and so forth. The larger value notes would switch to grams. 1 oz. = 31 grams. So a $100 note would be about 4 grams. Prices would no longer be in dollars but would be in grams or grains of gold. Smaller amounts could be taken care of by silver coins just like we did in the u.s. for a couple hundred years until 1964.
When you went to the store to buy groceries, prices would be in gold grains.
Now you say, well gold prices fluctuate wildly so how would this work? that is true they do. Question is why? For one thing gold isn't used as money so it's value in relation to money is constantly changing. If gold was again the money of choice it would be far more stable. The other factor causing the difference in gold and "money" values is inflation. Paper money is cheap, easily created and counterfeited(biggest counterfeiter is the government) and is constantly being printed out of thin air. This drives down the value of paper money and destroys its purchasing power. Gold has held its value throughout history and has always risen in value against fiat(backed by nothing of real value) currencies.
The only role of government in a new gold-filled paper currency would be to monitor the manufacturers to ensure the notes contain the stated amount of gold in them. Burning the note would allow anyone with a scale to do the same thing to make sure their note actually contained the stated content of gold printed on its face. These notes would destroy the power of governments to steal from you through printing up more and more paper money as has been going on in the u.s. since 1913. The biggest tax you pay is the inflation tax. Didn't know about that, did you? Well if you are a product of the public indoctrination system that is by design. Why would they teach you they are systematically stealing your hard earned wealth? You might actually get mad and do something about it. That would be incredibly foolish on their part.