This is an education that we all need, this is not to say im smarter, Im not, If you dont know all of this, I was with you years ago. To really understand the realities of what is coming, why our economy is going to fail (I didnt say doomed to fail, because its not some otherwordly force…Its simple math we ignored for the sake of short term profits and success), we must know this and know it well. Not just for ourselves, but so we can be individual teachers within our group of family and friends.
We can say
“Things are going to get bad”
Which they will respond “Yeah maybe, but we will bounce back, itll be fine in the end”
To which we say “No it wont, because we have too much debt and our money is devalued”
And then we cant explain. I want this series to help you understand to help put the correct terms and examples in your head to show others what you already know to be true.
WHAT IS MONEY?
Imagine you are a Hunter Gatherer circa Neolithic Period.
You have enough food and have time now to take care of some housekeeping items like making arrowheads.
You make 20 arrowheads, but only need about 15 a year, but what you are short on is berries, as the area has been drought stricken and the harvest has been bad.
You meet another group and they have come from a long way away, but have baskets full of berries. They are short on arrowheads, and need some. Great Luck right?
So you talk to them and agree on a basket of berries for 4 arrowheads. You trade, the barter is done you go home happy, they go on their way happy, everyones happy.
This works great!
Now what if they didnt have berries, but had some seashells, You have arrowheads, they have seashells, what to do?
Well you know that Grog down near the river has some berries, but had enough arrowheads and he didnt want to trade. However everyone likes seashells so you trade the arrowheads for some shells and you go down to Grog’s and he trades you the berries for the seashells. He takes the seashells and trades them to others who have sealskin boots he wanted, and they trade it for….etc.
This is a basic start to “money”, something that everyone, relatively, agrees has value, with or without the object inherently having any value other than you agree it has value, something you can use it to trade for something you want.
MONEY IS AN AGREEMENT. It is not the seashells themselves, it is not the dollar in your pocket or even the gold coin in your safe. It is the AGREEMENT between people that, that item has value, wooden nickels can be considered money, our dollars (regardless of the underlying truth) are money because they still are agreed upon as having value. (Hat tip to Jack Spirko for helping me realize this awhile back).
CURRENCY IS A VEHICLE. This allows people to trade our time and services for currency to be able to provide for ourselves and indulge luxuries despite not producing any commodity or anything of survival “value”. In a village you may not be able to hunt, but you can produce necklaces that are beautiful and coveted, these are not inherently “necessary”, but something that is wanted and currency provides the vehicle to convert that skill and time into something of value.
Now back to Grog…
Now does this mean that seashells are worth on their face sitting in front of you, as much as a good pair of boots for winter? no, but they could be traded for something else once you traded the inherently needed item for it, to buy another. This is slightly different than our modern understanding of money, and its predecessors from beads on, but the basics are the same.
There have always been some form of leadership in every group, chiefs, etc. but once towns began to form and become bigger towns forms of government began to form. Within those towns they began to notice that barter had inherent limitations. What if the local maize guy had a bumper crop and goes to the local smith to get a new knife, what is the value of my maize to the knife? what is the value then once traded of that maize to the meat guy to buy half a pig? Of course you can say the value is what you say it is, but this made things difficult to trade for especially when the knife guy didnt need corn but needed meat so what do i trade this knife for, to get enough to buy the meat with corn? How much value can i get for the corn when i trade it with someone else? You can see how confusing this is, now im a fan of bartering, and I think its great and wonderful and should be used more often however money is needed.
The leaders of the these towns that had been growing in wealth and power, and trading with others began to wonder…”hmmm how do we set some sort of standard so that trade within our domain and with others is easier?”
Enter Stage Right…BACKED CURRENCY
The leaders wanted something that could be used as a standard value for products so they could say ok, 1 of our coins buys 2 lbs of corn and 1 lb of meat. So now when you went to get the knife, you knew, ok i need 2 lbs of meat, so if you have corn to trade for this knife I need 4 lbs of corn to buy the meat i need. Easier right?
Well kind of, this Currency had to have to be worth something in itself, for people at home and abroad to go “Yes i understand that coin is worth that much corn or meat”, it had to be worth something as well. Well you could make the currency corn…no that would be too difficult to carry that much around…It would have to small so it could be carried easily, that most people would agree has value, and divisible to make smaller purchases….
Well…that necklace has that metal in it that everyone LOVES, it looks pretty and shiny, and i love it too, its so nice! Why dont we use that?
So now we have Currency, gold and silver, it has value to people because they like to make things out of it to have pretty things around. Realistically, if you took away the want for pretty things is gold worth anything? not really outside of a few industrial values, is corn? yes because you can eat it, survive, grow more and continue to survive. But thats not the case, now or then, people like it, people like it so much the are willing to pay alot for it. It is also hard to find, it is not like quartz, where that is everywhere, gold is not, thats why granite coins are not currency, anyone could have just chunked out some granite and said “here i have “money” “. Gold is worth something because people like it, have agreed it has value, its hard to find, and its possible to determine if its real or not (you can test and see if its fine gold, 12k, 14k, etc). If tomorrow a alien spaceship came down and dropped a 300,000,000 ton chunk of gold down in the Sahara and said “here ya go” would you pay $1700 an ounce if there was a 300,000,000 tons of it tomorrow than yesterday? no you wouldnt (well i hope you wouldnt!) because immediately it would start showing up on the market, there would be so much of it, people would have to sell it at less and less of a price to be competitive, and the price would plummet, but devaluation of currency/money is a topic for a different day.
So now we have an ability for people to carry around a few coins made of gold, silver and copper as well (in those times). You could buy big items with gold because it was hard to find, you could buy less with silver because it is easier to find than gold and you could use copper for day to day or to have a more precise price for something, say 2 silver pieces and 3 copper. Thats why our old currency had $20 gold pieces for larger purchases $1 silver pieces for smaller purchases and silver and copper backed smaller denominations to meet the prices exactly if the value fell between dollars like $1.5
Soon we began to notice that although this was nicer can carrying bushels of wheat to trade for everything, these coins were heavy, and still kind of bulky to have alot of them so why dont we devise a way to have a lightweight, recognizable currency that would be the same as gold, just wouldn’t have the actual metal with you. So the $1 Silver piece would turn into a piece of paper saying $1. Whoever issued this currency could ONLY ISSUE an amount of paper that corresponded to the same amount of gold or silver they had stocked away.
So the Government of GNP has $100 in gold and silver in their vault, I then could only issue out only $100 in paper money, this paper money would have the promise of being able to be redeemed for that same amount in gold or silver whenever that person who had it wanted. They could hold onto it when they got it, or go and say “HEY I WANT $1 IN SILVER PLEASE” and the silver would have to be given to them. This is why you hear in older movies and books, paper money being reffered to as “Promisary Notes” It was a PROMISE that this was as good as the metal it said was backing it.
So if in the country of GNP i then traded $10 in gold for some wheat, i would then have to take back in $10 in currency notes to keep the standard honest, if the government didnt, people would notice, as well as other governments. They would not trust the currency as being valued as much as they said, and the currency would suffer.
This is called a BACKED CURRENCY, Which we have had in this country before, not as many would have you believe that we always had it and never went off of it until FDR, its not a democrat thing, we’ve gone on and off of it for awhile. A backed currency doesn’t have to be gold, it could be a commodity like grain, oil, etc. As long as there was something of value backing every dollar printed at the set rate.
So what happened next?
Well banks and governments started to realize they COULD (despite what i said about suffering) print money without actually backing it up, some got away with it, some didnt, or i should say some got away with it for a short time, others for longer, but eventually the jig was up. Often, especially in the old west days, the banks figured out they could print more money saying its backed, loan it out to land speculators, farmers, ranchers, etc. with an interest rate attached. Now as long as the people continued to believe everything was ok and paid their loans and interest they would be fine. if a bunch of people started to come in and want to redeem their paper for gold they could do so until more paper came in than gold was in the bank. There were boom and busts like this often in those days.
Eventually the banks and the government realized there was immense profit potential in just saying “To Hell with a backed currency, we can just print this and loan it out, make money off of interest”
This is where FIAT CURRENCY comes into existence. The word Fiat comes from the Latin for (webster definition) “A command or act of will that creates something without or as if without further effort.” That is the government of banking institution can command the printing or destruction of money with only a word. There is no need to fill vaults with gold to match the currency, they say we should put 10 Trillion more dollars into the world or take $1 out, thats all they need to to, say it, its done thats all she wrote.
Compare this modern $20….
To this 1928 Bill…
One is redeemable in a Commodity that has inherent agreed value (bottom)
One is just legal tender because “we” (the govt) said it is (Top)
Basically the older bill derives it VALUE from the fact that whenever you want, take that in and get gold, something we have historically and continually agreed upon has value.
The new Bill derives it VALUE from the authority of the Federal Reserve and the U.S. Government (as well as the amount of currency in circulation), that is it, and only it, The FIAT of the U.S. Govt.
You could get nitpicky and say it has value because of the agreement, but there is no underlying Value to it, nothing that says this paper is backed by value, only that the fiat of the government and our agreement (for now) as a society and economy says it can be used to purchase things.
So what are the dangers?
- The government and Banking institutions have the ability to print money on a whim. This results in a devaluation of the currency which results in inflation of commodity prices that are purchased with said currency. I will have separate sections on Inflation and Devaluation. But basically the more dollars out there, the less the one in your pocket is worth, the less it is worth the more prices go up.
- Fiat Currency as it is today is BASED on debt, without debt our currency doesnt exist. Every dollar in existence whether on paper or on a computer spreadsheet in the financial system = $1 + interest. That means for every Dollar we have we owe that plus debt as a country and society. This is why we CANNOT pay off the national debt. To put it as Jack Spirko did, If we took every dollar in existence and piled them all up in front of congress, every one in your wallet, your cousins wallet, ever penny in a piggy bank, and said “PAY IT OFF THANKYOU!” They would say GREAT! But…we owe more than that. WHy? Because every dollar created has debt attached to it.
Currency is important. It helps you to establish a value for your labor, services and goods. It makes it easy to take that labor, service or good and establish a secondary value to them denominated in currency and trade for anothers, labor, currency or value. It makes It possible to own a vehicle, a home, a T.V. It makes us able to set a value on our talents and our time and gain that value back to be able to trade it for what we need and want.
This makes it so that the kid who may be weak in strength and couldnt work a field be able to conduct a service that is needed, at a fair value and be given that back to get food to survive. It makes it so you can choose which employer will give you the best deal. If you went to an employer and they were paying in Oats, you would in the shoes of that early city dweller. Well great i have a crap ton of oats, and I need to get a vehicle, get meat, pay rent, pay the cell bill. I have NO idea how much oats Verizon will take to get an Iphone, you cant publish those rates on a website or pamphlet! Imagine!
THE NEW IPHONE 5
2 Year contract:
100 lbs Wheat (Enriched Grain)
120lbs Corn (Whole not cracked)
97lbs Pork (top quality cuts only)
87 gallons crude oil
29 gallons refined Unleaded Gasoline
Money/Currency is not inherently Evil, those that control it however turn the system into a beast that serves them and feeds on you.
Currency is a means of exchange, a vehicle for your labor to be traded for commodity’s of underlying value, that is easily transferrable, recognizable and accepted within a group, national or the globe.
Now you could say well what about all the gold backing stuff you talked about? doesnt that come into effect? What about their needing to be a finite amount (rarity)?
Money COULD be lead balls if everyone agreed it was! if your little town made everything you needed and took lead balls for exchange for anything and everything it would be fine. Now if someone started making them on their own than that would be a problem, but it could be anything. Remember Money is theagreement, its STABILITY depends on alot of factors, yes like rarity, or if something backs it, but as long as its accepted, agreed upon, its money. Once the trust is lost, the agreement breaks, its not really money and its just what it is, what its worth as an object unto itself.
Our dollar is backed by nothing, it is a currency but it is also money in a sense.
Because you used it to buy gas or groceries today, because the guy at the store took it in exchange for those items (the agreement) and uses it to purchase other things. If no one took dollars tomorrow it would cease to be money and only be a piece of paper, the agreement is gone.
It would still be technically currency because the government fiat says it is, and accepts it and only it for payment for taxes, but it would cease to be useful money for the world and the citizens of this country.
Currency is only the medium of exchange, and for it to be a ‘true’ currency, it has to be accepted.
Money is an agreement of value, currency is an accepted medium of exchange.
Gold is money, gold is not currency, you cant take gold to walmart to buy a groceries (yet).
Dollar Bills are money, we agree that they are, Dollars are a currency, they are accepted for all transactions
A piece of wood is not money, unless it is ornate and a value is agreed upon, and it is not a currency since it is not accepted.
Corn can be money, it has an agreed value, but it is more a commodity of that can be purchased with currency
This is not my original idea, anyone who talks about money, economics all stand on the shoulders of those that came before them and who they learned from, very few have ‘original’ ideas.
My education has come from various sources.
- Greg Mannarino who has a website and an excellent Youtube Channel, as well as a Great Book “The Politics of Money”
- F.A. Hayek and his book “The Road to Serfdom”
There are many others, but these are just a few.
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