Habituated as man has been in using political monies
he has forgotten that money had its beginning in private
enterprise - where the motive was merely the facilitating
of exchange. It fell into the hands of government where it
came under the motive of tax deception and public exploitation.
It must be rededicated to its primary and natural
purpose and to that end must be mastered.
How many wars could have been precluded, how much
poverty and misery averted, how much further human
progress would have gone had money never become a political instrument, we can only conjecture. However that
may be, the blame for the detour cannot be laid upon the
politician; since it appears that it was the business men
who - when they found that the goldsmiths and silversmiths were cheating - petitioned the state to certify to
the weight and fineness of coins. Ironically, they fell into
the hands of a greater cheat - because the state made clipping of coins a major racket and developed short-changing
into a fine art through repudiation and inflation.
The stream of political monies from the beginning to
the present day runs deep and dirty, yet to suggest that
money can spring from any other source is to surprise
if not even to dismay. So has tradition dulled mens'
senses. No matter how often the state fails to supply a
virtuous money system, men rush back to it in desperation and beg it to try again. Indeed, until we learn that
the money power resides in us, we must abjectly beg the
state to give us an exploitative system because we cannot
return to a moneyless civilization. Yet, no mater how
often and earnestly the state tries to provide a true money
system, it must fail because of an inherent antipathy between the money issuing power and the taxing power. A
money issuer must be a seller who bids for money, not a
taxer who requisitions it in whole or in part, as politically
expedient and without a quid pro quid.
The early experience of traders with private money
was naturally evolutionary. They were being led step by
step, toward an unexplored path toward a goal they could
not envision. They only knew that simple barter was
inconvenient and that the more it was escaped, the greater
was progress and the development of wealth. They were
fleeing from an impediment rather than pursuing an ideal
for they were unable to conceive the money ideal.
Their first expedient to escape simple barter was to hit
upon some common commodity that would be acceptable
to most any trader and which would not deteriorate in
storage. A number of such commodities were used, but it
was natural that ultimately gold and silver would be selected as the best suited for the purpose. They were the
most portable, because much value was represented by
small weight, and they were not subject to erosion.
What had thus been accomplished was the adoption
of a representative commodity, designated by weight or
measure, to mediate the exchange of other commodities.
Though a mediating commodity is not, and cannot be,
money, it is interesting to note how the spirit of money
crept in at this point, quite unawares. Let us consider
the one mediating commodity, gold. There probably has
never been a time in all history when the value of existing
gold was more than one millionth of all values passing in
exchange during one year. Therefore, it could mediate
only an infinitesimal part of all values moving in exchange. Exchange acquired, as it had to, something additional to meet its expanding needs. This additional element was the spirit of money that attached itself under
the urge for greater freedom and larger volume of exchange. Because the spirit of money has never been
comprehended, the fetish of gold or materiality, as exchange media, in some form remains.
The spirit or purpose of money is to convert barter
from a completed transaction into two halves - with one
trader, (the buyer) receiving full satisfaction in value
and the other (the seller) receiving the assurance of an
equivalent value later from some trader. Thus simple
barter, which is a bilateral transaction wherein both traders
receive immediate satisfaction, gives way to money exchange, which is a unilateral transaction. A time lag
intervenes before the seller receives satisfaction but he has
the great advantage of choosing what he wants and from
whom. To serve the urge for an escape from bilateral
barter to unilateral barter was and is the function of
money; and in its incipiency it operated unseen and unsung. It had to come, and did come, and is here; but it
is still shrouded in superstition.
Trading continued on a bilateral or whole barter basis,
oblivious of the money concept by traders. But money
crept in and fulfilled its function of expanding exchange.
After the practice of using silver and gold as barter media
in terms of weight had become firmly established, the practice of depositing these metals for safe-keeping was developed. Thus metalsmiths, who received these deposits,
issued warehouse receipts therefor. Then it was found
that, instead of taking out and putting in the metal, the receipts themselves could be transferred. This was the beginning of paper money but only to the extent that the
smiths by their cunning developed it.
They found that a certain percentage of metal remained in their possession continuously, and that it was
safe to issue receipts or promises to deliver metal against
non-existent metal - which receipts circulated as money.
This was the birth of the banking business. Thus some
receipts (those backed by actual gold) were bi-lateral barter instruments and those not actually backed were uni-lateral barter instruments or money, though traders were
quite unconscious of using money. The smiths had created money by trickery and thus expanded exchange to
the benefit of everybody.
For specie payments (i.e. actual delivery of metal) it
was found that weighing and testing was inconvenient,
so the smiths developed the practice of stamping the metal
in certain weights and fineness. This was the birth of coinage and it permitted another trick by which money again
entered exchange unrecognized by traders. The coins were
either falsified by the smiths or "sweated" or "clipped"
by others to contain less value and thus exchange was still
further expanded through the surreptitious introduction
Next came the bill of exchange invented by merchants
to minimize the transportation of metal and this gave
money another opportunity to break the straitjacket
of bilateral barter. Basically, these bills of exchange were
orders for silver or gold in favor of a merchant in another
City, drawn against another merchant in the same city. But
they tended also to circulate and thus permit the issuer
to issue beyond actual power of specie redemption.
These examples illustrate how exchange was mediated
in part by bilateral instruments (genuine certificates of
deposit of actual values) and in part by unilateral instruments - money (based Solely upon common acceptance
without reserve for redemption). True, the latter were
products of cupidity and were executed by dishonest men
but since men were unable to conceive money, there was
no other way by which it could emerge and serve its grand
purpose of expanding exchange.
By illusion and delusion, money had to break down
the barriers of a bilateral exchange system and convert it
into unilateral exchange, so that trade could be expanded.
In doing so it followed a natural urge, because traders
did not really want metal; they wanted exchange power
- the power to acquire all commodities; not just one commodity.
It is interesting to note that the spirit of money, which
is the spirit of facile exchange, brooded over barter exchange when it was trying to break its bilateral cocoon
and emerge as unilateral exchange; and today the ghost
of dead bilateral barter still hovers in the minds of some
men, in that they try to restore the butterfly to its bilateral shell. They speak sneeringly of "fiat money," not
realizing that money can exist only by the fiat of the issuer
and that a money instrument is money only in so far as
it has no intrinsic value.
So, unable to visualize money as an accounting concept, they cling to the fetish of gold, ever trying by various
devices to stretch it to reach the heights of soaring money.
These devices range from raising the so-called value of
gold to fractionalizing the reserve and finally resorting
to debt pyramids that have the most nebulous relation
to the magical lodestones presumed to be buried underneath it - a lodestone to which, in actual practice, the
man in the street gives not the slightest thought. While
he does not understand money, he does not misunderstand it as the so-called authorities do.
While money long since has functioned as a representative of value in all commodities, the superstition still exists
that it represents the value of but one commodity, gold or
silver and at a fixed price. The absurdity of the standard
of value superstition is instantly seen when one realizes
that the so-called "value" of the standard commodity is an
arbitrary price set by the power of the money unit which
is supposed to be supported by that which it supports. The
tail is made to wag the dog. Thus, the commodity chosen
as the "standard" does not back the money unit; the money
unit backs the "standard" commodity. If the money unit
were not a power in and of itself, it of course could not
raise the price of gold or anything else. The thermometer
does not control the weather.
It is evangelical to denounce those dishonest souls who
have led us by illusion and delusion into the use of money
as a valueless accounting device while we were still clinging
to a material concept, but it is not realistic to do so.
Without their cunning (in the absence of money mastery) we
could not have advanced. This is not to say that such
practices should be encouraged; but rather that we should
become so intelligent that they are no longer necessary.
They involve a parasitism which should be dispensed with - but,
in the absence of an intelligent approach to the subject,
it is better that we be deluded into exchange, even though
it supports parasites and exploiters, because exchange is
the neck of the bottle in the productive consumptive
cycle, and is therefore the final determinant of human
progress. Exchange must be expanded by fair means or
foul; for society cannot stand still, and can progress only
by expanding exchange.
There was no comprehension of money while it was
still a private enterprise medium, but there is reason to
believe that tradesmen would have found their way before
this, because they were at least actuated by the right motive,
namely, the pursuit of a means of facilitating exchange,
which is money's sole purpose. When, however, money
experimentation fell into the realm of politics the motive
changed to suit the purposes of those who used the state
for private advantage and thus, for hundreds of years,
money has followed the political tangent that leads only to
frustration. When, by assuming the control of money,
the state intervened in private enterprise, the latter became
and remains the political enterprise system and can never
be truly private and fully serve society until the money
power is recovered from the state and operated as part of
the private enterprise system. But before this can come
we must master the money concept.
Ten years ago, after fruitless search for a money master,
we read the public statement of a well known monetary
economist that there were only "a few persons in the world
who understand the meaning of money." We asked who
they were and received the names of 13 Americans and 5
Europeans. Of these international authorities we succeeded
in getting the consent of 6 Americans and 2 Europeans to
enter a symposium to be presented to Congress which was
at that time debating money theories. We submitted the
result to the Senate Committee on Banking and Currency
and, on June 9, 1934, wrote a covering letter to that body
from which the following are the concluding paragraphs:
"The total of 176 answers to the 22 questions showed
such contradictions, inconsistencies and disagreements
that we feel it a patriotic duty to state that there appears
to be no understanding of the subject of money either
among contributing authorities or among others whose
writings we have studied. No clear principles are established; projected theories are not demonstrable; the basic
concept for the construction of a monetary science seems
"The meaning of money is yet to be revealed, its mastery
is yet to be proven, the power of laws to direct or control
it is yet to be demonstrated, the medium to implement
it is yet to be developed. The people should no longer
be mis-led by abracadabra and psuedo-profundity. There
must be a break with the past. New thought must
challenge the prevailing hypothesis."
The same year there appeared a book by Montgomery
Butchard, an English author, entitled "Money" which the
author describes as "Selected Passages Presenting the Concepts of Money In The English Tradition, 1640 to 1935."
Approximately 200 named and anonymous authorities are
quoted. Reviewing them, the author concludes with these
"What does this book 'prove'? In any narrow or positive
sense it proves, I hope nothing. But if the passages
illustrate anything it is the broad and negative thesis that
in the history of English writings on the nature and
function of money there has been from the earliest times
to the present no observable advance."
With this conclusion we fully agree. The following
year, the same author turned from the orthodox authorities
and examined the so-called new thought on money. His
book is titled: "Tomorrows Money By Seven of Today's
Leading Monetary Heretics." They are, Silvio Gesell,
Arthur Kitson, Frederick Soddy, R. McNair Wilson, C. H.
Douglas, G. D. H. Cole and Jeffrey Mark. This is the
author's concluding comment:
"The seven theories agree, by direct assertion or by inference, that measures of monetary reform will at least
initiate the remedying of our economic and social ills,
and that these monetary measures should include at least:
- Public (communal, national) control of money and
- Public control, direct or indirect, of prices."
Thus the so-called heretics still wear the mantel of orthodoxy - because the two measures stated are cardinal to all
money theories heretofore extant, and both are false.
America too has many sincere would-be money reformers,
and some accused of heresy, but all, so far as we know,
accept the false premise that government must issue, control
and manage money and prices. Thus their efforts are innocently devoted to various schemes to improve upon perversion. Government should not issue or control money;
and it is not the function of money to control prices.
Money is a neutral agent whose sole function is facilitating
exchange, and not influencing prices in any way. Our
English contemporary must look to America for heretics,
and, we believe, will find them only in the Valun school
Americans think in the English tradition, which is no
better and no worse than any other, for they are all alike
in fundamentals. There has been, until now, no independent American approach to the problem of money. By
strange coincidence, in the very year that Americans
declared their political independence of England, an Englishman, Adam Smith, put them under a mental subjection
that still holds sway though it is utterly inconsistent with
our Declaration of Independence and our political principles. The father of Political Economy states its purposes
in "The Wealth of Nations," thus:
"Considered as a branch of the science of the statesman
or legislator, Political Economy proposes two distinct
objects. First, to supply a plentiful subsistence for the
people, or more properly to enable them to provide such
a revenue or subsistance for themselves; secondly, to
supply the state or commonwealth with revenues sufficient for the public services. It proposes to enrich both
the people and the sovereign."
Here is written, and by our schools accepted, the bald
paternalistic and autocratic principle which we denounce
in all our political declarations and which must be renounced if man is to attain his true dignity and freedom.
Yet it dominates our practices more and more as we
flounder in our perplexities. We divide only on the degree
of paternalism and government management of our lives
that such a philosophy provides, not on the principle. By
this theory the government and the people are set up as
separate entities; with the government as a sovereign patron
of the people. How can the government (which, under
the American political philosophy, is nothing but a creature
and dependent of the constituency) "supply a plentiful
subsistence for the people" or how, except by leaving them
alone and not burdening them with tires, can it: "enable
the people to provide such a revenue or subsistance for
themselves"? How can man be a dependent of the state?
Does the citizen tax the state? Is not the state merely a
corporation created by man to render services at a price and
must not that price be paid by the citizen to the state?
And is not the ability to pay such price, for such service,
conditioned upon the citizen's free and untrammeled power
to carry on his production and exchange enterprises? If
we fall under the delusion that economic betterment can
be gained by means of a power inherent in the state are we
not unwittingly on the path to communism and complete
frustration? Is not the doctrine of Carl Marx but a logical
extension of the theory of Adam Smith? How can we
accept one and quarrel with the other? Once we accept
the principle of paternalism, how can we defend the principle of the sovereignty of man? From these false theories
that we have borrowed from the old world has sprung the
idea of managing the people by money and we have accomplished nothing but perversion and gross miscarriage
of our wealth producing capacities, and nullification of the
inventive genius of our scientists that might have carried
us much further had we a money science capable of distributing what they have shown we are able to produce. It is
the state that must be controlled by the citizen through
his money power; not the reverse. We have tried the
impossible experiment of combining in the state a political
democracy with an economic autocracy; the principles of
Jefferson and the principles of Adam Smith. Political
democracy cannot work without economic democracy;
and the money power is the franchise of the latter.
If America is to vindicate her leadership of political
theory she must also provide leadership of economic theory;
and the two must be in harmony. Such dual leadership
means casting traditional economic theories to the winds,
just as was done with traditional political theories.
POLITICAL ECONOMY A FICTION
Political economy is a fiction. Economy can have but
one sphere, namely, in the practice of the individual.
Political economy implies that the state can have a separate
existance as a creative force, whereas, it is but one of the
instruments of the individual's economy. All wealth - all
economic planning - can spring only from the individual
for his private guidance; and in him resides both the political and economic power. The ballot is his instrument of
political power; money his instrument of economic power
and the former is futile without the latter. He is a dupe,
who believes that government can be both his servant and
his patron, i.e., that the state can develop an economy to
enrich him. He must govern government as he governs
himself; and he must provide for government as he provides
for himself. Any power existing outside himself is only
that which has been delegated by him, or has escaped from
him; for he is the one and only power-house. He cannot
delegate his money power, if he would, because it is inseparably linked to his buying wherein he must exert his
private discretion. To issue money, one must buy, to buy,
one must appraise. Hence, the money issuing power is
undelegatable and unusurpable.
Assertions such as these can be reconciled with the
American political theory of democracy; the old-world
political and economic philosophy of divine right and
descending blessings, cannot thus be reconciled. We are
doomed to failure in our political experiment unless we
declare our monetary control of both the state and our
private affairs and this can be done only by the separation
of money and state. Man's natural money power cannot
be vicariously exercised in his behalf; he must either exert
it or suffer the exertion of a money power adverse to his
interests. The only freedom we have retained against the
encroachments of the state is the freedom to struggle against
perversity. If we use that freedom intelligently we will
overthrow the political money power and attain money
freedom, the guarantor of complete economic and political
mastery. It is utter folly for us to imagine that we have
freedom when the very life blood of our private enterprise
is controlled by government and our political power thus
Money, like everything else, began in private enterprise.
It must be an exclusive instrument of private enterprise
untouched by the state which is a public enterprise outside
the sphere of competition, securing its income not by the
necessity of winning patronage but by tax impositions and
therefore not qualified to exert money power. Had the
early businessmen realized this, money would not have
become a political instrument; and untold miseries, revolutions and wars would have been averted. It is for us now to
rescue it; and, to do so, we must lay hold firmly with our
minds on the theory before we put our hands to the practice. That is the purpose of these studies.
As we close this chapter on the past let us bury the
fetish of value in money. The banker sneers at "fiat
money;" the layman sneers at "fountain pen money," thus
betraying the universal ignorance of money.
The purpose of money is to obviate the transference of
value one way in exchange. It substitutes credit for value,
but the credit is social credit, i.e., it rests upon the common
creditability of the trading community. The money instrument, however, springs from the fiat of the issuer, a fiat
that asserts that the issuer is, under the money pact, qualified to issue. The actual creation of money instruments
can take place only by fountain pen - using that term to
include all graphic processes. Thus all money that has ever
existed or can exist is fountain-pen-fiat money.
Any valuable thing, such as metal in coins, is not money
- it is commodity, and to the extent of its value displaces
money in the coin. Money is a memorandum, a credit
instrument, a bookkeeping device to effect split barter and
is money only to the extent that it obviates delivery of
value by the transmitter.
Since all money is fountain-pen-fiat money, the only
question we have to decide is whether its issuance shall continue to be the special privilege of a few or the right of all.
By such decision we determine the fate of humanity.
[Contents] - [Next section: II. HOW MONEY DOMINATES]
Federal Reserve Note.
Backed by nothing.
| Gold & Silver Never Lie.