To criticize the political money system is not enough. Our study must have a constructive end; and this requires money mastery. Let us approach the subject through the economic sequence that developed the need for money.

Man has learned that he can maintain a bare but precarious existance if he devotes his thought and labor to garnering or producing only those things that he consumes. To rise above this level of life he must become efficient in some occupation that produces exchangeable wealth. This specialization of labor could yield no profit unless there be other men who likewise specialize; and it is further necessary that they meet to exchange their products. This implies a meeting or market place. Thus we see that three attitudes are basic to man's rise and continued progress, to wit: (a) the profit motive, (b) specialization of labor to gratify the profit motive, and (c) exchange to realize the profit.

The profit, or progress motive presses man toward means of greater production and he finds it in specialization of labor. Greater production necessitates more exchange to realize the profit; and thus exchange becomes the neck of the bottle of production and consumption. Exchange, then, is the measure of human progress and limits or expands production because production (beyond subsistance) is purposeless without it. Therefore man can be only as wealthy as his exchange is facile.

It is interesting to observe that trade continued for many centuries as a purely private affair based upon mutual interest and understanding among tradesmen. While it was subject to robbery and tribute and tax imposition, the idea of the state regulating it or issuing certificates of permission did not occur to any one. The tradesman's conception of trade was that it rested merely upon the mutual advantage of both traders and subject to the hazards of banditry. The political factor did not enter. This free and self-reliant attitude was lost when money became an instrument of state power. With the progress of time, trade psychology has become more and more enslaved by the superstition that trade by money must be state regulated and permitted.

This false attitude has come about because man has not understood money; and has believed that, in passing from representative barter exchange into money exchange, he was passing from barter to a higher plane, where, by political magic, there was conferred upon him a power that he could not exert without the sanction of the state. In truth, trade has not risen, and cannot rise, above barter - because it is inconceivable that one trader will surrender value without being assured of receiving value. Through money, barter has been merely improved by introducing a time lag between the surrender of value and the requisition of value, during which lag the money instrument certifies the right of the seller to make the requisition at his pleasure upon one or more traders in the trading community. The money instrument acquires no value, the value resides solely in the thing or things to re-requisitioned.

To believe in a metallic or other "standard" or identify money with any commodity or "backing" or "coverage" or "reserve" or to attribute value to it is to confess inability to master the money concept. The money concept is a concept in accountancy and is as abstract from value as mathematics. Money is the mathematics of value and is valueless in the same sense that mathematics is valueless. No amount of value can create money, but when men form a compact to trade with each other by means of accounting, in terms of a value unit, a money system is formed, and money springs into existence when any of them, by means of the act of paying for a purchase, incurs a debit in the accounting system. Conversely, money is destroyed by the process of selling in which a credit is earned against the previously incurred debit. Yet value is neither created nor destroyed by the process of creating and destroying money because money is but a concept.

Every lawyer knows when he draws a contract that the real contract exists in the minds of the contracting parties and that the paper and ink are but the evidence of the contract. Likewise, the substance of money is a tradesmen's agreement to carry on split barter. The money instrument is but the evidence and accounting device for split barter, consummated under the tradesmen's agreement.

To be sure, the unit in which it expresses itself involves a special concept; but this concept is in no wise related to the state or politics. It involves no legislation; no executive power; no judicial power of the state. It is but the conception of value abstracted from image, and cast into mathematical relativity. In simple or whole barter we evaluate things by comparing them with each other; and rarity and desirability (the law of supply and demand) influences us in valuing things high or low. It is not necessary in simple barter to realize that all values are multiples of a common denominator which is the minimum unit. In money exchange it is necessary for us to comprehend this before we can master money and determine a unit which permits us to mathematize value.

It is not, however, necessary for us to isolate the minimum unit of value any more than it is to find the smallest physical unit before we understand physics. We need only to know that there is a unit that is the lowest value and that all values are some multiple of that unit. Nor can we conceive of a multiple of the indeterminate lowest value unit except in some physical form and then the multiple is also indeterminate. For practical exchange purposes we must have some valuable object, which contains an indeterminate number of the indeterminate minimum value units, and accept it as our money unit.

We must also realize that there is a maximum value; and this value is life itself, the most comprehensive conception of value that the mind is able to conceive. Between the minimum value unit and the maximum, all values range in relativity. As life becomes invested with more objects of value, each holds a smaller number of the minimum value unit, but the sum total of value of all objects is the same; it is life. Value units are invested in, or divested from, all objects by the minds of men reacting on each other and producing what we call the market price.

It is essential to understand that objectivised value has no fixity, but is constantly in flux under the operation of the law of supply and demand. But, while all objects gain or lose in value, no value is lost; because, under the very concept of value relativity, value that escapes from one object must invest itself in one or more others - and the total remains the same. Understanding the fluidity of value, we will not, of course, manifest the folly of trying to find or create an object of fixed value to adopt as a money unit. Let us now pursue the subject by example.


We will imagine a group of tradesmen joining together to develop a money unit and a money system. They meet at the market place and bring their commodities. Trading is a process of value relativity and this requires a positive pole. When the pole is determined, it becomes the figure one; and thereafter value relativity may operate mathematically. Any one of the commodities in the market could serve as the pole or figure one. We will arbitrarily name the sheep as the trading unit and assume the following table of value relatives.

sheep                 1
barrow of sand        .10
pair of shoes         .50
trousers              1
harness               2
chicken               .10
bushel of wheat       .20
bushel of corn        .10
cow                   3
horse                 5
candle                .01
hog                   1
ounce of gold         5
ounce of silver       .50

One each of all the commodities in this imagined universe of values total 19.51 units or 19.51 times the unit which is the sheep. We will now assume that the same traders bring the same commodities the next trading day and of course in the meantime the law of supply and demand has been operating and values have changed and they range thus:

sheep                 1.10
barrow of sand        .10
pair of shoes         .40
trousers              1.10
harness               2.00
chicken               .10
bushel of wheat       .18
bushel of corn        .11
cow                   2.75
horse                 5.25
candle                .01
hog                   .91
ounce of gold         4.90
ounce of silver       .60

Our universe of values has not changed in total; but the relativity has altered. What was lost by one commodity was picked up by another and this illustrates that nothing is lost and nothing is gained in the sum total - which is life - but some things make up a greater part of the whole and some things lesser. Had we introduced in this hypothetical universe of values, one or more new commodities on the second day or dropped one or more as worthless, the same total of value units would be had. The multiplication of each item by the total supply of that item would make no difference as the supply or scarcity of each is reflected in the price as shown. That, in fact, is what makes the price and the price changes.

But what has become of the unit? Has it changed? Not at all. The unit is not the sheep but the value of the sheep at the time it was adopted as the unit. This demonstrates that while we can initiate a unit only by visualizing some object of value, we cannot freeze that sum of value in that object; since it, like every other object, is in constant value flux under the law of supply and demand.

The unit, once it is adopted, is like a keynote to the orchestra of trade and loses all identity with the object with which it was identified at the outset. This liberation of the unit from the concrete to the abstract is the most difficult concept in the money science; and it is because of its non-comprehension that the standard or fixed value idea has been projected and has almost universally deluded the academic world. The gold standard is stoutly defended by economists and bankers who cannot master the concept of an abstract value unit - and therefore cling in desperation to the standard or fixed value idea, which is an illusion. The common man, on whose mental attitude the whole money practice depends, knows nothing and cares nothing about the fiction known as the standard, because he is not called upon to explain money. It is the so-called thinkers and teachers who thought up the standard idea - because it alibis for their lack of comprehension of the abstract value concept.


There is, of course, no commodity standard; because the law of supply and demand cannot be suspended in favor of any commodity. Price pegging of a commodity such as gold or silver can prevent price variation, and this gives the appearance of stability, but it cannot peg value. In the foregoing list of commodities we have included gold and silver; and, in the second market day example, have shown both to have varied in price. To give the illusion of stability to gold or silver, or any other commodity, it is necessary for some power to make a market for it at a price above its actual value; and thus they seem not to vary. But pegged price is not value. Such a delusive scheme is not possible in a private money system because no private trader would be strong enough to support it; and of course, there is no purpose in it if no one is to be fooled. It is part of the window dressing of the delusive political money system; and can be perpetrated only by a government - since, under the political money system, governments have an endless supply of money to waste on such make-believe.

The whole "standard" idea is concocted under the mistaken belief that the issuer of money is the backer, whereas in reality, it is the seller who backs money. To issue money is the function of the buyer; to back it is the function of the seller - the only one who puts value back of it. The people, by accepting money, have always backed it. The government has merely requisitioned it through taxes, which is the only way it has of retrieving its issue.

In our hypothetical money exchange nothing has, as yet, been said of money instruments, and, before we go into that, it is well to realize that the money concept must come before the money instrument; and that there may be an actual money exchange without instruments. When traders are able to evaluate things in terms of an abstract mathematical unit, they have conceived money; and may carry on money exchange without record or instruments. Of course, this is not feasible to any great extent; but we should understand that money, first of all, is a concept; and that bookkeeping and instrumentation that follows is but the record of transactions consummated in the concept.

If a farmer approaches the village storekeeper with the question; "What are you giving for eggs?" and the store-keeper answers, "a peck of corn or three yards of calico," the trading is on a whole barter basis. But if the answer is, "30 cents" the trading is on a money or split barter basis. A deal may be struck whereby the farmer turns over 5 dozen eggs and gets credit on the dealer's books for $1.50 - against which he orders merchandise - and this method may continue indefinitely without a single money instrument passing between them, and yet these transactions would be perfect money transactions. They would constitute trading by means of money simply because the traders were able to state prices in terms of an abstract value unit. It is important for us to realize that the sum of money instruments used in trade is far from coextensive with the sum of money transactions. Offsetting items are common in business, thus reducing the need for money instruments to settle balances.


Let us assume that our hypothetical community of traders - finding the need for instrumenting their exchange with money instruments - hire a bookkeeper to keep track of their transactions. Each member of the exchange might receive some blank pieces of paper on which he directs the bookkeeper to debit his account, and credit the account of the seller, a specified number of money units or fractions. Nothing need be deposited with the bookkeeper to authorize such orders; and this implies that the traders would be authorized to start the exchange with a bookkeeping debit or over-draft. Let us pause now to realize that money can spring only from a debit and not from a credit, thus showing that the basis of money is a pledge to surrender value on demand - a pledge which, as we shall see later, is a mutual or compound pledge, and not a private debt and which, incidentally a government is not competent to make, because it is not able to redeem it.

If we assume that in a trading day in the hypothetical exchange buyers issued checks in the sum of 950 units; and that each trader deposited his checks with the bookkeeper, the bookkeeper would have 950 units as a total bookkeeping entry but - let us also assume that as he entered them on the accounts of the traders, the offsets showed a net debit of only 50 units to the accounts of those who overbought and the same amount as credits to the accounts of those who underbought. Therefore the actual amount of money in existence at the end of clearance is only 50 units; whereas money transactions to the extent of 910 units have taken place. It is even conceivable that there might remain no debit balance; and hence no money whatever in existence in spite of a healthy money exchange. Money is created by the process of incurring a debit and is destroyed by the process of offsetting a debit.

This demonstrates that the volume of money extant has no relation to the volume of business transacted in its name. The volume of money extant is determined by the amount of deferred spending or "savings" that exists. In the example, those traders with credit balances have a claim upon values held by other traders and these traders who have debit balances are the money issuers and have proclaimed thereby their obligation to other traders. This demonstrates that money, whether evidenced by a bookkeeping record or by currency, is but a medium of evidencing barter balances - and, since it never equals the values that were negotiated in its concept, it is absurd to think of it as having value. Also, it is absurd to think of a reserve or store of value which backs or supports the money extant. It is a claim upon no particular goods and no particular trader but upon any goods in the hands of any trader. In that sense only, is there a store of value back of money instruments, extant and potential. All efforts by ignorant money planners to particularize money, by setting up "redemption funds" and "guaranteeing authorities" are therefore contrary to the real and only purpose of money - which is to enable trade to escape particularization, and to enter into generalization.

The essence of money exchange is a traders' pact to issue money for purchases from any trader and to accept for sales to any trader - not at any fixed prices, but at prices made by the current operation of the law of supply and demand.


To comprehend the use of currency instead of checks in the trading example, we need but visualize a piece of paper or coin, with appropriate legend, requiring no signature by the bearer or identity of the issuer and supplied by the bookkeeper in exchange for a trader's check. The bookkeeper would debit the account of the currency recipient the amount of his check and would credit the account of any trader who turned back the currency. Since the currency could be obtained only by writing a check for it, it would be as much a creation of the check writer as the check. It is thus impossible for money to issue, whether in check or currency form, except by a buyer and the actual issue takes place only in the act of paying.

It will be observed that in our imagined exchange no outside factor has entered; and it is impossible to see how any should enter, or could supply any element lacking by the traders themselves. They have all the values that are traded. They have all the needs that are to be supplied. They have all the powers to form a pact that affects solely their own interests. They take nothing from any one. They interfere with no one's rights. Their trading practices cannot possibly have any adverse affect upon any one except those who are denied thereby an opportunity to exploit them. To be sure, they must establish rules of practice for their exchange; but this too they are competent to do without outside assistance.

The most essential rule they must establish is the determination of the debit or money creating limit for each member. Debit power or money-creating power is the very energy or life blood of the system; and to restrict it unduly would be adverse to all. On the other hand, to distort it by permitting it excessively to some and insufficiently to others would cause maladies. This problem is dealt with in detail in Study No. 7.

Deferring for later consideration the determination of the amount of the money creating power or debit limit to be authorized to each participant in a money exchange, we will now consider the qualifications for such participation. There are two classes of participants in a money exchange. Any person who accepts money, becomes automatically, a participant in the exchange that authorized the money. He acquires thereby the power to requisition value from another participant by merely transferring the money which he has received. Such participant requires no formal membership or further qualification. This class of participants we will call credit power participants. The credit power participant (called Class B in Study No. 9) can buy only after he has first acquired money by selling. He has not the power to create money.

The other class of participants are those who have formally qualified for membership in the exchange and secured thereby the power to buy before selling or in other words, command debit or over-draft power. These participants are the money creators and we will call them debit power members. (called Class A in Study No. 9) To determine the qualification for such participants we must understand the pact with which they establish the money exchange.

The money pact is a mutual pledge of competitive traders to buy and sell in terms of an abstract value unit, and to issue money instruments in terms of such unit within prescribed limits, and to accept such instruments issued by any member of the pact for value at competitive prices.

Competitive traders are put, by competition, on an equality of discipline, which makes them ideal participants in a money exchange as debit power members, because each sees to it that no money is issued except for value received - and no one is enabled to force a price upon another that is not the result of free competition. Thus every money unit issued is backed by actual exchange value; and the unit and the price level remain stable. The disciplinary control of competition qualifies competing traders, as responsible parties, to enter, with others similarly disciplined, into a money pact.

Any trader who, by reason of political grant, is freed from competition is not a desirable participant in a money exchange because he is in position to force money to be issued above the actual free exchange value of his product. This introduces an inflationary element in exchange which tends to raise the whole price level, or, in other words, to alter the power of the unit.


Any monopolist is a disturbing factor in exchange and the worst type of monopoly is political government. Government is a public non-profit enterprise; money is an agency inherently devoted to private profit enterprise and free exchange. Government has no competitive restraints; it does not sell its service by inducement. It makes no over-the-counter bid for its issue. It merely levies upon the wealth of the community without regard to the value, or any means of determining the value, of its services. It has no free exchange method of backing its money issue and lacking that, it is not qualified to issue.

Governments are operated by fallible men who are not individually responsible for their acts, as are men in private life. The reaction from their false action falls upon the citizen and not upon the officials. The paternalism that the political money system has permitted government to affect is the reverse of the truth. The citizen is father and the government is child. The citizens must nurture and discipline government and their exclusive control of the money system is the essential implement therefore. To lose it is to lose sovereignty. A government with money power can free itself from citizen control, and pervert the economy by injecting into it unbacked money.

The cost of government must be borne by private enterprise but government can and should be denied the power to insinuate the cost into the price of commodities and the cost of living. It can and should be obliged to present its costs openly and obviously, so that it will excite the resistance that any excess may justify. To permit government the money creating power is to enable it through an unbalanced budget to increase the cost of living and deceive the citizenry on the actual cost of government and thus free itself from citizen control. It must, therefore, be confined to the status of a credit power participant in exchange. In other words, before it can spend money, it must collect it from the sum already created by the citizens. It must be unable to create money by the debit power which power must be confined to private enterprisers. This compels it to maintain a balanced budget and protects the economy against inflation, which is its worst enemy, and assures the citizen economical and responsible public service.

Thus we see that money mastery means not only economic mastery but also political mastery. It reserves to the citizen-trader the essential part of his sovereignty, and brings both government and business under democratic control.

The proposed exclusion of government from money creating power is stated as an ideal and does not imply that a private money system cannot operate without this as a condition. A private money system will probably have to begin while the political money system is operating; and therefore, the extent of the participation of the state in the private money system will probably not be a question at the outset. Nor does the principle of the governmental non-participation in debit power imply that such participation is ruinous to a private money system. It is perversive, but all money systems in the history of money have been perversive and money systems will operate, no matter how perversive, because a money system of some sort is indispensable and trade will use any system in the absence of a better one.

In conclusion it is perhaps appropriate to define money, and contrast our definition with the orthodox definition or description.

The word money has two meanings:
(a) a concept of abstract value as a unit of computation.
(b) an instrument expressing, in some numeral of the unit of computation, a consummated half barter transaction and involving traders in a pact to accept it in exchange for a value equivalent to that which it mediated in the previous exchange.*

*Trading by means of money may be practiced in the concept (a) and under the pact stated in (b) by means of mental or written record and without the use of negotiable or transferable instruments.

The conventional "definition" of money is as follows:
Money is a medium of exchange; a measure of value; a store of value; and, a standard of value.

This is a statement of four functions that money is supposed to fulfill, in the confused orthodox concept.

MEDIUM of EXCHANGE. This is so broad that it conveys no comprehension. A vehicle, a memorandum, an agent, a verbal intercourse, etc. are media of exchange. If we say "a medium of split barter," the statement becomes definitive, because only money can serve this purpose. The word "exchange" includes whole barter, (in which a commodity and not money could act as a medium) as well as split barter.

MEASURE of VALUE. Money is not a measure of value. Value can be measured only by value and money has no part in the process of evaluation. Having no value, it is not a criterion of value. Money is merely a means of expressing value after it has been determined. Money (the concept) is the language tool of split barter. Money (the instrument) is the evidence of a consummated split barter in the sum of the unit.

STORE of VALUE. This apparently relates to the instrument or record of money credits. To say that it is a claim on value is the nearest concession we can make to the statement. The value that the money instrument or money record holds a claim upon, is in hands other than the money holder and is not stored, pledged or in any way identified, end the extent of its claim thereon is dependent upon the fidelity of the money system. If "store of value" refers to the intrinsic value of coins it is also false. For instance, if a silver dollar contains 36 cts worth of silver, the coin is 64% money and 36% commodity.

STANDARD of VALUE. This approximates "measure of value," but is an effort to capture some of the superstitious quality that attaches to the idea that money rests upon a standard commodity.

These "definitions" are part of the arsenal of abracadabra that help to confound the student and obscure the teacher's ignorance of the subject of money. The two meanings of the word money, the concept and the instrument or record, are indiscriminately mixed in this parrot jargon.

The four cardinal truths of money practice are: The Purpose of Money, The Source of Money, The Backing of Money, and The Democracy of Money.

THE PURPOSE of MONEY is to facilitate barter by splitting each transaction in halves, obviating the delivery of value by one trader (the buyer) and permitting the other trader (the seller) to make requisition for his half upon any trader at any time. This is the sole purpose of money. Any effort to employ it to influence prices or control trade is perversive.

THE SOURCE of MONEY is the trader (the buyer) who receives his half of the barter. Since it arises out of the buying process, and is based upon the evaluation of the acquired value made by the buyer, it is obvious that it can have no other source, and is created only by the act of paying for a purchase.

THE BACKING of MONEY. Money is given its material backing by the seller through acceptance in exchange for value. Its moral backing is the buyer's pledge to accept it for equivalent value in free exchange.

THE DEMOCRACY of MONEY. Since trade is democratic, and since money is an instrument for facilitating trade, and since it can arise only from a trader in the act of buying, and be backed only by a trader in the act of selling, it is obvious that money is an instrument of democracy and the essence of man's sovereignty over business and government.


These declarations involve a complete revolution in the rationalizing of money. For the first time the source of wealth and the source of money are seen to be identical. Heretofore, economics has located the source of production at one point and the source of money at another, with the result that synchronization and balancing of issue between wealth producing power and money power were impossible. Under the valun concept, the two are united, synchronized and made coextensive so that there is never shortage, never surplus and never lag. The individual thus conveys his services with one hand and requisitions his fellow worker's product in equal measure with the other, keeping production and consumption ever in balance at the highest level. This guarantee of mass distribution and consumption is the perfecting factor in the American system of mass production.

The old concept of money is that the worker must first get the consent of a power outside himself before he can requisition value. Thus his purchasing power is restricted and this, in turn, reacts on his selling power and this limits his productive power. In other words, the old method, by limiting buying power necessitated reduction of producing power and defeated mass production, while the new concept permits buying up to the capacity to produce.

There is no purpose in increasing mans capacity to produce, if his capacity to consume is not commensurately increased. As explained in Study No. 7, each of us is his own customer. Every man must buy all he produces, or surpluses develop at some places and scarcities at other places, throwing the economy out of balance. Therefore it is not only the right, but the duty of every man to buy the products and services of others up to the value of his own production. If this is accomplished, our scientific men may develop the mass production technique to the ultimate. If it is not accomplished, they are stymied.

If we can coordinate consumption with production we may develop our mass production to the point where the fullness of production will itself bring about the diminishment of hours of labor, the abolishment of child labor and the labor of the aged, and give us less work and more leisure, until the ideal balance between work and leisure is attained. That our production engineers can do their part in this aim, there can no longer be any doubt. The only question is: will we master money as they have mastered production? If we do not, we defeat them and thwart the attainment of this great social aim and the vindication of the private enterprise system.

[Contents] - [Next section: THE VALUN SYSTEM]

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