What is money? It seems to me that too many people have no idea of what it is, and why we use it. Let us go back in time several millennia and study the origins of money. The following history lesson was excerpted from The High Price of Socialized Medicine.
Og, Kanook, Neewob, and Gar each made spears to hunt mastodons for the meat and fur. Soon they came to realize that Og was really good at shaping and sharpening the heads of the spears, and Kanook excelled at making nice straight smooth shafts, but Gar’s methods of attaching the heads to the shafts were best. Neewob was far and away the best hunter of mastodons. He could really throw that spear into the X ring on a mastodon. Therefore they decided to specialize.
Og’s spearheads were not lost or broken at the same rate as Kanook’s shafts. The attachments did not last the same as either. And those mastodons sure took a long time to eat. They could not just keep trading one thing for another. Gar could attach the heads and shafts, in exchange for a mastodon from Neewob, but he still had plenty of meat from the last one. So they developed money to help the barter system along. They found some rare seashells that they exchanged and the various items were assigned different values.
We have become even more specialized in our day than they were in Og’s day. Simple barter would not work. Imagine that you want an iPod. Your specialty is painting houses. You find out who succeeded Steve Jobs, and offer to paint a small bit of his house. Too late, he already exchanged iPods to three thousand other house painters, and there are no little bits of his house left needing painting. You need some means of currency to facilitate the exchange.
You paint somebody’s entire house, and they give you those certificates of service(1) that we call dollars. You then use those certificates of service to exchange for an iPod, and whatever else you want to buy with the remainder. The owner of Apple can then pay his employees, and they can buy food or clothes or whatever they need.
Money is therefore nothing more or less than certificates of service. It came into being through the need for a separate currency to simplify barter of goods and services.
Following Og’s time, better forms of currency were developed than the shells they used. That was because Kanook found a large deposit of those supposedly rare shells. He now had thirty times the amount of shells as were previously in circulation. He did not have to do anything to obtain the services of others; he simply gave up some of his shells of which he had a lot more.
Now the group had nobody that was good at making really straight, smooth shafts for their spears. Their money had decreased to 1/30 of its original value. It used to take 3 shells to buy a good spearhead, and now it took 90, because of Kanook’s inflating of their money supply. They had to find another form of currency.
Advancing societies eventually settled on gold as currency, for several reasons. It was scarce. It was easily divisible. It could be easily transported and exchanged. Gold, and other rare metals such as silver, became the currency that people used to exchange goods and services. The situation remained stable for millennia. The value of gold has remained approximately the same for centuries; in terms of what it can buy.(2)
While the value of gold has been fairly constant, our paper “dollars” have dropped precipitously in value for the past century. That is because of what governments have done to money.
After people had been trading gold for centuries, banks started offering gold certificates – paper notes that could be carried instead of gold, but which could be exchanged at the bank for the gold that they certified. People could then carry those notes, which were much lighter, and then exchange them later.
Then along came governments, including the United States government, which also issued gold or silver certificates like the banks did. The difference is that they passed laws that said people had to take their certificates as money, or they would be imprisoned. Resisters, of course, would be shot. People decided to take the government gold certificates, rather than being shot. After all, they could always exchange them for gold.
After enough time passed for people to get used to the government-issued gold certificates, the United States government said the certificates could no longer be exchanged for gold or silver. People would still be required to take them, however, or they would be imprisoned. Once again, resisters would be shot. They also forced everybody to give any gold they had to the government. People complied rather than being shot.
Now, “dollars” were no longer backed by anything more than the confidence of people that other people would still honor them. They could still be useful as certificates of service, so long as Kanook Jr. was not put in a position of authority in the banking cartel called the Federal Reserve. Unfortunately, he was.
Those paper certificates that we now call dollars have been printed in massive quantities. At the time that the Federal Reserve was instituted, 1913, a dollar was worth 1.64 grams of gold.(3) Now a dollar is worth only 0.023 grams of gold,(4) or 1.4% of the value in 1913. Remember, gold has remained roughly steady in value. “Sound as a dollar” is a phrase that we no longer hear except in classic movies.
Kanook Jr., Alan Greenspan, Janet Yellen, et. al. have been printing our modern certificates of service so that they can use them to pay for things the American people would never willingly pay for if they knew the cost. It is usually done now by the Federal Reserve digitally creating money with which they buy the Treasury notes that the U.S. Treasury prints. It amounts to the same thing as printing new dollars.
Certificates of service are being printed to give to people who provide no service to others, through our many forms of welfare. These certificates have been used to pay for a century of war, the like of which would astonish the founders of our country. We now have soldiers in 135 countries around the world.(5)
Our welfare-warfare state would never have been willingly paid for by productive members of society, if they knew the full cost. Therefore Kanook Jr. came along and inflated our money supply with relatively worthless paper dollars to pay for these things.
Now people are being taxed without knowing it. If Kanook Jr. and company at the Federal Reserve double our money supply, each dollar is worth 50% less, with the government keeping the remainder. The typical poor sap in America does not know he has been taxed 50%. He might recognize that goods cost twice as much as they used to, and blame the people that sell. He might rant and rail against evil capitalists for charging high prices. He does not figure out that the government stole half his money.
Your ability to make a good living reflects the value of your service to others. Some, like me, choose to charge less than they are worth (proven by tips), but your ability to do so means that you are valuable to others. If you learn a more valuable skill, then people will voluntarily pay you more.
Some people think that government should mandate what labor is worth, or what products are worth, and try to force their values onto the people. After learning what money truly is, it should be obvious why that approach cannot work. Attempting to distort the value of a part of the economy upsets the equilibrium, and distorts the value of everything else. Hugo Chavez created a “National Superintendency of Fair Costs and Prices,” which threw the economy of Venezuela into chaos. People are now starving. Bernie Sanders wanted to do the same thing on the opposite side of the equation, by declaring fair wages. That would also result in economic distortions and poverty.
If government gets out of the way, then prices and wages reach their true value, and people have incentive to produce what is valuable to others. Society prospers, as has been proven in America in every realm where the free market has been allowed to operate unfettered. Choose freedom. Choose prosperity. Choose happiness.
1. Walter Williams developed this idea, calling dollars “certificates of performance.” See “Understanding Liberals,” at townhall.com/…/walterewil…/2011/05/18/understanding_liberals
2. “The Golden Constant,” at ekishek.com/index.php…, and www.pricedingold.com
3. “Historic Gold Prices – 1833 to Present”, National Mining Association, at nma.org/pdf/gold/his_gold_prices.pdf
4. Gold on September 24, 2013 was posted on goldprice.com as selling for $1325 per troy ounce. 1 troy ounce is 31.1 grams.?
5. Laurence M. Vance, “The U.S. Global Empire,” March 16, 2004, at www.lewrockwell.com/…/l…/the-us-has-troops-in-135-countries/
