The Economic Rape of America - Chapter One

WHAT IS MONEY?

Abraham was very rich in livestock, in silver, and in gold.
Genesis 13, verse 2

"The definitions, or descriptions, that have been applied to money are legion. They range from those which carry the implication that [the love of] it is the root of all evil to those who regard it as manna from heaven. Some have argued that it does not matter, others that it matters too much. Money has been described as a political, or sociological, phenomenon, as a mechanism, as a mirror, as a religion, as a myth, as a means of communication which reduces complexity and as a distortion which increases it, as the curse of the miser and the elixir of the spendthrift, as a means to all ends and as an end in itself, as barren and as all-powerful, as inert or neutral and as "the drink which stimulates the economic system to activity," as the tool of social progress and as an obstacle to it."
-- S. Herbert Frankel, 1977

To properly understand the extent of the economic rape of America, how it is being perpetrated, and who does it, we need to understand a few things about this curious thing or phenomenon we call "money."

ANDREW CARNEGIE'S EXPLANATION

"I suppose everyone who has spoken to or written for the public has wished at times that everybody would drop everything and just listen to him for a few minutes. I feel so this morning, for I believe that a grave injury threatens the people and progress of our country simply because the masses - the farmers and the wage-earners - do not understand the question of money. I wish therefore to explain "money" in so simple a way that all can understand it."

So wrote Andrew Carnegie, the steel magnate, around the turn of the century - I guess. I have an undated 28-page booklet by him called The A B C of Money. The booklet is not copyrighted, so I shall quote from it extensively. First, Carnegie explains why "money" comes about and what it really is.

In "primitive" societies barter develops because some people have things that others want, and some people do certain things better than others. Specialization and division of labor occur. One person becomes a shoemaker, another a farmer. The farmer exchanges ten bushels of wheat for a pair of shoes. Both parties gain from the transaction. It would take the farmer five times as long to make a pair of shoes, compared to the shoemaker, and it is not even practical for the shoemaker to attempt to grow his own wheat.

As society develops, someone gets the idea of becoming a "barter specialist" and opens a store. His store becomes a center for barter. Spontaneously, in every society, some article becomes the "basis-article" that turns out to be most convenient for exchange and for expressing the value of other articles. In Pennsylvania that article was wheat; in Virginia, Maryland, and North Carolina it was tobacco. There was a saying, "As good as wheat." Tobacco remained a basic money in Virginia and its neighboring colonies for nearly two centuries.

Our modern word "pecuniary" comes from "pecunia," the Latin word for "cow." Our word "fee" comes from the German word "Vieh," meaning cattle. In several societies cattle spontaneously came to serve the function of money. In other societies salt, silk, dried fish, feathers, stones, cowrie shells, beads, cigarettes, cognac, whiskey, sheep, goats, and horses have been used as money. The early American settlers used the "wampum," a form of shell, to trade with native Americans. Now back to Carnegie:

"... [I]n all cases human society chooses for that basis-article we call "money" that which fluctuates least in price, is the most generally used or desired, is in the greatest, most general, and most constant demand, and has value in itself... An article is not first made valuable by law and then elected to be "money." The article first proves itself valuable and best suited for the purpose, and so becomes of itself and in itself the basis-article - money. It elects itself.

We take one step further. The country becomes more and more populous, the wants of the people more and more numerous. The use of bulky products like wheat and tobacco, changeable in value, liable to decay, and of different grades, is soon found troublesome and unsuited for the growing business of exchange of articles, and they are therefore unfit to be longer used as "money." You see at once that we could not get along today with grain as "money." Then metals proved their superiority. These do not decay, do not change in value so rapidly, and they share with wheat and tobacco the one essential quality of also having value in themselves for other purposes than for the mere basis of exchange. People want them for personal adornment or in manufacture and the arts - for a thousand uses; and it is this very fact that makes them suitable for use as "money." Just try to count how many purposes gold is needed for, because it is best suited for those purposes. It meets us everywhere. We cannot even get married without the ring of gold.

... We have proceeded so far that we have now dropped all perishable articles and elected metals as our "money"; or, rather, metals have proved themselves better than anything else for the standard of value, "money." But another great step had to be taken. When I was in China, I received as change shavings and chips cut off a bar of silver and weighed before my eyes in the scales of the merchant, for the Chinese have no "coined" money. ... [Y]ou can well see how impossible it was for me to prevent the Chinese dealer from giving me less than the amount of silver to which I was entitled... Civilized nations soon felt the necessity of having their governments take certain quantities of the metals and stamp upon them evidence of their weight, purity, and real value. Thus came the "coinage" of metals into "money" - a great advance. People then knew at sight the exact value of each piece and could no longer be cheated, no weighing or testing being necessary. Note that the government stamp did not add any value to the coin. The government did not attempt to "make money" out of nothing; it only told the people the market value of the metal in each coin, just what the metal - the raw material - could be sold for as metal and not as "money."

But even after this much swindling occurred. Rogues cut the edges and then beat the coins out, so that many of these became very light. A clever Frenchman invented the "milling" of the edges of the coins, whereby this robbery was stopped, and civilized nations had at last the coinage which still remains with us, the most perfect ever known, because it is of high value in itself and changes least...

Although one would think that in coined metal pieces we had reached perfection, and that with these the masses of the people could not be cheated out of what is so essential to their well-being - "honest money" - yet one way was found to defraud the people even when such coin was used. The coins have sometimes been "debased" by needy governments after exhausting wars or pestilence, when countries were really too poor or too weak to recover from their misfortunes. A coin is called "debased" coin when it does not possess metal enough to bring in the open market the sum stamped upon the coin by the government. There is nothing new about this practice, which always cheats the masses. It is very, very old. Five hundred and seventy-four years before Christ the Greeks debased their coinage. The Roman Emperors debased theirs often when in desperate straits. England debased hers in the year 1300. The Scotch coin was once so debased that one dollar was worth only twelve cents. The Irish, the French, German, and Spanish governments have all tried debased coin when they could wring no more taxes directly out of their people, and had therefore to get more money from them indirectly. It was always the last resort to "debase" the coinage. These instances happened long ago. Nations of the first rank in our day do not fall so low. I must pause to make one exception to this statement. I bow my head in shame as I write it - the republic of the United States. Every one of its silver dollars is a "debased coin." When a government issues "debased coin," it takes leave of all that experience has proved to be sound in regard to money. Sound finance requires the government only to certify to the real value possessed by each coin issued from its mints, so that the people may not be cheated. Every time the government stamps the words "One Dollar" upon 371 1/4 grains of silver, it stamps a lie; disgraceful, but, alas! too true, for the silver in it is worth today not a dollar, but only seventy-eight cents.

Another delusion about money has often led nations into trouble - the idea that a government could "make money" simply by stamping certain words upon pieces of paper, just as any of you can "make money" by writing a note promising to pay one hundred dollars on demand. But you know that when you do that, you are not making "money," but making "a debt"; so is any government that issues its promise to pay. And there is this about both the individual and the government who take to issuing such notes on a large scale: they seldom pay them. The French did this during their revolution, and more recently the Confederate States "made money" at a great pace, and issued bonds which are now scarcely worth the paper they are printed upon. Every experiment of this kind has proved that there can be no money "made" where there is not value behind it...

But I am now to tell you another quality which this basis-article of metal has proved itself to possess... The whole world has such confidence in its fixity of value that there has been built upon it, as upon a sure foundation, a tower of "credit" so high, so vast, that all the silver and gold in the United States, and all the greenbacks and notes issued by the government, only perform eight percent of the exchanges of the country. Go into any bank, trust company, mill, factory, store, or place of business, and you will find that for every one hundred thousand dollars of business transacted, only about eight thousand dollars of "money" is used, and this only for petty purchases and payments. Ninety-two percent of the business is done with little bits of paper - checks, drafts. Upon this basis also rest all the government bonds, all state, county, and city bonds, and the thousands of millions of bonds the sale of which has enabled our great railway systems to be built, and also the thousands of millions of the earnings of the masses deposited in savings-banks, which has been lent by these banks to various parties, and which must be returned in "good money" or the poor depositor's savings will be partially or wholly lost.

The businesses and exchanges of the country, therefore, are not done now with "money" - with the article itself. Just as in former days the articles themselves ceased to be exchanged, and a metal called "money" was used to effect the exchanges, so today the metal itself - the "money" - is no longer used. The check or draft of the buyer of articles upon a store of gold deposited in a bank - a little piece of paper - is all that passes between the buyer and the seller. Why is this bit of paper taken by the seller or the one to whom there is a debt due? Because the taker is confident that if he really needed the article itself that it calls for - the gold - he could get it. He is confident also that he will not need the article itself, and why? Because for what he wishes to buy the seller or any man whom he owes will take his check, a similar bit of paper, instead of gold itself; and then, most vital of all, everyone is confident that the basis-article cannot change in value...

... The question is, How long could you get people to take these slips for dollars? How soon would some suspicious man suggest that you were issuing too many? And then these slips would lose reputation; people would begin to doubt whether you could really pay all the dollars you promised if called upon; and from that moment you could issue no more. Just so with governments: All can keep their small change afloat, although it may not contain metal equal to its face value; and it is a poor government which cannot go a little further and get the world to take something from it in the shape of "money" which is only partially so... Every nation has had eventually to recoin its "debased" coin or repudiate its obligations, and go through the perils and disgrace of loss of credit and position. In many instances the "debased" coin never was redeemed, the poor people who held it being compelled to take the loss.

... Upon the solid rock of gold as our basis-article we have built up the wealthiest country in the world, and the greatest agricultural, manufacturing, and mining and commercial country ever known. We have prospered beyond any nation the sun ever shone upon. In no country are wages of labor so high or the masses of the people so well off. Shall we discard the gold basis, or even endanger it? This is the question before the people of the United States today."

All the above quotations are from Andrew Carnegie's The A B C of Money. The following section is partially based on The Biggest Con: How the Government is Fleecing You by Irwin A. Schiff.

THE FUNCTIONS OF MONEY

According to Schiff, "Money, like the wheel, was one of mankind's most important inventions... Because of the development of money, which facilitated and accelerated the exchange of goods and services and made specialization and division of labor possible, productivity increased and thus living standards rose. The sounder a nation's money, the more efficient would be its economy and the faster would its standard of living grow."

Sound money performs four basic functions:
1. It serves as a standard of value or a unit of account. At present the U.S. Dollar still performs this function. When we see something priced at $10 we have an idea of its value and how that value compares to the value of something else. Companies keep their accounting records and issue their financial statements, using the dollar as unit of account.

2. Money serves as a medium of exchange. As Carnegie and Schiff explained, money facilitates exchange. The U.S. Dollar also still performs this function. There are several reasons why the dollar is still used as a medium of exchange:

3. Money provides mobility of value. Because of our superb communications, the dollar can be wired almost instantaneously to any part of the world - value being "transported" from one place to another. Money also makes it possible to obtain value in the present in the form of a loan or credit, and to repay the value in the future - another aspect of mobility of value.

4. Money serves as a store of value; it makes it possible to "transport" value into the future. Because of the rapid rate at which the dollar loses its value, it no longer serves as a store of value into the future. Every month the dollar loses some of its value. As we shall see in Chapter Four, the loss of value is considerably greater than "measured" by government statistics, like the consumer price index.

STATE, RELIGION, AND MONEY

Many of the original American settlers were religious rebels. In England and Europe they had been persecuted for practicing "illegal religions." For example, William Penn, the famous Quaker who gave his name to Pennsylvania, was prosecuted in England for preaching an "illegal religion."

The American settlers wanted to be free to practice the religion of their choice. They certainly did not want the state to dictate to them what their religion should be. Our Founding Fathers established the principle called "separation of church and state." The state has no business interfering with people's religion or dictating what their religious beliefs should be. This principle has been repeatedly upheld by the U.S. Supreme Court. This is why prayers are not allowed in state schools.

Now stretch your imagination. Imagine that the original American settlers were "money rebels" rather than religious rebels. They had been persecuted for using the money of their choice. They came to America to achieve monetary freedom. People had an inalienable right to use the money of their choice. Our Founding Fathers established the principle of the "separation of money and state." The state had no business interfering with people's money or dictating to them what their money should be.

Not so long ago, in Russia, atheism was the "state religion." Other religions were declared illegal. People practicing the religions of their choice were persecuted.

At the time of the Revolutionary War, the Continental Congress considered decreeing the death penalty for anyone who refused to accept the "lawful money" - Continental Dollars - they issued. That is where the expression "not worth a continental" comes from.

Today, in America, the paper dollar is the "state money." There are "legal tender laws" which essentially decree that people must use the paper dollar as money and other kinds of money are illegal. People who use the money of their choice are persecuted, prosecuted, and jailed. The members of the National Commodity and Barter Association use gold as money. During the past few years their branches across the country have been raided by armed government agents. Their gold, equipment, and records have been confiscated; their members persecuted, prosecuted, and jailed...

Hans F. Sennholz, author of Age of Inflation, was asked in the context of currency reform after World War II in Germany, what he would do if he had the power to reform the currency. His reply:

"When pressed for his proposal for a currency reform, this writer must confess that he would have conducted the simplest reform of all. He would pass no reform law, seek no conversion or parity, and offer no government cooperation. He would merely cease and desist from interfering with the inalienable rights of man. In particular, he would immediately restore all economic freedoms and repeal all legal tender laws. The freedom to trade and hold gold, the freedom to use gold in all exchanges, and the freedom to mint coins would bring forth the ideal currency to which all others would repair."


WHAT, THEN, IS MONEY?

In this report the term "money" will be used to refer to whatever people freely choose to serve as their medium of exchange. The term "fiat money" will be used to refer to what people are forced by government decree to use as medium of exchange. The Latin word "fiat" means "let it be done." The U.S. dollar is fiat money. (Similarly, in Russia atheism was the "fiat religion" people were forced to adopt by government decree.)

The term "currency" will be used to include all the items people use in practice as a medium of exchange. It includes money, fiat money, checks, drafts, bonds, etc. I will use the term "currency supply" (where most people say "money supply") to refer to the total currency in circulation.

In a free market people choose their money. There is competition between different kinds of money. Over time, people come to prefer and use as money that which best fulfills the functions of money outlined above. Historically, people have chosen gold and silver as money. The Bible is replete with examples.

It is quite possible that monetary theorists, such as C.H. Douglas (Social Credit), Sylvio Gesell (The Natural Economic Order), Henry Meulen (Free Banking), and E.C. Riegel (Private Enterprise Money), will devise forms of money that will prove superior to gold and silver. In a free market all such "advanced moneys" will have the opportunity to prove themselves. However, as workable money, only gold and silver have passed the test of history.

"I deny the power of the general government to making paper money, or anything else a legal tender."
-- Thomas Jefferson

"The terms 'lawful money' and 'lawful money of the United States' shall be construed to mean gold or silver coin of the United States." (12 USC 152)

"Legal tender is quite different from lawful money. In no U.S. law are Federal Reserve notes declared to be "lawful money." Lawful money is that money described in the Coinage Act of 1792 and in Article I, section 10 of the U.S. Constitution: gold and silver... the only money the Supreme Law of the Land allows states to make legal tender."
-- Tupper Saussy, 1980

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