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by Free Market Duck

What is paper money?
(May 26, 2007)

Trades do not occur because the commodities are valued equally, but rather because they are valued unequally -- which throws a monkey wrench in the premise that a GDP can be calculated, much like the non sequitur of adding a 6-ft long board plus a 6-ft tall human to get a nonsensical 12-ft human-wood, or whatever.

Boise, ID – Forget everything you think you know about money -- especially if you have a PhD and a Nobel Prize in Economics.

   This is a bold statement but so what?  Pour yourself a hot cup of Rocket Java and let’s go for it.

   Money is a commodity.  And paper money is simply a contract (an invoice, a receipt, a promissory note) for that commodity.

   Human action involves the prioritizing and trading of services or commodities.  In technical economics, the exchange of commodities is actually an exchange of services.  More specifically, we mean service-rendered as determined by each recipient.  Service-rendered is valued differently and unequally, by the way, by each recipient in the exchange according to each recipient’s priority of valuation of that commodity qua its service-rendering effect.  This is, in fact, why value does not reside in labor per se nor within any commodity per se but rather in service-rendered.  (Trades do not occur because the commodities are valued equally, but rather because they are valued unequally -- which throws a monkey wrench in the premise that a GDP can be calculated, much like the non sequitur of adding a 6-ft long board plus a 6-ft tall human to get a nonsensical 12-ft human-wood, or whatever.)

   For example, a million men can dig a million holes in the middle of the desert, performing tons of labor but rendering absolutely no service to anybody.  The value of their labor is zero.  Hence, labor contains no inherent value per se.  Value resides in service rendered as determined by the recipient of the service or the service provided by the receipt of a commodity.  As another example, the Rolling Stones rock and roll group can spend five minutes of labor cutting a new song called “I Can’t Get No Satisfaction” and rake in $100 million.  Very little labor but lots of service rendered, frivolously or not, as freely voted upon by the buyers of the Stones’ hit song.

    So, money is a commodity or, more strictly speaking, a service rendered either directly or by receiving a commodity.

   The fact that money, as a commodity, is frequently referred to as a temporary medium of economic exchange is immaterial to the above definition.  Holding gold or wampum or tobacco until one can exchange it later for another commodity is simply the trader’s decision about whether this action renders a greater service to him at this point in time or not.  Real estate investors can hold 100 rental houses for six months and then sell them later when they think it is more profitable.  We could say that real estate investors are using houses as a temporary medium of economic exchange, or commodity money, in the same manner as Auric Goldfinger holds gold coins as money for future exchanges.  The definition of money remains: it’s a commodity, a commodity that the holder anticipates will render a greater service to him than that which he gave up for it.

   Also, the fact that money is valued for its current holding at a different rate than future holdings does not change the definition of money.  It is still a commodity as defined above and for the same reasons.  Anticipated future value of a commodity, known as interest rates, does not change the nature of the commodity as money.  Only the value changes, not its nature.

   Over the course of history, one commodity has stood the test of time as money.  Gold.  We can add silver to that list, too.  The reasons are manifold.  Besides offering the protection of non-changing physical attributes due to its scarcity and position on the Periodic Table of Elements, chemical properties of not easily being destroyed, easy to shape into round coins or bars, and not easily transmutable from baser elements – as far as we know today – gold has evolved as a natural commodity for money.  This was clearly understood by our Founding Fathers and the U.S. Constitution defines money as a specific quantity of gold or silver at a specific fineness, that is, as a specific quality and quantity of a specific commodity.  Note that the U.S. Constitution also defines money as “coin” and not “paper.”  This is extremely important as you will soon see why.

    Money is a commodity and paper money is simply a contract for that commodity.

   It is extremely important for you to know the difference between a commodity and a paper receipt for that commodity.  Money and a paper receipt for money, such as a dollar bill, is not the same thing.  In other words, gold and a paper receipt for gold is not the same thing.

   Historically, as gold evolved as the dominant form of commodity money, people got tired of hauling the heavy metal around in their pockets.  So, a new business sprang up: banks.  A bank is simply a mercantile warehouse for a specific commodity: gold money.  We’ve had mercantile warehouses since time immemorial for the storage of all kinds of commodities such as wheat, corn, cloth, cars, and you-name-it.  A bank is simply a storage house for gold.  The U.S. Treasury was established as a storage house for our nation’s gold money in order to facilitate trade.

    So, when you haul your heavy gold down to the bank for storage, the bankers issue you a mercantile receipt, an invoice, a CONTRACT, for redemption of your gold at a later date.  They rightfully charge you a small storage fee for their service.  Your paper receipt for the gold is not the same thing as the gold bullion, the money itself, but if everybody trusts the bank’s CONTRACT, its promissory note, to redeem the commodity, the gold, in exchange for the paper CONTRACT, then the paper money itself can be exchanged in the market as a temporary medium of economic exchange instead of the commodity gold.

   Exchanging paper money instead of gold money does not change the definition of money as a commodity or the definition of paper money as a contract.

   Contracts are tradable instruments as long as the terms of the contracts, the promises, do not change.

   Remember that a contract is a legal promise.  That’s why paper money has always been called a Promissory Note, or an I.O.U.  Until the 1970s, the U.S. Treasury certified in its CONTRACT, written on its paper money, the dollar, that there exists on deposit a specific amount of gold or silver, as defined in the U.S. Constitution and its addenda, redeemable to the bearer on demand.  Gold and silver certificates were not money but rather paper receipts for the gold or silver money on deposit in the U.S. Treasury.

   Once again, money is a commodity and paper money is a contract for that commodity.

   This brings us to today, 2007.  Through a series of legislation, Executive Orders, and currency manipulations, the definitions of money as a commodity and paper money as a contract for that commodity have been erased and substituted with, quite frankly, economic voodoo bullshit.  Current economists, unknowingly under the tutelage of a brilliant group of crooks called international central bankers, have spewed forth all kinds of ridiculous definitions of money and paper money.  In fact, the distinction between money and paper money has been cleverly erased in order to trick the masses out of their savings and other hard commodities.

   Economists are now trained as governmental interventionists in specific categories of the economy, such as agriculture and hydro, and not as qualitative monetary theorists or scientists of human action.  Economics has now evolved into a voodoo science of quantitative differential equations, erroneously attempting to emulate the Scientific Method of physics and chemistry in a vain attempt to make it “more valid,” instead of a study of qualitative exchange theory, which, in reality, is what economics is all about:  qualitative human action, not quantitative history of differential equations.

   Here’s a good example of how the definitions of money and paper money have changed.  Later I will explain why, exactly, central bankers such as the private Federal Reserve have redefined money and paper money, and purposely blurred the distinction.

   The Federal Reserve economists, over the years, have stripped important contractual words off your U.S. dollar contracts.  The Federal Reserve Note is now NOT A CONTRACT for anything.  It is not a promissory note.  It is not an I.O.U.  It is not a paper receipt for anything stored at a bank or at a mercantile warehouse.  The words, “promise to pay the bearer upon demand,” are missing.  The words, “gold” and “silver,” are missing.  The words, “certifies that there is on deposit,” are missing.  In other words, the U.S. dollar is not only NOT MONEY, it also is not PAPER MONEY because it is not a paper receipt for anything.  It is not an invoice for the storage of a commodity.  The definition of money as a commodity and paper money as a contract for that commodity have cleverly been extinguished and morphed into a new absurd and contradictory definition of money:  a non-collateralized Federal Reserve Note not representing anything but thin air and not redeemable or even promised to be redeemable for anything except more paper Federal Reserve Notes, which is a recursive definition of itself.

   Federal Reserve economists claim that’s OK.  Federal Reserve Notes, they claim, are backed by America’s Gross Domestic Product (GDP).  But that’s not true because the Federal Reserve, a private banking corporation, does not own America’s GDP.  Individual Americans own America’s GDP, which are all the commodities in the U.S.  Therefore, the Fed cannot use other people’s commodities as collateral for their Federal Reserve Notes unless everybody brings their beer bottles, diapers, food, clothing, houses, and cars down to the Federal Reserve for storage and receive paper receipts, CONTRACTs, for future redemption of those commodities.  Last time I heard, the Feds are not storing Budweiser and Fords in the basement of their banking facilities.  The concept that Federal Reserve Notes are backed by, collateralized by, America’s GDP is absurd.  In fact, the concept of a GDP is a false concept created after destroying the fundamental concepts of money as a commodity and paper money as a contract for that commodity.  Other false economic concepts include trade deficits, trade surpluses, etc. and exist only within the false precursor current definitions of money and paper money as “whatever the Feds say it is.”

    Why would central bankers want to confuse everybody about the definition of money and paper money?

   Power and riches.

   Picture this.  You own a house and a car.  You have a deed to your house and a pink slip for your car.  The house and cars are commodities.  The deed and pink slip are paper receipts, ownership contracts.  The deed to your house is not the house itself.  The pink slip for your car is not the car itself.  Similarly, paper money is not the money itself.  But what if it was legal for you to make 1,000 copies of the deed to your house and 1,000 copies of the pink slip to your car?  And then you sold – or loaned out at interest, let’s call it fractional reserve banking -- each or the 1,000 paper receipts to your house and car, which are now counterfeits, to 1,000 unsuspecting buyers in the local market.  You have just sold fake paper contracts to 1,000 people and made a fortune because 1,000 people can’t all redeem one house and one car.

   Let’s make the above example more realistic.  After you sell the 1,000 counterfeit deeds and pink slips, you pass a law that erases the words “ownership” or “redeemable” for one house and one car from the counterfeit deeds and pink slips.  Now what do the counterfeit deeds and pink slip contracts represent?  They are not promissory notes, or ownership contracts any longer.  Guess what?  This is exactly what the central bankers of the private Federal Reserve – with the help of your U.S. Congressmen – have done to America’s non-backed, non-redeemable, U.S. dollar.  The current Federal Reserve Note is now a counterfeit non-monetary non-contract.  It is not money and it is not paper money.  It is now “fiat” or “forced” money that can easily be manipulated, hyper-inflated, increased or decreased in volume, or issued as funny paper money or as deficit credit to pay for whatever the central bankers, U.S. Congresscrooks, and special interest groups, the 35,000 lobbyists in Washington DC, want to buy.  But the major theme of all the churning of the Fed’s infinite vehicles of monetary manipulation is:  to cleverly transform YOUR commodities, your savings, into the central bankers’ commodities WITHOUT YOUR KNOWLEDGE OF THIS TACTIC.  This is a very clever Ponzi Scheme.

   Has it worked?  Has the Fed tricked most Americans into losing most of their savings and hard-earned commodities by simply redefining the definitions of money and paper money?

   You bet.  And all the churning of fake, counterfeit paper money including monetized Federal Reserve debt and credit, derivatives, the Yen carry trade, black box trading, hedge funds, ETFs, sub-prime mortgages, federal student loans, Fannie Mae, Freddie Mac, and all the subsidies from the U.S. Congress’ billions of dollars of earmarks attached to Welfare State deficit spending and wars such as in Vietnam and Iraq is the result of Americans not understanding or being able to define what money and paper money really are.

   Now you know.  And now you know why a loaf of bread, a gallon of gasoline, and the median price of a house and car and education and all commodities are skyrocketing – relative to the unit dollar, the Federal Reserve Note, but not relative to gold -- across America and, indeed, the entire world.  International central bankers, including the private Federal Reserve, are hyper-inflating your redefined non-contractual paper money to cleverly rob you.

   And you fell for it.

   But now you don’t have to fall for it.

   Now you have no excuse for not knowing or not acting.

   Money is a commodity and paper money is a contract for that commodity.

   The only thing that remains is:  so what are you going to do about it?

Footnote:  Paper money includes any contract such as “real bills” used in short term business contracts or 100% gold-backed certificates.  The form of the contract, verbal or written, makes no difference in the above definitions as long as the contractual promise is adhered to.  My personal view, however, is that verbal contracts are not worth the air they’re written on. – FM Duck

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