HONEST MONEY
What It Is and What It Isn't
Problems with Debt-Money, Part 7
by Douglas V. Gnazzo
May 6 2006
[ Previous parts: 1, 2, 3, 4, 5, 6 ]

Abstract

Before proceeding to a discussion of the problems with today’s monetary system of paper fiat debt-money, more commonly known as Federal Reserve Notes, we first want to reiterate the five most important attributes or functions of money:

1. Medium of exchange
2. Measure of value
3. Standard of value
4. Store of value
5. Legally accepted means of payment of debt

A sound monetary system is one in which the money-unit performs all of the above functions:

1. The money-unit most be usable as a medium-of-exchange for everyday  transactions.

2. The money-unit must be a measure-of-value – that by which market  participants compare or measure the value of all other goods by in the present.

3. The money-unit must be a standard-of-value – that by which all other goods are compared to not only in the present but in the future as well. Market participants must know the money they use now will be as good in the future as it is today.

4. The money-unit must be a store-of-value. This function follows from the money unit being a standard of value. Because it is a reliable standard of value, money is the perfect vehicle to save or store purchasing power needed in the future.

5. The money-unit must be accepted by all participants in the marketplace, including the State, however, the State should not issue the money unit. It is imperative that the State accepts the money unit as payment for taxes, etc. to the state, without having anything to do with its issuance.

Problems with Money

The main problems with the present day U.S. Federal Reserve Notes or dollar bills are:

Legal tender status for Federal Reserve Notes should not exist, unless approved by We The People by a constitutional amendment.

The State approved monopolization of the credit and money supply by the Federal Reserve should not be allowed without the approval of We The People.

The lack of a non-political free market unit-of-account without forced legal tender laws using the power of the State for enforcement.

The unit-of-measure-of-value and the means-of-payment are presently two different things.

The former is a measure, like an inch or a pound; the latter is either a commodity or a credit instrument. They should be the same entity.

The use of fractional reserve lending should either be abolished or approved of by the people through a constitutional amendment, including full disclosure to the public on exactly how it works, and a choice if the people want to use it or not.

Honest Money of silver and gold weight is not to have anything to do with fractional reserve lending.

The Money-Unit

We offer a somewhat different definition of the money-unit compared to most conventional monetary theory of the establishment, i.e. the State. Others know of the definition that we are about to set forth; unfortunately, they are voices in the wilderness, seldom heard.

The money-unit is that instrument/commodity that the free market by consensus agrees to use as money: money that fulfills all five (5) of the functions we have previously listed.

To reiterate, so there is no question or confusion on the subject:

1. Medium of Exchange
2. Measure of Value
3. Standard of Value
4. Store of Value
5. Legally Accepted Means of Debt Payment

Only the money-unit that can fulfill this multi-complex role is worthy of the distinction and honor as the money-unit. Honest and Sound Money should fulfill all five functions or major aspects of money simultaneously.

Defective Federal Reserve Notes

Today’s Federal Reserve Note is clearly not a store of value, as it has lost 95% of its purchasing power since 1913, the year the Federal Reserve took control of our money supply.

It is not a standard of value as it continually loses purchasing power through the debasement and devaluation of the currency. This is why it does not function as a store of value.

Presently it functions as a measure of value and a medium of exchange, as well as the legally accepted means of payment of debt.

However, this too can change at any moment, as all that keeps the system going is faith – confidence that the money will continue to be accepted.

When the flicker of faith begins to wane – the flame will be snuffed out in an instant. Paper fiat currencies have been know to hyperinflate in a few weeks time and self-destruct in the process.

Regarding the last function concerning debt payment: we are of the opinion that the Federal Reserve Note is a debt instrument itself, and therefore cannot truly pay off debt.

It merely serves as the means to transfer debt from one account to another and to discharge debt by offset as well. Double-entry bookkeeping is not the blessing most believe; it is but a harbinger of that which has yet to come.

Besides, the five (5) original functions of money, to be Honest and Sound Money the money-unit most also perform the two following roles as well:

Unit-of weight
Unit-of-Account

Unit-of-Account

The unit-of-account is a unit of measurement of market value. Goods for sale in a market are priced using a unit-of-account. Value is measured by the seller and communicated to the buyer as a price denominated in the unit-of-account.

Accepted units-of-account can evolve from the natural dynamics of a free market or they can be forced upon the people through legal tender laws.

Obviously a unit-of-account that is forced upon the public by legal tender laws is inferior to a unit-of-account that the public freely chooses by common consensus based on free market principles of supply and demand, marginal utility, and objective exchange valuation.

The use of gold and silver occurred according to natural free market principles. Paper fiat debt-money only occurs because of forced legal tender laws where the judicial, military and police power of the State stand ready to enforce the Kings prerogative.

When the value of a good is accepted by common consensus, to measure or compare the value of other goods; or when its value is used to denominate the payment of debts, then the commodity is said to be functioning as a unit-of-account.

Contracts of credit or debt are also denominated in a unit-of-account. The agreed value of the debt is measured, and the method of settling the debt is defined.

Once again – if legal tender laws are making the determination as to what the accepted unit-of-account is then whatever choice the State makes is inherently inferior to the choice made by a consensus of free market dynamics.

Freedom vs. Force

Freedom always works better than forced obedience. One should lead by respect not by fear. We are supposed to live in the country that is the home of the free and the brave, not the enslaved and the dominated, no matter how clandestinely it occurs.

A debt instrument or an IOU should not be used as a unit-of-account,

as its value is determined by comparison to an external reference value: an actual unit-of-account that may be used for settlement;

or worse yet: the unit-of-account is merely expressed by a name
for which there is no actual monetary definition other than the name.

An example would be the U.S. Dollar Bill, as when former Chairman Alan Greenspan was asked what the definition of money was he had no specific reply. Why didn’t he reply – what is a Federal Reserve Note if not money?

The U.S. Code states that Federal Reserve Notes are redeemable in lawful money. If they are redeemable in lawful money, then apparently they are not lawful money, otherwise why would they need to be redeemed in lawful money – if they already were such?

Nowhere in the U.S. Code is there a definition of what is meant by lawful money. Seems like such an important value should be well defined and clearly understood – doesn’t it?

The Constitution has a clear definition of money: the dollar (not dollar bill – dollar), and furthermore the Constitution states that nothing but gold and silver coin are to be legal tender.

The original Coinage Act of 1792 clearly defines a dollar as being a weight of silver – 371.25 grains of pure silver, which weight constitutes the existing SILVER STANDARD.

Hence, in a free market, the various names that units-of-account may have are simply

Definitions of units-of-weight – honest weights and measures.

Unit-of-Weight

The unit-of-weight is simply what it says: a unit-of-weight of a specific finesse of silver or gold per the Constitution and the Coinage Act of 1792.

No other names should appear on the money-unit other than its unit-of-weight.

There is no need or use for the name a dollar or 10 dollars or 20 dollars, or a yen or euro or pound. Such names do nothing more than add confusion and complexity to a most important distinction that should be as pure and simple as is possible.

The unit-of-weight is the purest and simplest standard. The Constitution calls for gold and silver coin, according to honest weights and measures. The Coinage Act of 1792 defines the standard weight to be 371.25 grains of pure silver.

The Silver Dollar Is Defined as the Constitutional Dollar

The Coinage Act of 1792 also delineates a bimetallic currency of both silver and gold coin according to weight.

However, it fixed the legal exchange rate of the two metals. This only hinders the monetary system as the legal rate is one thing, and the market price is another. 

As we have said, all functions should be the same, including the legal rate and the market rate.

Both should float according to free market dynamics as determined on a daily basis. This is the purest, simplest, and most honest way – hence it provides the soundest monetary system.

Not only will this remove confusion as to what money is, but it will also prevent those in control of the money power from manipulating the money-unit. Hence, they will lose control of the money power.

What can be simpler than to call an ounce of gold an ounce of gold? What can be easier than calling an ounce of silver an ounce of silver?

The market can determine daily what the exchange rate of the two metals is according to free market principles of supply and demand.

No one man, or group of men can possibly know what the market knows. Besides, allowing an elite group to control the money power is allowing intervention in what is supposed to be a free market.

Such intervention prevents a free market – it is the antithesis of a free market. It is a fixed and contrived market.

The Money Power

Congress has the power to coin money not the power to issue money. The coins of silver and gold were in the possession of the people who brought the metals to the mint for coining.

The government did not own the silver and gold – the people owned the silver and gold. The government simply coined the bullion, and affixed its stamp certifying the weight and fineness of the metals content on the coin.

This is the critical difference between the power to coin money, and the power to emit money.

If Congress has the power to issue or create money, why would they need the power to borrow money? Why borrow money when you can simply create or issue it?

Article 1, Section 8, Paragraph 2 of the Constitution clearly states:

Congress shall have power to borrow money on the credit of the United States.

Furthermore, paragraph 5 of the same constitutional article states:

Congress shall have power to coin money, regulate the value thereof and of foreign coin, and fix the standard of weights and measures

The Constitution does not provide Congress with the power to issue money, or to relegate that power to a private corporation such as the Federal Reserve.

The Mint Act clearly states that the government did not hold title to the silver and gold minted – ownership resided with the people who bought the metal to the mint expressly for minting. Once it was minted/coined, it returned to its original and rightful owner.

The gold and silver was private property – not State property.

Not until the formation of the Bank of England in 1694-1696 was there recognition by the State of private banking. The Bank of England was formed by a group of private bankers and merchants who made a deal with the British government.

The bankers agreed to lend the crown, at an agreed interest rate, enough new money to restore defaulted loans previously extended by some of the bankers. The banking charter given to the bankers secured their right to stray from hard money of gold and silver coin, to paper money decreed to be legal tender.

Paper money known as “bills of credit” became the rage. The same exact terminology is in our monetary history as well.

However, the Constitution prohibits the issuance of bills of credit.

Yet that is exactly what we presently have: Federal Reserve Notes or bills of credit.

Summary

We have seen the main problems and weaknesses of paper fiat debt-money. To reiterate they are:

Weaknesses

Legal tender laws of forced compliance
State approved monopolization of the credit and money power
The lack of a non-political free market unit-of-account
The unit-of-measure and the means of payment are two different things
Fractional reserve lending and lack of full disclosure
The use of names for money as compared to Honest Weights and Measures

Honest & Sound Money

The unit-of-money is the same as the unit-of-weight
The unit-of-weight is in accordance with the Silver Standard of the Constitution
The unit-of-weight is the same as the unit-of-measure
The unit-of-weight is the same as the unit-of-value
The unit-of-weight is the same as the unit-of-account
The economic and juristic definition of money is the same unit-of-weight

All aspects of money are to be the same: a unit-of-weight
No other names are on the unit-of-weight – only its weight and finesse

A constitutional amendment is passed to fix the existing problem of a fixed rate of exchange between the bimetallic system of gold and silver coinage per the Coinage Act of 1792.

Both the rates of exchange of silver and gold must float freely according to free market dynamics.

The above recommendations are not a fix-all for our monetary system. They are, however, a good starting point compared to what presently exists. There are far greater minds and experts than me that could easily fine-tune and provide a viable sound monetary system according to the Constitution of the United States.

Nevertheless, if We The People do not want it changed – and do not demand that our elected representatives change it, then we will get what we deserve: a dishonest monetary system that assures a future of debt servitude to our children and grandchildren.

Is that what we really want? No, I don’t think so. However, the subject is complicated and confusing – for good reason: to confuse the public as to what is occurring by the use of paper fiat debt-money: a transference of wealth from the have-nots to those that have.

Our wealth disappears by stealth – a thief that comes in the darkness of night, from out of the shadows hidden from sight. Darkness cannot stay in the Light. Darkness is the absence of Light. 

And so has it been spoken – “and night will be no more”.

Come visit our new website: Honest Money Gold & Silver Report
And read the Open Letter to Congress

CONTACT INFORMATION
Douglas V. Gnazzo
Honest Money Gold & Silver Report, LLC
Canton Center, CT USA
Email  |  Website

About the author: Douglas V. Gnazzo is CEO of New England Renovation LLC, a historical restoration contractor that specializes in restoring older buildings that are vintage historic landmarks. He writes for numerous websites and his work appears both here and abroad. Just recently he was honored by being chosen as a Foundation Scholar for the Foundation for the Advancement of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

The opinions of FSU contributors do not necessarily reflect those of Financial Sense.