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| Aureus of the First Citizen |
It somehow seems
appropriate on the first day of August to have a posting about money. August is named after Caesar Augustus. In addition to stealing a day from February
because 1) Julius Caesar added a day from February to his month, July, 2) a month named after a living god needs thirty-one days instead of a
boring thirty, and 3) February got stuck because it was the last full month of
the Roman calendar year — all really good reasons for messing things up — he
also instituted a new coin, the “Aureus,” or “Gold Coin” that has maintained
its weight and purity down to the present day, although not the same name.
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| Small size United States Note, 1928-1963 |
What brought this
up was a comment we saw recently on FaceBook that the last “real” money the
United States had was in 1963 because it was backed by silver. Unfortunately for the point being made, the
photograph was not of a silver certificate that was backed by silver until
1963, but a United States Note (“Greenback”) that was always backed by
government debt. It was convertible into
gold on demand from 1878 to 1933, but not backed by gold.
Until 1933, the
only money backed by gold was “gold certificates.” The only money backed by silver was “silver
certificates.” From 1861 until 1913,
everything else was backed by government debt.
That included United States Notes, National Bank Notes, and the Treasury
Notes of 1890.
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| Small size silver certificate, 1928-1963 |
In 1913 with the
passage of the Federal Reserve Act, the plan was to retire all the notes backed
by government debt, and replace them with notes, called “Federal Reserve
Notes,” in the interim, during the changeover, using debt-backed Federal
Reserve Bank Notes indistinguishable from the asset-backed Federal Reserve
Notes (to prevent speculation and having to issue new notes once they shifted
from debt to asset backing).
Unfortunately,
Keynes got involved. He believed
government debt is the only legitimate backing for a currency, and so today
what people think are Federal Reserve Notes are actually Federal Reserve Bank
Notes.
And, believe it
or not, that’s the simple explanation. . . .
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| Large size ("Horse Blanket") Federal Reserve Note, 1914-1927 |
The fact is, very
few things are as misunderstood these days as money. Paradoxically, nothing is easier to
understand, once you realize that money is not some mystical thing created by
God or the State (or, if you’re Thomas Hobbes, the God-State . . . no,
really. Look it up. It’s in Part II, Chapter 17 of Leviathan).
But if money is
not created by God or by the State, what is it?
“Money” is
“anything that can be used to settle a debt.”
Another way of putting it, money is “all things transferred in commerce.”
Thus, money is
anything people trade back and forth.
It’s a promise, a contract.
That’s all. Now you Know All About Money.
Except How To Get
It.
So, how do you
get money? Besides stealing or just
having it handed to you, that is?
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| Treasury Note of 1890 |
You produce. It doesn’t matter whether you produce by
means of labor, land, or technology, as long as you produce. Since money is only the medium by means of
which one person exchanges what he or she produces, for what others produce, if
you can produce a marketable good or service — meaning something that somebody
else wants — you can “make money.”
Money doesn’t
have to take any specific form. It can
take any form that parties to a transaction find acceptable. In fact, even today, most “money” is not
something that many people even think of as “money.” It’s commodities transferred in trade. It’s bills of exchange, mortgages, promissory
notes, letters of credit, contracts — anything by means of which people
exchange what they produce with each other.
So, if you want
to solve The Money Question, start asking the right thing: How do we make as
many people as possible productive?
#30#