What Is Money
In 1867 N. A. Dunning published a book titled The Philosophy of Price and Its Relation to Domestic Currency. A passage taken from it was used by Populist leader Henry Loucks for his 1893 textbook called The New Monetary System to instruct his readers on the fact that the concept of money has been thoroughly and deliberately misrepresented through the ages:
The world famous Mixt Moneys Case of 1604 called upon the "piercing intellect of Bodin" among others to determine that, paraphrased: Money is what the government says it is.
As quoted from by Alexander Del Mar:
Stephen Zarlenga, author of the landmark 2004 book and co-founder of the American Monetary Institute, incorporates both Aristotle and the Mixt Money Case: Money is an abstract legal power based in law. Furthermore declares Zarlenga: "If money is correctly defined as an abstract legal institution then the society has a chance to democratically use the money system to promote the general welfare." How can this be so? Because, "Money has value because of skilled people, resources, and infrastructure, working together in a supportive social and legal framework. Money is the indispensable lubricant that lets them 'run.' It is not tangible wealth in itself, but a power to obtain wealth. Money is an abstract social power based in law; and whatever government accepts in payment of taxes will be money."
A major contemporary problem in gaining a clear understanding of what money is was pointed out by America's greatest monetary historian Alexander Del Mar: “As a rule political economists . . don’t take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”
From a Chapter called "The Purpose and Function of Money" from an online book entitled The Nature of Wealth, available online:
The following timeless elaboration from Del Mar is perhaps most appropriate for economists, as it explains value and "price relationships", beginning with a discussion of the difference between barter and "purchase and sale" agreements - thereby clarifying what some economists refer to as "credit/debt relationships":
This confusion over money and value has gone from bad to worse in recent decades, as many economists have become guilty of non-scientific reasoning. How so? Bob Poteat of the American Monetary Institute explains:
Some of our founders:
Ben Franklin: "To remedy such Inconveniences [of barter], and facilitate Exchange, Men have invented MONEY, properly called a Medium of Exchange, because through or by its Means Labour is exchanged for Labour, or one Commodity for another."
Alexander Hamilton: "It is immaterial what serves the purpose of money, whether paper or gold and silver; that the effect of both upon industry is the same; and that the intrinsic wealth of a nation is to be measured, not by the abundance of the precious metals contained in it, but by the quantity of the productions of its labor and industry."
James Madison, in a footnote to his 1779 “Report” on money which was later published in Philip Freneau's National Gazette of Philadelphia in 1791: “Money is the instrument by which men's wants are supplied, and many who possess it will part with it for that purpose, who would not gratify themselves at the expense of their visible property. Many also may acquire it, who have no visible property.”
In the body of his “Report”, Madison points out that the key difference between a loan-office certificate (money created out of debt) and a common bill of credit is the interest charged on the loan-office certificate. Then his zinger: “Instead of paying off the capital to the public creditors, we give them an enormous interest to change the name of the bit of paper which expresses the sum due them; and think it a piece of dexterity in finance, by emitting loan office certificates, to elude the necessity of emitting bills of credit.” (This is what Madison, Jefferson and countless others spent the next 40 years fighting. It is what remains with us today, which is to say debt, serving as money.)
Alexander Del Mar (one of America's greatest monetary historians), summing up the views of the Jeffersonians: The bills of credit of this era, which ignorance and prejudice have attempted to belittle into mere instruments of reckless financial policy, were really the standards of the revolution. They were more than this, they were the revolution itself!
Thomas Jefferson, prior to the Constitutional Convention, served as Ambassador to France from 1784 to 1789. In 1786, he helped author Jean Nicholas D'meunier write a section on the United States for D'meunier's portion of the . Replying to questions concerning bills of credit, Jefferson said that wherever state legislatures "laid taxes to bring in money enough for that purpose, and paid the bills punctually . . . paper money was in as high estimation as gold and silver." And then, paralleling Madison's “Report”: “Those who talk of the bankruptcy of the U. S. are of two descriptions. 1. Strangers who do not understand the nature & history of our paper money. 2. Holders of that paper-money who do not wish that the world should understand it.”
After his presidency, Jefferson wrote numerous letters to his former Treasury Secretary Albert Gallatin, and his son-in-law John Eppes, then in Congress on the subject of Constitutional money, which he held to be Treasury Notes, bottomed on a tax which would redeem them. These notes he said should provide the circulating medium of the country. Bank paper serving as money in his (and others) opinion should be quashed.
John Taylor of Caroline writing in 1794 (referring to the currency function of the First National Bank and echoing the words of Pennsylvania Senator Wm. McClay years before): "banking in its best view is only fraud whereby labour suffers the imposition of paying interest on the circulating medium."
John Taylor of Caroline, writing in 1814, “Money is not intended to create wealth, or the objects of commerce; nor is it able to do either. Its office is to represent and exchange them.”
Yours truly: One thing most of us do is to confuse money with wealth. Money is not wealth, it is a receipt for wealth. Wealth itself is best described as anything having exchange value, which sustains life or adds to life's comfort or happiness. John Stuart Mill described wealth as “All things useful and agreeable having exchange value.” Money in other words is the receipt which facilitates exchanges of REAL wealth, that which you and I produce at the local level – as opposed to speculative or unearned paper wealth or for that matter, wealth achieved through profiteering through taking advantage of the oftentimes manipulated price differences of gold or silver, national currencies, commodities, etc.
As James Madison, John Taylor, Thomas Jefferson and many others have argued, money is NOT credit (or debt) which is really a money substitute created by the banking system. Nor is it gold or any other commodity.
So, to put it yet another way, money is simply a device, or ticket system if you will, for the distribution of goods and services, a concept that makes it self-apparent that money must therefore be "an abstract social power based in law".
Regarding misconceptions about what the Constitution says about money, the first thing to do is discover the meaning of the word "coin" as it was then used, and the second thing is to consider how the states are limited in terms of "coining" money. And finally what kind of monetary concepts the colonists brought with them from the Old country, including that presented in the "Mixt Money' Case of 1604.
Good details are provided in this scholarly article descriptively titled Paper Money and the Original Understanding of the Coinage Clause by Robert G. Natelson, University of Montana, 31 Harvard J.L. & Pub. Policy 1017, 2008.
Additional thoughts about "what is money":
We can obtain additional insight into "money" and its true function as a medium of exchange from John Kenneth Galbraith in his classic book when he details how it is that Gresham's Law applies to more than just gold or silver (with surprising results). Thus,
"It is not so important WHAT we use for money, as it is HOW that money is brought into circulation." Byron Dale, .
Let's conclude with Some Definitions from by Theodore R. Thoren and Richard F. Warner:
MONEY: anything which is universally acceptable in terms of payment of debt and taxes. (It is not necessary for the item to be used as money to have any intrinsic value or indeed to be physically tangible. Today, money exists in the form of notes, coins, checkbook credits, electronic blips in computers.)
MONEY (or MONETARY) SYSTEM: An arrangement of closely related functions, authorities and responsibilities within a country which regulate the creation, flow and extinguishment of money for the purpose of making possible the orderly creation and distribution of goods and services.
- The present system accomplishes many of these functions quite well. The problem is one of simple math: eventually the system will implode from an overload of debt (both public AND PRIVATE) and a corresponding shortage of money with which to pay off that debt. This phenomenon was clearly described in mathematical detail by Thomas Jefferson and John Taylor. The boom-and-bust cycles necessary to maintain the system will continue until there is no longer sufficient, believable collateral to support new debt and/or a COLLECTIVE inability to repay debt arising from some combination of unsustainable private debt, prohibitive levels of taxes and fees and lost or unsustainably low wages. This is all due to the fact that in order to keep the monetary system functioning, new debt must be constantly created in order to sustain (or contribute to) the money supply. Put another way, banks must be induced to provide credit and the public must be willing and able to make use of credit so as to sustain sufficient economic activity. Serious problems arise during economic "downturns" such as what we have today because banks are less willing to lend and the public is less willing and/or able to borrow. The Real economy contracts because outstanding (private) debt remains but the money (as credit) supply contracts. This all-too-familiar process widens, temporarily at least, the systemically-created, one-way river of wealth that is always flowing toward the top through loan defaults and fire sales on defaulting or declining assets. Although the monetary system is managed through the Federal Reserve, Congress does have the power to stimulate economic activity through borrowing - at the expense of taxpayers - and conversely to contract economic activity through "austerity" - at the expense of workers and local governments. Of the two budgetary measures available to Congress, austerity is by far and away the most dangerous option, because it will send the country into a deflationary spiral that may end in catastrophe. Moreover, and because of the way the system operates it will actually be private, rather than public (or federal), debt which will be the proverbial straw that breaks the public's back. Austerity will only fast-forward the process of economic contraction. Lack of knowledge about the manner in which our monetary system works is an unhappy fact which allows policy makers and shapers to ignore the heart of the problem and make potentially catastrophic recommendations about reducing the public debt, without even considering the necessary and long overdue structural changes to the monetary system.
NOTE: A document signifying the existence of a debt or "promise to pay"; a note serves the same purpose as a bond but it usually represents a debt held for a shorter period of time.
BANK NOTE: Cash printed by authority of a bank.
FEDERAL RESERVE NOTE: Cash representing a portion of the monetary base; Federal Reserve notes are printed by the Bureau of Engraving and Printing upon receipt of orders from the regional Federal Reserve banks in response to the needs of commercial banks within given regions.
TREASURY NOTE: Cash printed by authority of the Treasury; also a short-term Treasury debt.
PRIMARY DEBT: Money which is created by the lender as a debt.
SECONDARY DEBT: Debt generated by the lending of money which does not affect the money supply. [Money created by the Federal Reserve at the behest of government WILL affect the money supply. See the "DUM" equation ]