What Is Money

In 1887 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. This passage includes a quote from Jean Bodin - who was a lawyer, economist, natural philosopher, historian, and one of the major political theorists of the sixteenth century:

The truth is, the most enormous power known to man, or that ever can be his, lies in money — in the increase and decrease of its quantity. It is the tide of human affairs upon which all things must rise or sink. It is inevitable and cannot be resisted. This power has been obtained through the carelessness of the people, who have been and are now held in ignorance for that very purpose. So early as 1577 we find the keen and piercing intellect of Bodin saying the following; ‘For men have so well obscured the facts about money that the great part of the people do not see them at all. The money era do as the doctors do, who talk Latin before women, and use Greek characters, Arab words, and Latin abbreviations, fearing that if the people understood their receipts they would not have much opinion of them.’

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 The Science of Money by Alexander Del Mar:

. . .The Mixt Moneys case [of 1604] decided that Money was a Public Measure, a measure of value, and that, like other measures, it was necessary in the public welfare that its dimensions of volume should be limited, defined and regulated by the State. The whole body of learning left us by the ancient and renascent world was invoked in this celebrated dictum: Aristotle, Paulus, Bodin and Budelius were summoned to its support; the Roman law, the common law and the statutes all upheld it; "the State alone had the right to issue money and to decide of what substances its symbols should be made, whether of gold, silver, brass, or paper. Whatever the State declared to be money, was money” . . .

Stephen Zarlenga, author of the landmark 2004 book Lost Science of Money 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. Further and as described by Zarlenga, "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:

Most of us view money incorrectly. We go to work each day, and at the end of a pre-determined pay period, we receive a check for our efforts, and we assume the money earned is the real value received. . . This personal view of money causes our personal view of economics to be shortsighted and incomplete. . .
Money is a convenient system to exchange or store wealth. People do very nicely without money in a simple economy by trading through a barter system. . . [which] works okay as long as exchanges remain simple. In a modern economy, we exchange so many goods and services that barter is altogether too cumbersome. So, we use money. Money enables the exchange of goods and services to run smoothly, but money isn't wealth. The production and the labor is the real wealth of the economy.
Wealth can always be exchanged in a simple barter system if each party is aware of the other's needs. When money is used, the value of this wealth is measured in terms of money. Therefore tangible wealth, not money, is the basis for the economy.

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":

Barter is a condition of traffic that distinguishes a barbarous or semi-barbarous community. It consists of exchanging one thing for another thing, out of hand. It is not related to the past, it is not related to the future, it has nothing to do with hopes, expectations or credit; it relates only to the present time; only to tangible things; only to things of which immediate possession can be had; it takes no heed of the value of like things elsewhere or at different times; it does not express the value of a thing as compared with all other things within reach, whether present or prospective, but only its value at the moment of exchange and as compared with the one thing for which it is exchanged. The basis of valuation in barter is cost of production; and it is this principle, which though true as to barter is false to purchase-and-sale, which the economists have applied to money and which the banking fraternity have found it profitable to adopt as the foundation of their claims, arguments and pretensions about money.
Purchase-and-sale is a totally different kind of transaction. It is that condition of traffic which belongs to a community in the highest stage of social development. It consists not in exchanging one thing for ONE other thing but one thing for ANY other thing, at pleasure of the seller. The medium of operation is money, and money can only perform it equitably when its stability of value is anchored in the law and not in the vagaries or avidity of bankers. . .
In all cases of purchase-and-sale the value of the thing being purchased is compared in the mind with the value of like things and of other things elsewhere and at other times, both past and prospective. The mind of the buyer becomes a market in which every conceivable thing is offered for sale to him and in which that thing is selected by him which most suits his needs, means, taste, interest, or caprice. The basis of valuation in this extensive market is demand and supply. The buyer does not know, nor does he care, what the money cost for which he sells his services, goods or rights. Plentifulness means low prices, scarcity means high prices; and this principle relates as well to money as to the things for which money is exchanged.
Value therefore exists not merely between two commodities or services, but between all of such; and it exists not only between things which are being exchanged but between all things exchangeable. . . .
The notion common to many of the economists, that money measures value of only those things which are in the market, up for sale, or being exchanged, is possibly derived from contemplating the disparity between the magnitude of all commodities and available services and the littleness of the measure – the sum of money – which forms their nominal equivalent. But the sum of money is of its present magnitude simply because it was chosen to be, or so left to become; it can be made larger or smaller at man’s pleasure . . .
Such increase or dimunition of the sum of money will not change the value of other things; it will only change the expression of it in the fractions of money – to wit, price. Nevertheless, this price, or value expressed in money, can only be ascertained by the act of exchange. . .
The variation of price is directly with the numbers (whole amount) of money; while the expression of the value of money in commodities varies inversely with the numbers of commodities. Thus, the more numbers of money or the fewer commodities, the greater the price; and the fewer numbers of money or more commodities, the lesser price. . . .
The only cause or influence that can enhance or depress the prices of all things, either simultaneously or in the order of the Precession of Prices is an increase or dimunition in the whole Sum of Money. . .

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:

They try to use “theories” to prove facts then dismiss facts that refute the “theory” as externalities. They confuse money with real wealth of natural resources. They do not understand the nature of money as a socio-political power while thinking of it merely as a medium of exchange. They assume that humans always make rational economic decisions then attempt to use mathematics to “prove” the false assumptions. They fail to understand the effects of credit used as money because credit is debt on the other side of the ledger. They fail to understand the fallacies of ever expanding markets in a finite world. They dismiss human suffering as an irrelevant, unscientific externality. They have irrational faith in The Market to mediate human exchange relations.

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 Encyclop die m'thodique. 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 production, distribution and consumption of goods and services, a concept that makes it self-apparent that money must therefore be "an abstract social power based in law".

Constitutional Issues

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 Money: Whence It Came, Where It Went when he details how it is that Gresham's Law applies to more than just gold or silver (with surprising results). Thus,

In both Britain and Germany as [World War II] proceeded, the ration coupons became the decisive currency. Everyone or almost everyone could obtain the requisite pounds or marks; it was the availability of a ration ticket that determined whether or not a purchase, almost any purchase, could be made. In contrast with the more traditional means of exchange, the ration ticket is, with privileged exceptions, available to all in equal amounts. (p254) . . .What was used as money and how much there was of it made a difference; the instinct of the men who followed [William Jennings] Bryan (and of those who opposed him) was not wrong. p311

"It is not so important WHAT we use for money, as it is HOW that money is brought into circulation." Byron Dale, Bashed By the Bankers.

Next, this explanation from the 1917 book The True Function of Money and the False Foundation of Our Banking System by Frederick Raphael Burch, beginning on page 117, items in parenthesis ours not Burch's:

''Money is not a commodity — that is, wealth produced by individuals for the purpose of barter and trade; but it is, however, a governmental factor of commerce which, in common with true commodities, is subject to the law of supply and demand.
''No one can successfully deny that a supply of money in excess of the requirements of exchange [i.e. the production/consumption of real wealth as most accurately measured in goods and services] means a money of lesser value, while requirements of exchange [production/consumption of goods and services] in excess of the supply of money mean money of greater value.
''Money is, therefore, directly amenable to the law of supply and demand; and whoever regulates the supply of money, that is - the amount permitted to circulate at any given time, will be the party who regulates the value thereof.
''That money has a very fluctuating value after coinage [whether coin or paper] is patent; and that Congress should regulate this value is evident. This it has failed to do. Contrary thereto, it delegates this important Constitutional function to the bankers and money-lenders, and they regulate the value of money at will, and always to their own best interests, and with a total disregard of the rights and interests of the people.
''They, the bankers and money-lenders, have thus become a co-ordinate branch of the government, self-constituted and answerable to naught but their own interests.
''The value of money can be, and is, regulated solely by control of the volume in circulation; and this control is, and rightly so, placed in Congress by the Constitution.
''To enforce this right, the government must retain control of the volume of money in circulation; and the method for accomplishing this is by the establishment of government banks [or more clearly termed a properly structured Monetary Authority], thereby taking that control out of the hands of private individuals.
''This change would cause no confusion whatever. Business would be conducted in the same manner as at present. The government would make a charge for the use of the money, just as the bankers do today [or rather, government expenditures, duly authorized by the public would be extinguished by such charge, as in the Public Credit Money System]; but this charge would not be interest as now understood.
''It would be an indirect tax [excise or consumption tax on all new, non-essential items, perhaps?] upon the people for the purpose of defraying governmental expenses [or rather said tax would be needed for the purpose of extinguishing federal expenditure money which has served its purpose as explained in The Two Faces of Money and by Thoren and Warner in Appendix 12 of their book The Truth in Money Book].
''This would do away with the present army of tax-gatherers and provide an even and just levy of taxes in proportion to the amount of consumption; the rich, being larger consumers, would justly pay a larger tax than their poorer neighbors.
''This tax, levied by the government, would be paid back to the people; while under the present system the tax is levied by private individuals and is to be loaned back only, thus to become a constant and consuming debt, and for no value received by the people.
We are now paying this tax to the banks and money-lenders for the privilege of using our credit, and we must then pay to the government a tax upon the commodity for which we exchanged our credit ; thus paying a double tax. The tax thus collected by the bankers and money-lenders is far in excess of that collected by the government.

Let's conclude with Some Definitions from The Truth in Money Book 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 ]