The price of Gold zoomed past $550 per ounce this week. In fact since George Bush took office, the price of gold has doubled. Prices of just about everything (houses, energy, food, health care) seem to have risen. The savings of the average American, for the first time since the Great Depression, are negative.
The relationship between economic liberty and personal liberty is vital yet often overlooked. If you ask the average man on the street to name the most important elements of freedom for example, the economic factors will likely not be at the top of the list. You will probably hear about freedom of speech, freedom of the press, freedom of religion, liberation of foreign nations, Iwo Jima, George Washington, Abe Lincoln (etc.).
These are certainly valid icons of of freedom, but what about money?
Our history is full of Americans protesting the confiscation of their wealth in the name of liberty. The Whiskey Rebellion The Boston Tea Party and Sheas Rebellion are just a few examples of Americans rising up in response to the confiscation of their wealth by the state.
Were these simply greedy Americans? Not at all. Money is representative of a voluntary sale of property (either material or in the form of labor). To confiscate ones money is no different than confiscating his home or conscripting him. Schemes to confiscate wealth for the benefit of the state (taxes) are rarely popular with those who bear their burden (you and me). When such schemes are hidden from plain view however it is often difficult to identify the root of the evil (the Federal Reserve and big irresponsibile government that is ruining our country, our money and eroding our freedom ). To better understand this we must first examine exactly what money is. (For a more comprehensive yet simple explaination be sure to view the video link at the end of this article)
What is money?
In the simplest terms, money is nothing more than a medium of exchange.
Under a barter or direct exchange system, in order for you and I to do business I must posses a good or service that you desire and vice versa. If I have three coconuts and you are a good auto mechanic, we can do business as long as my car needs fixing and you need coconuts. But barter is limited by the necessity of a “coincidence of wants”. All may go well with our bartering arrangement until you no longer desire coconuts and instead opt for donuts. We no longer have a “coincidence of wants”. If there happens to be a baker in our little town and the baker happens to have donuts, I may have difficulty persuading you to fix my car. But what if the baker's car is running fine, and he has no need for your mechanical services? The answer would be an indirect exchange. If the baker likes or needs coconuts we now have a “coincidence of wants” that exists between the three parties. One option then is for me to sell half of my coconuts to the baker in exchange for some donuts, which I can in turn use to pay you for doing my auto repairs.
In a large economy with thousands or millions of goods and services, it would obviously become impossible to do business with an unlimited combination of potential exchanges. Accountants and consumers both would go crazy trying to determine the price of goods and services. A haircut would cost one coconut, three donuts and two thirds of an oil change, and a cake would cost either two coconuts, a half a haircut or one tire rotation (etc.).
The need to find a “coincidence of wants” and the accounting and pricing problem was solved by the emergence of money. Money is a mutually acceptable medium of exchange that allows me to sell my goods and services today with full confidence that I can use the money I acquired in the sale for the future purchase of a goods or services. Universal acceptance of a particular form of money allows for a common unit of account and further accommodates division of labor and trade.
Throughout history various forms of money evolved. Fish hooks, beads, animal skins all were used in various economies. Eventually most economies settled on precious metals. Agreement on precious metals was a development not of government, but of the market place due to the intrinsic value represented by gold, silver and copper. Their universally recognized value, high value to weight ratio and ability to be easily subdivided made gold silver and copper popular mediums of exchange. In time it became common to “coin” these metals into various weights.
So the three primary requisites of money are:
1.It is a universally accepted medium of exchange.
2.Serves as a unit of Account – an external reference to measure the value of goods and services.
3.It is s a Reliable store of value.
Sound vs. unsound money,
Sound money meets all three of the above requirements well. Unsound money does not.
All trade is the sale of a service, goods or both. You as my mechanic are selling to me your labor (service). If I pay you in money, you expect that next week you can take that money and purchase a hair cut, some donuts or a new spark plug wrench for your shop.
What if however, I were to have a secret meeting with the baker, the barber and the tool store owner. In our meeting we discussed that for some reason (that we are unaware of right now) starting next week, all the money we were using would be worth half as much as it is today. The catch being that we didn't tell you, the mechanic. The next day we would all bring our cars in for tune ups, oil changes and new tires. We would pay you and although you were tired from the unusually long hours you had to work this week, you would be happy with your earnings. Next week however, when you discover that the money you took for your services only has half the value you thought it did, you would be quite disappointed. It would be fair to say that the baker, the barber and I stole from you. We did not physically take money from you, but through deceptive means we siphoned wealth from you to us.
Clearly then if one group of people had the ability to decrease the value of money, they would then have the ability to confiscate wealth from others simply by using the money they do have before it is devalued.
How does money decrease in value? History has shown that when the supply of money increases, and the quantity of goods and services remains the same, the existence of the additional money decreases the purchasing power of all the money. This is reflected as higher prices or inflation.
If I had the ability to simply create more money out of thin air, I could increase my wealth at the expense of yours. Once my new money (that I did virtually nothing but snap my fingers to obtain) gets into circulation the value of all of our money (the old money and the new money combined) will decrease. In this way I would be able to add wealth at your expense of.
When money is based on a commodity such as gold, creating more money is an act of production and therfore more difficult. It requires prospecting, mining, refining and coining. Commodity money is recognized as having intrinsic value. For example, as of this writing an ounce of gold is worth over $550 whether or not it is coined as money.
Paper on the other hand has no intrinsic value. Paper money, if not for the fact that the government has declared its worth by “fiat”, would have no worth whatsoever. Unlike commodity money that has intrinsic value and evolved by the preference of the market place, paper money is an invention of governments and banks. Paper money also requires no production to create. It is simply a matter of “cranking up the printing press”.
In the US, money has transitioned at various times from being a commodity money (gold and silver), to a paper money redeemable for gold and silver, to a piece of paper that has no legally redeemable value of any kind. In 1971 President Nixon ended the Bretton Woods Agreement eliminating the last vesteges of a gold backed currency.
Since paper money can be created virtually out of thin air, what is to prevent governments or central banks from printing as much money as they want and even giving it all away to make everyone wealthy? The answer lies in our description of money that we covered in the beginning. If no production was required to create the money, that is no mining, coconut growing, donut baking or car fixing, it is really just a piece of paper. The government with it's substantial monopoly on force however can persuade us to accept paper money printed out of thin air, but if an infinate amount of money were printed, it's value would soon decline to nothing.
Economist Ludwig Von Mises stated the following and it is an economic law as sure as gravity is a law of physics. “If you increase the quantity of money, you bring about the lowering of the purchasing power of the monetary unit..
So the only thing preventing governments and banks from printing as much money as they want is the intolerable economic consequences of reducing the purchasing power of the existing money. Therefore, they can create as much money as they can get away with so long as they don't completely ruin the money and cause people to no longer "trust" it. In which case we would again find the marletplace prefering coconuts, donuts and fish hooks rather than the dollar.
Like the mechanic in our conspiracy example above, it is the unsuspecting individuals who are at the end of the money chain that get hurt the most when the money supplyis inflated. Government itself, banks, defense contractors (etc.) are the ones acquiring the new money first while the value is greatest. It is after this new money gets into circulation that the value of all money is further diluted. All of this money creation or “monetary inflation” eventually shows up in the form of higher prices.
The Link To Liberty
Governments are created among men for the purpose of securing their God given rights which include life, liberty and property . My property includes the goods and labor that I sell or the profit from their sale. If the government and banks take actions that transfer my stored wealth to another party other than by taxation agreed upon by my representative, the government has not only failed in one of it's primary responsibility, but actually been complicit.
It is not by accident that US Constitution in Article I Section 8 states the following:
The Congress shall have the power ... to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;
Notice that fixing the standards of weights and measures is listed in the same clause as coining money. Government monetary policy which allows the devaluing of our currency should be seen no differently than a policy that allowed a “foot” to be redefined as 8 inches.
Deficit spending and monetization of the debt and an unaccountable Federal Reserve Bank system allow our government to spend more money than we are willing to pay in taxes. Deficit spending and monetary inflation are a “back door tax” on unsuspecting Americans. Unnecessary warfare and welfare (corporate and private) are financed by YOU and sanctioned by your government in an immoral scheme of under the table wealth re-distribution. The only reason it is tolerated by most Americans is that they simply are unaware.
Education is the first step back to honest money and the preservation of economic liberty. As Mises said, Perpetual vigilance on the part of the citizens can achieve what a thousand laws and dozens of alphabetical bureaus with hordes of employees never have and never will achieve: the preservation of a sound currency.
For an excellent video documentary on this subject please watch Money Banking and the Federal Reserve (video) presented by the Ludwig Von Mises Institute.
Edit/ Fixed Link To Media File 2-2-06