Category: Teachings

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Examining Fiat Money

June 19, 2011July 20, 2017 Joseph Dewey

This entry is part 24 of 31 in the series 2011B

Some may wonder why I have spent so much time dealing with the gold standard and fiat money. The reason is quite simple.

There are two kinds of people in the world as far as economic theory goes. Those who think about how it works and what is the best approach and those who do not, but just blindly accept the crumbs that fall from the table wherever they land.

Unfortunately, the majority of Americans are in the second category. Any economic influence on their voting is very superficial. A meaningless sound bite can influence them if it tugs at their emotional nature. If they lose their job, suffer a pay cut, lose a benefit, hear of a fat cat getting exorbitant pay, see a homeless person or are merely told a certain politician is out to take what belongs to them they will vote accordingly without doing any research into the cause of their grievance.

The first category (the thinkers) is concerned about the economy and at least do a little reading and thinking about how it works and how it could be improved.

A large portion of the students and thinkers of economic theory and how money works are believers in the gold standard and are strongly against most fiat money. Many of these are adherents to the Austrian School of economics which ironically has its strongest supporters here in the United States. They cannot stand even the mentioning of Keynes name and love the words of Mises, Hayek, Rothbard, Ron Paul and others.

Most of these are good people of above average intelligence that have not considered the idea that there are several types of fiat money and it is possible to create a fiat system that brings as much stability as gold and even more prosperity.

Any workable money system has diminished chances of implementation when many thinking people are in opposition to it and it gains added power when a high percentage support it.

I have thus spent considerable time explaining the disadvantages of gold as well as presenting fiat systems of the past which have worked which tells us that we can put together one for the future that can serve us well. Actually this is an understatement. I believe we can put together a system that will bring prosperity that the world has never seen before.

In contemplating this I reflect back to a statement that Bobby Kennedy used when running for President.

“Many people see things as they are and ask why. I dream of things that never were and ask, why not?”

Our world has never had a perfect or near perfect money system, but that does not mean that we have to repeat the mistakes of the past, or even repeat the best of the past. We have the intelligence and the will to create anew a system that is better than anything that has existed before. There is no area of life where a breakthrough advantage is needed more than in our currency system. It hasn’t improved much in over 3000 years so it is about time for progress to be made.

Creating a better way was the attitude of the Founding Fathers when they founded this Republic and its Constitution. They didn’t just take the best of the past and recreate it. Instead they took the best working elements of past government and added new elements to create a government that was “a dream of things that never were.”

I don’t expect a lot of gold standard people to accept my writings right away but a few will at first and more will follow. If these ideas circulate among them they will be forced to discuss them logically without first just dismissing them as Keynesian or doomsday economics. In addition I hoped to reach many who do not have set opinions who can see the reasoning in that which I present.

First let us examine some of the problems many have with considering the use of fiat money.

Objection 1: Fiat money is not backed up by anything. It is created out of thin air. Real money is composed of metallic coins or is paper backed up by a commodity, preferably gold or silver.

Answer: This conclusion is not exactly true. If one only looks on the surface it may seem that fiat money is created out of thin air with no backing but such is not the case. If the dollar were really backed by nothing then it would be worth exactly nothing. This is obviously not the case because we purchase groceries, clothing, pay mortgages, buy cars and many other things with fiat money.

Our money obviously has value. Where does this value come from?

The most common answer is faith – pure faith. If one thinks about this answer he can soon conclude that this is far from the correct answer. Let me illustrate. If we find a person with no faith in the dollar and send him to the store to buy some bread does his zero faith take away value from the money so he cannot buy the bread? No. Even though he has no faith in the money the value is not diminished. His money will purchase just as much as the guy with lots of faith in the dollar.

If faith does not create the value then what does? Aristotle brings us closer to the answer. He stated:
“…Money exists not by nature but by law….There must then be a unit, and that fixed by agreement.”
Aristotle (Ethics, 1133)

This gets us closer to the truth. Money is created by law through a fixed agreement. This seems more reasonable than faith alone but it doesn’t give the full story. It doesn’t explain why fiat or any other kind of money has value.

If we could just create money by passing laws and making agreements then let us all agree that everyone will receive a million dollars in money each year and there will be no inflation.

We all know that would not work, don’t we?

Faith, law and agreements are all ingredients that help create the power of money, but what is the core principle? What gives a fiat dollar its purchasing power?

The answer lies in this question? What gives a gold backed dollar its purchasing power?

It’s gold you say? But what produced the gold?

It was human labor.

Money has also been backed by many other commodities such as houses, wheat, tobacco and Indian Wampum. What produced these products?

Adam Smith explains:
“Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.

Labour … is the only universal, as well as the only accurate, measure of value, or the only standard by which we can compare the values of different commodities, at all times, and at all places … By the quantities of labour, we can, with the greatest accuracy, estimate it, both from century to century, and from year to year.”

Labour was the first price, the original purchase – money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.
Adam Smith The Wealth of Nations, Book I, Chapter5

Benjamin Franklin agrees with this: “The riches of a country are to be valued by the quantity of labor its inhabitants are able to purchase, and not by the quantity of gold and silver they possess.

“All wealth is the product of labor.”
John Locke

“Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”
Abraham Lincoln

Thou, O God, dost sell us all good things at the price of labor.
Leonardo da Vinci

The bottom line is that money has value not because of any commodity, faith or law alone but because it is backed by labor and that which labor produces.

If I give my neighbor my word that I will mow his lawn tomorrow then that is as good as giving him the $20 (or more) he would have to pay a mowing service. It is also as good as $20 in gold, silver or wheat. I created this value seemingly out of thin air by the fiat of my word alone; but was the value created from nothing?

Not exactly. My word in this matter only has value because my labor has value. Labor does not come out of thin air but is energy guided by constructive intelligence.

Conclusion: Fiat money and commodity money both trace back their value to one source: human labor.

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Romney & Hot Air

June 14, 2011June 14, 2011 Joseph Dewey

This entry is part 23 of 31 in the series 2011B

LWK links to this Romney quote asking if he is full of hot air.

“I don’t speak for the scientific community, of course,’’ Romney said. “But I believe the world’s getting warmer. I can’t prove that, but I believe based on what I read that the world is getting warmer. And number two, I believe that humans contribute to that . . . so I think it’s important for us to reduce our emissions of pollutants and greenhouse gases that may well be significant contributors to the climate change and the global warming that you’re seeing.’’ Boston Globe, Jun 4, 2011
http://free2beinamerica.wordpress.com/2011/06/14/is-romney-full-of-hot-air/

Before I comment let me remind readers that I have attacked the greens, the U.N. IPCC and numerous politicians for their distortion of facts and their desire to tax global warming out of existence as well as using it as a device to destroy capitalism.

I do not see any of that coming from Romney. Let’s take a look at what he actually said.
“I believe the world’s getting warmer.”

So do I if you look at the overall picture of the past 100 years. It has leveled off since 1998 so we cannot say where it will go next for sure.

How I differ from the global warming alarmists is that I do not see enough evidence that we have any major problem coming that we can do anything about. We may get hit by a comet in five years but should we throw all of our resources into preventing this?

No. Because the risk is not high enough to warrant this. Neither is the proven risk of global warming.

Romney continues: “I believe that humans contribute to that (global warming).”

Again I agree with him. CO2, methane and other gasses released by humans do have some warming effect. Some scientists believe half of the warming comes from human produced greenhouse gasses and others think it to be less but all acknowledge that greenhouse gasses do have some warming effect. We just cannot prove how much that is.

Romney: “I think it’s important for us to reduce our emissions of pollutants and greenhouse gases that may well be significant contributors to the climate change.”

JJ
Again I agree with him. In addition to some warming effect the addition of excessive CO2 could have other unforeseen negative effects. For instance, studies show that the amount of oxygen in the atmosphere is decreasing and in some large population areas have gone down an alarming rate. Oxygen levels in the seas are also decreasing. When CO2 is formed oxygen is taken from the air. Some say that this and other human effects are producing oxygen sinks that take this vital element from the atmosphere. This should be of more concern than global warming.

I agree with Romney that we just can’t sit around and do nothing. My main point of disagreement with the environmentalists is their economy destroying approach that would do much more harm than good.

If we read on in this same Boston Globe article we see that Romney qualifies his approach with some common sense. It says:
“Romney has made clear that he opposes cap-and-trade, a system that would combat climate change by limiting total emissions and forcing polluters to pay for the greenhouse gases they produce.”

This is a huge item for me and is my main reason to take alarm at the standard environmentalist approach. Some say that the core of the environmental movement is not about the environment but about destroying capitalism and nothing gives evidence to this more than the insane cap and trade movement.

The fact that Romney is not deceived by this, as was candidates John McCain, Jon Huntsman, Pawlenty, Gingrich and Gary Johnson, score points in my book.

Someone can read about global warming and absorb some wrong information and this does me no harm. But if he wants to destroy our way of life (and eventually the environment) by destroying our economy then I am ready for battle.

Again Romney is quoted:
“Americans should do more to conserve.”

When Obama says something like this I get nervous but when someone with business sense says it I can be supportive for I also support common sense conservation. I am a big believer in the Law of Economy.

The article continues:
Instead, he said yesterday, he wants to wean the country from its dependence on foreign oil by seeking alternative sources of energy… If elected, he said he would pursue more oil drilling, as well as natural gas and nuclear energy.

Well, this is a man with some sense. I would do the same if I were president.

He wants to:
(1) Wean the country from its dependence on foreign oil

I am all for that. It is crazy to depend on those who hate us for oil.

(2) Seek alternative sources of energy.

Again to do this with a common sense approach may yield high results.

(3) “He would pursue more oil drilling, as well as natural gas and nuclear energy.”

My type of guy. That is 180 degrees the opposite of the Obama approach.

Romney adds a final caveat:
“We can’t just say it’s going to be all solar and wind,’’ he said. “I love solar and wind, but they don’t drive cars. And we’re not going to all drive Chevy Volts.’’

Amen.

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Fiat Money of the Past, Part 6

June 13, 2011July 20, 2017 Joseph Dewey

This entry is part 22 of 31 in the series 2011B

German Money

Of all the incidents of failed money in history the poster child of bad money is that of the Weimar Republic of Germany in 1923. Unfortunately, this is often used as an example of why fiat money must be avoided like the plague.

Those who put the blame on fiat money make the mistake of lumping all fiat money into one category but as was pointed out earlier there are two categories of fiat money. Here they are again:

(1) Money created by private banks or institutions and loaned out at interest. Most of our national debt is created this way. The Federal Reserve creates the money by fiat and loans it to the government at interest. There are many variations of this category, some fairly workable and others doomed to failure.

(2) Interest and debt free money created or approved by the government.

The Greenbacks that we just covered was in the second category. This has been proven historically to be much more stable than the private fiats that create debt and interest.

The fiat attackers make the mistake of lumping all forms of fiat money together as being equally bad and dangerous. Nowhere is this more apparent than their portraying the Weimar republic’s money as being no different than the Greenback.

Most writers talk about the German inflation problem as beginning in 1919 or 1921 but the problem really began at the beginning of World War I in 1914. By the time 1921 rolled around those who were on fixed incomes and depended on savings or government bonds for retirement or security were largely wiped out by the high inflation leading up to that date. From the beginning of the war in 1914 to its end in 1918 prices of consumer goods increased over 200%. By February 1920 shortly after the Treaty of Versailles internal prices jumped over 500% and prices of imported products skyrocketed to 1898% over the 1914 level.

Unfortunately, Germany could not pay off their draconian war reparations with inflated Marks but had to pay them with foreign currency values. This meant that when the Mark lost half of its value it took 200 of them to pay for what only took 100 earlier.

This situation accompanied by unlimited printing from private banks created an inflation slide of historical proportions.

By July 1922 it took 300 Marks to equal one U.S. dollar. By November it took 9000 and by January of 1923 it was a whopping 49,000. That was just the beginning of the sinkhole. By July 1923 the figure was 1,100,000 and by Mid November it reached the legendary 2.5 trillion marks to equal one U.S. dollar. Billion mark notes were traded as almost worthless paper.

It is a blatantly false and disingenuous comparison to compare the Weimar money as being equivalent to the Greenbacks. Let us examine the differences so the reader can judge correctly.

(1) The Greenback was issued by the government
The Weimar money was issued by private banks – led by the Reichsbank. This was similar to the Federal Reserve, which, contrary to the sound of its name, was privately owned and publicly controlled. May 26 1922 private business was given complete control over the Reichsbank and the issuing of currency.

Most hyperinflation commentators blame the government as having sole responsibility for issuing so much money but it was done through the privately owned Reichsbank and other private issuers of the Mark. The Greenback was not issued by a private or semi private bank but by the U.S. government.

(2) The Weimar Mark was created by loans at interest whereas the Greenback was created without interest involved.

(3) The Weimar Mark had no limitations on its issue. The Greenback’s issue was limited to $450 million.

A heroic German, named Hjalmar Schacht, who became the Commissioner of Currency, finally brought the inflation under control. He prohibited the private banks from creating Marks and established a new Mark – the Rentenmark. The new Mark had a value equal to an astounding $4.2 trillion of the old Marks. He then established guidelines for limited issue and created regulations that dramatically slowed the currency speculation that had been adding to inflation.

Within a year the currency reached an amazing degree of stabilization despite the fact they still had reparations to deal with.

After 1929 a great depression was forced upon most of the world. By 1932 Germany had suffered economic effects similar to that of the United States including a 30% unemployment rate and a 41% dip in industrial production. One could say they were lucky it was not worse considering they had war reparations to pay off.

This was the situation when Adolf Hitler came to power.

Now before I write more about Hitler let me make something crystal clear because many others who have written about Hitler’s economic recovery have been maliciously accused of being a Hitler lover or sympathizer. This is not the case with me nor is it the vast majority of writers on this subject.

BUT… there is one thing that is agreed on by those who despise Hitler’s philosophy and that is – he was an evil genius.

It’s fine with people if you talk about the evil part but as soon as you talk about the genius part there is danger of being lumped with Neo Nazis or worse.

This is unfortunate as we need examine Hitler without blinders on if we wish to neutralize such tyrants in the future.

When Hitler took over Germany on January 30, 1933 Germany was in the middle of a great depression and the little gold they had was storming out of the country. By 1934 they only had 83 million Marks worth of gold, a loss of about 97% of their supplies since 1929.

Basing an economic recovery on gold would have been pure fantasy.

Instead of descending the country further into economic chaos, as many expected, Hitler surprised the world by creating a teeming economic system in a few short years. Between 1933-1938 the Nazi economy grew by 9.5% per year. They built many public works projects such as dams and about 1900 miles of the current autobahn. Housing construction doubled. By 1936 unemployment was over 80% gone and by 1938 it was virtually non-existent for they had more jobs available than there were laborers to fill them.

By contrast FDR and his New Deal was not working so well. In 1938 the United States was in a depression within the depression with unemployment at 19% and many were committing suicide rather than endure a continued struggle.

Some say that Hitler achieved full employment because he borrowed money and put people to work on government projects. That explanation does not cut it because FDR did the same thing yet his economy was in shambles.

What was the difference then?

There were several. Even though Hitler only had a elementary understanding of economics he recognized talent when he saw it. Hjalmar Schacht, who once restored Germany’s economy but quit in frustration in 1930, was appointed by Hitler to be the Reichsbank President in 1933. He enthusiastically supported Hitler until the war and later supported Stauffenberg and the resistance to Hitler. He assisted Hitler in creating Bills of Exchange, similar to what the early American colonists did when they had no gold.

This was powerful fiat money, but still had a disadvantage over the Greenback in that they paid around 4% interest and added to the national debt whereas the greenback was interest free.

Even with this disadvantage they were able to put enough money into circulation to revive the economy whereas money was nowhere to be found or borrowed by the common people in the United States at that time.

By contrast it was said that the German “certificates (were) paid out to employers who undertook projects of replacement or maintenance projects. Anyone who equipped a factory with new machines or who had his house repainted could finance his operations with these work drafts…”
Konrad Heiden, The Fuerher, (Boston: Houghton Mifllin, 1944, page 662.

Hitler’s economy not only did a much better job in making consumers happy and employed but in addition to doing this he built up a military from virtually nothing that challenged everything the banking systems of the whole world could throw at him. This is even more amazing when you consider that France, England and the United States put very little investment in defense until the War because they had just fought the war to end all wars – World War I.

Hitler often bragged about his economic accomplishments in his speeches. Here’s just one example:

When I took over the government, I had only one hope on which to build, namely, the efficiency and ability of the German nation and the German workingman; the intelligence of our inventors, engineers, technicians, chemists, and so forth. I built on the strength which animates our economic system. One simple question faced me: Are we to perish because we have no gold; am I to believe in a phantom which spells our destruction? I championed the opposite opinion: Even though we have no gold, we have capacity for work.

The German capacity for work is our gold and our capital, and with this gold I can compete successfully with any power in the world.
DECEMBER 10, 1940 in Berlin

He not only bragged about besting his enemies when he had no gold but he also drew comparisons between Germany and the Allies. Germany only had 85 million people, and a land with limited resources occupying only 232,000 square miles. He compared that to the British Empire that controlled 16 million square miles of land. In addition, there was the Continental United States possessing over 3 million square miles containing vast resources.

We are extremely fortunate that two things were in our favor.

First, we can thank our lucky stars that Hitler did not wait an additional five years to start the war. Five more years of economic growth and perfecting her military would have made Germany unbeatable.

Secondly, we are lucky that the bankers supported the Allies during the war and that we did have superior resources for we did not have a superior economic system or currency.

It is interesting to note that two of the most significant men in history – Abraham Lincoln (one of the best), and Adolf Hitler (one of the worst) – both used creative forms of fiat money to advance their cause. This merely illustrates that money, like electricity is a neutral power. Those bent on destruction can use it to do harm whereas those with good intent can use it constructively or for good.

Today, most of the common people use what power they have for good. They feed their families, heat their homes, travel to see friends and family etc. The misuse of power usually comes from those who amass great quantities of it for the sake of control over others. It thus behooves us to do all in our power to make all useful power or energy available to the masses who, on the whole, use it well. This principle certainly applies to money. If there is abundance of it available to all then the chances are that it will be used constructively for the good of all.

Let it so be.

Sources:
Web of Debt by Ellen H. Brown, 2008

The Lost Science of Money By Stephen Zarlenga, 2002

Konrad Heiden, The Fuerher, (Boston: Houghton Mifllin, 1944

John Weitz, Hitler’s Banker (Great
Britain: Warner Books, 1999).

Henry C. K. Liu, “Nazism and the
German Economic Miracle,” Asia
Times (May 24, 2005).

HITLER’S MONEY
The Bills of Exchange of Schacht and Rearmament in the Third Reich
Guido Giacomo Preparata University of Washington, Tacoma

Hjalmar Schacht, Stabilization of the Mark, (London: George Allen & Unwin, 1927)

Hjalmar Schacht, The Magic of Money, (London: Oldboume, Trans. P. Erskine, 1967)

Norbert Muhlen, Schacht – Hitler’s Magician, (New York: Alliance, Longmans Green, trans. Dickes

C. C. Veith, Citadels of Chaos (Meador, 1949

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My Writing Instruments

June 10, 2011July 4, 2011 Joseph Dewey

This entry is part 21 of 31 in the series 2011B

I first acquired an interest in writing when I was a boy of thirteen in 1958 and my first instrument of choice for placing my thoughts to paper was the ball point pen. Since my handwriting was fairly difficult to read I decided it would be nice if I could use a typewriter instead. I was delighted to discover that my Mom had this old Underwood that no one had used for years. I believe it was manufactured in the 1920s. Here is what it looked like.

I used a hunt and peck method and managed to type out a few things with it. Then in December of that year I was in an explosion that rendered my left hand useless for typing. I continued anyway using one hand and still managed to get some stories typed out.

This was a frustrating instrument to use, however. Th ribbon was consistently getting stuck and I kept having to fiddle with it to get it to work. The keys would also jam sometimes. As soon as I could afford it I decided I would get a more decent machine.

Finally at the age of sixteen I used some money I made from picking fruit to upgrade. I found a nice little Olympia in a pawn shop going for $80. it sold new for around $120 and since it looked in good shape I thought I was getting a deal. Here’s the image:

It is interesting to note that $80 in 1961 is equivalent to over $600 today.

Fortunately, I wasn’t disappointed. It was a well made machine and worth every penny of my hard earned money. I used this for all my typing needs for about 23 years. Finally in 1984 I bought fancy electric typewriter. I’m not sure of the model but it looked something like this:

This cost me around $1000 at the time and was state of the art and produced typeset quality type. I was happy with this until the Mac Plus came out in 1986. When I saw that it could typeset like a $25,000 machine I was sold and had to have it. It cost $2595 at the time and the Image Writer for printing was $595.00. since I would use it for business as well as writing I figured the investment would pay off.

Here is the Mac Plus

And here is the Image Writer:

The image writer only had a resolution of 72 DPI, but when I needed higher quality I went to a service bureau and for $1.00 a page I could have laser prints at 300 DPI which was impressive at that time.

This served me well for a few years. Finally around 1990 I had to upgarde and got a MacSE with dual floppy drives and an external 80 MB hard drive. I was in heaven indeed with this one:

Then a couple years later I was sold on upgrading to the performa 600. This had a lot faster clock speed and I thought it wold be a much faster machine. Here it is:

This was a huge disappointment. Not only was it much slower than any previous Mac but it took ages to boot up. It was around this time that Apple was having many problems and many thought it may go under. I thought I might have to face the possibility of switching to the PC. The thought of this made me cringe.

Finally around 1998 I got a G3 machine that worked great. In fact I still have it today and use it to run my sign making equipment. It looks a lot like the Performa but much better under the hood.

At this time my wife also worked with me and we got an iMac like this one for her:

Then in 2001 I got my first notebook the G3 ibook:

In 2006 I had to upgrade to the G4 ibook. I still use this now and then.

Finally around 2009 I bought a Mac mini which i still use as my main machine. My wife uses a mini also. Again my computer is somewhat dated and there are lots of choices available for an upgrade, but I am in no hurry as the current one is serving me well.

We are now way past the idea of computers merely assisting us with writing and typesetting. They are now put to thousands of uses and more are forthcoming. I certainly appreciate the technology we have and have no desire to return to the not so good old days.

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Fiat Money of the Past, Part 5

June 6, 2011July 20, 2017 Joseph Dewey

This entry is part 20 of 31 in the series 2011B

The Greenbacks

Lincoln felt the weight of the world upon his shoulders after he was elected President. Before he assumed office he saw himself facing the greatest crisis since the Revolutionary War. He even called the situation his own Garden of Gethsemane and prayed that the burden of dealing with it could be lifted.

Little did he know at the time that the physical enemies that loomed before him were less than half the problem. The greater half of the war he faced was discovered shortly after he became president and the problem was clearly seen near his death in 1865 when he said this in a statement to Congress:

“The money powers prey upon the nation in times of peace and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all who question their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe.”
Nov. 21, 1864 (letter to Col. William F. Elkins) The Lincoln Encyclopedia, Archer H. Shaw (Macmillan, 1950, NY

Lincoln first received a taste of this first enemy at the beginning of the war when he realized that they would have to amass an enormous sum of money if they were to defeat the South. The problem for both sides is that neither had the supplies of gold and silver coin necessary to wage much of a challenge. It seemed that whoever could borrow the most money would prevail.

As Lincoln and his cabinet checked out the possibility of borrowing from banks within the country they soon found that they were of little use. Over 1600 private banks existed and each of their 7000 notes had different values and confidence of the people. But the real problem became obvious when Lincoln discovered that they wanted over 20% interest on any loans they made to a government that may not be there tomorrow if the South were to prevail.

The eastern banks were particularly outrageous as they offered Lincoln a $150 million loan package at rates between 24-36%.

Lincoln felt there must be a better way to finance the war than making the winners slaves to the banks. This was irony indeed considering the war was said to end slavery.

There had to be a better way to finance the war so the President listened to all possible suggestions from his cabinet, Congress and consultants.

There was only about $100 million in gold and silver in the whole country and about 25 times that amount would be needed by the North alone to consummate the war. Secretary Chase supported the idea of issuing government war bonds. There were about $2 billion worth of these issued during the war usually at 6% interest.

As the war continued it became obvious that the bonds would not fulfill all the financial needs and the Greenback made its appearance to supply additional financing. Some say that Congress acted on its own initiative to pass legislation to create the Greenbacks and others call Lincoln’s friend, Dick Taylor the “Father of the Greenback” for selling he idea to the President.

The story relates that Lincoln called on Taylor for advice on financing the war and when meeting they he said:

“Why, Lincoln,” Taylor is said to have replied, “that is easy; just get Congress to pass a bill authorizing the printing of full legal tender treasury notes or greenbacks, and pay your soldiers with them and go ahead and win your war with them also.”

“Do you suppose the people will take them?” Lincoln is said to have asked.

And to this Taylor replied, “The people or anyone else will not have any choice in the matter, if you make them full legal tender. They will have the full sanction of the government and be just as good as any money; as Congress is given that express right by the Constitution and the stamp of full legal tender by the Government is the thing that makes money good anytime, and this will always be as good as any other money inside the borders of our country.”

Lincoln also had an economic adviser named Henry Carey who was a big supporter of the Greenback idea and it is thought that he also had a strong influence on Lincoln.

Some claim Lincoln then worked with Congress to pass the Greenback legislation and other historians believe Congress passed it independent of the President. Congressman E. G. Spaulding from New York was a big promoter of Greenback legislation. It seemed that the Greenback was an idea whose time had come. Legislation was passed on Feb 25, 1862 and Lincoln signed it into law. At first $150 million was authorized with a total of $450 million being put into circulation as the war continued.

The Lincoln administration partially bypassed the bankers with the war bonds, but the Greenbacks left them completely out of the loop. This was pure fiat money from the government that created no debt whatsoever and there was no interest to be paid to bankers or anyone else.

As word of the Greenbacks reached the big bankers in England and Europe great alarm was felt. In 1865 The London times wrote:

“If that mischievous financial policy, which had its origin in the North American Republic, should become indurate down to a fixture, then that government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.”

The Greenbacks had several advantages over the fiat Continental currency in that they were very difficult to counterfeit. They used a proprietary green chromium tint invented by Canadian Dr. Sterry Hunt to combat photo duplication. This made the Greenbacks very difficult to counterfeit. The bills got their name from this “green” ink on the “back” of the bill. The name did not come from the Lincoln administration but from the common people who started calling them “Greenbacks.”

It is interesting that the two men with the greatest authority (Lincoln and Chase) had strong reservations about the Greenback. Chase was particularly negative and may have influenced Lincoln at first. After Lincoln’s death Chase supported the retirement of the Greenback.

Fortunately Lincoln saw that the greenback was necessary and supported legislation to create them. As time passed he seemed to have embraced them as he said: “… (We) gave the people of this Republic the greatest blessing they have ever had – their own paper money to pay their own debts…”
Quote from Who Rules America by C. K. Howe

Near the end of his life Lincoln expressed interest in printing more Greenbacks. Some believe that his association with the Greenbacks, as seen through the eyes of the bankers, was part of the reason he was killed. Many students believe that his lack of cooperation with powerful bankers created a conspiracy against him. Whatever the case, it is obvious that many bankers were happy to have him out of the way thanks to John Wilkes Booth.

Those who do not like fiat money and/or the Greenback attack it as being inflationary and not holding its value. Most of the Greenback attacks I have read point out that it reached a low of 36 cents against what started as a dollar’s worth of gold. They rattle this off and then dismiss the Greenback out of hand as being “toilet paper money,” or worthless.

This is an extremely deceptive and mean spirited affront on truth and logic and leaves out the whole picture. Let us therefore fill in the blanks so the reader can make an informed judgment.

What readers are generally not told was that this low represented a spike that lasted less than a month. It was caused in part by a fear that the country would have a repeat of the inflation of the Continental currency. As soon as Congress let it be known that the total issue would not exceed $450 million the value of the Greenback sharply rose against gold. Here are the facts.

Congress authorized the circulation of Greenbacks on Feb 25, 1862. Their stated value was equal to one dollar in gold. They dropped down to 58 cents by the end of the year, but rose back up to 82 cents about six months later and then back down to the low of 36 cents on July 16, 1864. This low followed the largest release of Greenbacks during the war – $200 million and some were frightened that an unlimited inflationary amount was forthcoming.

Congress stated the total release would be limited to $450 million and put and end to this fear and it rose to 68 cents by December 1865. It rose steady after that until it became equal with gold in December 1878.

If the total issue of new money was limited to Greenbacks during the war the value of the Greenbacks would have held much higher, but often overlooked is the fact that almost $2 billion in war bonds, which was over four times the number of Greenbacks, was the major cause of the inflation of fiat money during the war.

It is interesting to note that this still does not tell the whole story. A small detail left out by the anti Greenback crowd is that the purchasing power of gold itself fluctuated significantly during the Greenback era.

Now some diehards will claim the value of gold never fluctuates giving their reasoning that an ounce of gold is always worth an ounce of gold. This thinking makes no sense and is like saying a Greenback is always worth a Greenback or a pound of wheat is always worth a pound of wheat. The hard fact is that every currency and commodity fluctuates in value and this includes gold as we illustrated a few pages back.

During the war conversion of notes into gold was suspended so this turned gold into a commodity with fluctuations like wheat or corn. The price of gold in relation to its value compared to commodities at the beginning of the greenback era fluctuated over 200% during the war. Cotton fluctuated much more though because of interrupted flow from the South. Its range of value was 1300%. In other words, it took a lot more gold to buy a pound of cotton near the end of the war than the beginning.

Wages also rose but not as much as the average commodity price or gold. When one takes all these fluctuations into account he must conclude that any indexed value of the Greenback would move like a roller coaster during such turbulent times no matter what happened to gold.

Stephen Zarlenga gives this interesting quote from Civil War historian J. G. Randall:

“The threat of inflation was more effectively curbed during the Civil War than during the First World War. Indeed as John K. Galbraith has observed, ‘it is remarkable that without rationing, price controls, or central banking, Chase could have managed the federal economy so well during the Civil War.”

He then adds this:
The fact that the Greenbacks were not accepted for import duties may also have been an important negative factor against the currency:

“Hence it has been argued that the Greenback circulation issued in 1862 might have kept at par with gold if it, too, had been made receivable for all payments to the Government,” wrote financial historian (Davis Rich) Dewey.

When one considers the mountain of obstacles the Greenback had to surmount to hold on to any value it is amazing that it did not go the way of the Continental which was worth virtually zero at the war’s end.

Here is a partial list of what the Greenback had to overcome.

(1) Almost $2 billion worth of inflationary bonds thrown into circulation.

(2) A Secretary of Treasury that was against their existence.

(3) The fact that almost all the spending of the Greenbacks during the war was for the war itself which added no wealth to the economy. This would be similar to spending money on digging holes and then filling them up again. Nothing is added to wealth.

(4) The fluctuations of wholesale, commodity and labor prices during a fight for survival.

(5) Attacks by big bankers to undermine its value.

(6) Attacks by the Press attempting to bias the people against it.

(7) Counterfeiting attempts

(8) Being associated in the public mind with the Continental currency, which failed for reasons previously noted.

(9) A little known but potent problem the Greenbacks faced were religious fanatics of the time. Many Bible believers thought that gold was a God-sanctioned money and any move to create money not backed by it came straight from Satan. These people created quite a stir and turned many politicians against the Greenback after the war.

These preachers must not have read their Bible very carefully for it doesn’t really support their case. Yes, they used gold and silver as money or barter in Bible times but God didn’t seem to be thrilled with the idea. Take a look at these scriptures:

“Their idols are silver and gold, the work of men’s hands. They have mouths, but they speak not: eyes have they, but they see not: (Sounds like gold and silver coins)

“They have ears, but they hear not: noses have they, but they smell not:

…They that make them are like unto them; so is every one that trusteth in them.” Psalms 115:4-8

“Receive my instruction, and not silver; and knowledge rather than choice gold. For wisdom is better than rubies; and all the things that may be desired are not to be compared to it.” Proverbs 8:10-11

“He that loveth silver shall not be satisfied with silver.” Eccl 5:10

“They shall cast their silver in the streets, and their gold shall be removed: their silver and their gold shall not be able to deliver them in the day of the wrath of the LORD: they shall not satisfy their souls, neither fill their bowels: because it is the stumblingblock of their iniquity.” Ezek 7:19

“Neither their silver nor their gold shall be able to deliver them in the day of the LORD’S wrath.” Zeph 1:18

It is amazing that the Greenback survived these problems and became a major factor in not only winning the war but inspiring people for a generation afterwards including the creation of a Greenback political party. Now finally, after its seeming demise, interest in the principle behind it is surfacing again.

The confederate currency didn’t fare so well as the Greenback.

In 1861 a confederate dollar was worth 90 cents in gold. By 1862 it had gone down to 83 cents and then took a big drop the next year to 29 cents. By 1864 it was worth only 5 cents and by early 1865 was on its way to oblivion at less than 2 cents in value.

The student of history may wonder why the Greenback held on to its value so much better. After all, they were the same type of money in similar circumstances, weren’t they?

Not quite.

There were several key differences. The first all important difference is that the Greenbacks were declared by fiat to be money, not a loan or promissory note, but national “legal tender for all debts public and private.”

The Confederate notes had no such fiat. Instead, they were promissory notes to be redeemed for something else of value in the future.

The second difference, which is also huge, is there was no limitation set on the number of Confederate notes that could be added to circulation. Whereas the Greenbacks were limited to $450 million the Confederates with no limitation wound up printing $1.55 billion in bills – over three times the amount of the Greenbacks in the North.

On top of this Lincoln took a queue from the British and counterfeited the Confederate dollar and circulated as many as possible in the South. Private counterfeiters also did their share. Their inflation became so bad that the South used Northern Greenbacks themselves to purchase essential goods and services. No one knows how many Confederate dollars were in circulation but judging from their inflation rate, it was several billion dollars worth.

Many students of monetary history believe the Greenback was the best money ever created. Its creation did not depend on bankers or loans and there was no interest to pay to anyone.

During the Greenback/Civil War era Ellen Brown says “the country managed to become the greatest industrial giant the world had ever seen. The steel industry was launched, a continental railroad system was created, the Department of Agriculture was established, a new era of farm machinery and cheap tools was promoted, a system of free higher education was established through the Land Grant College System, land development was encouraged by passage of a Homestead Act granting ownership privileges to settlers, major government support was provided to all branches of science, the Bureau of Mines was organized, governments in the Western territories were established, the judicial system was reorganized, labor productivity increased by 50 to 75 percent, and standardization and mass production was promoted worldwide.

“How was all this accomplished, with a Treasury that was completely broke and a Congress that hadn’t been paid themselves? As Benjamin Franklin might have said, “That is simple.” Lincoln tapped into the same cornerstone that had gotten the impoverished colonists through the American Revolution.”
Web of Debt by Ellen H. Brown, 2008, , Page 82

If we had created Greenbacks in our age rather than borrowing many trillions we would not be paying over $450 billion a year in interest. Instead, we could put that money to good use in keeping the nation solvent.

Maybe we will eventually learn our lesson.

Sources:
Web of Debt by Ellen H. Brown, 2008

The Lost Science of Money By Stephen Zarlenga

Patrick Carmack, Bill Still, The Money Masters: How International Bankers Gained Control of America (video, 1998), text at:
http://www.no-debts.com/anti-federalist/files/moneymasters.txt
Video at:
http://video.google.com/videoplay?docid=-515319560256183936#

The Lincoln Encyclopedia, Archer H. Shaw (Macmillan, 1950, NY

The Case for Gold by Ron Paul and Lewis Lehrman,

J. G. Randall, The Civil War and Reconstruction, edit. D. David, (Boston: Heath & Co, 1937, 2nd edition 1961)

Charles J. Bullock, Monetary History of the U.S., (New York: Macmillan, 1900)

Wesley Mitchell, Gold Prices and Wages Under the Greenback System, (Berkeley: Univ. Press, 1908)

Irwin Unger, The Greenback Era
(Princeton University Press, 1964)

A History of Money by Glyn Davies, 1994

Read This entire series. Here are the links.
Copyright 2011 by J J Dewey

Copyright by J J Dewey

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Molecular Preparation

June 4, 2011June 4, 2011 Joseph Dewey

This entry is part 18 of 31 in the series 2011B

Larry W Asks:
So getting back to the 24 (molecule of 12 couples), will this be folks who developed the skill aspect of spiritual maturity to the point where they can place their consciousness at any level they chose at will?

JJ
A successful molecule will be created from people who have learned understand soul contact and then to keep their attention “steady in the light.”

Many there are who have achieved some soul contract, some contact with the formless worlds, some focus on the light, but they are not steady. As soon as they feel insulted or offended – to hell with the light – it is time to lash out and give someone a piece of their mind.

The useful disciple must see himself as an observer as he moves forward in cooperation and not be distracted by the outside astral noise.

Merely learning to place your attention on a certain body or being proficient at meditation is not enough. The disciple must have the self-control to force his attention on the task at hand and keep it on the light of the path and let no person or circumstance change that focus.

All of the group of 24 must be able to keep their minds centered in the light and center themselves on the point of peace so the soul can be accessed and love for all in the group felt undisturbed.

Here are some things that can destroy the focus of one and thus disrupt the whole molecule.

(1) Offense is a huge factor. One disciple is offended over something someone else said or did.

(2) Grievance. This often follows an offense. One harbors negative feelings toward someone else in or out of the group.

(3) Anger. Anger has its place but not toward a group member seeking to serve.

(4) Feeling like a victim also takes the attention away from the light.

(5) Glamour. A problem occurs when the disciple sees himself as more important than he really is or shows a false humility by falsely downplaying his roll.

(6) Illusion He or she has illogical conclusions planted in his belief system that he has not worked out.

(7) Lack of tolerance. He thinks others are not doing things correctly, or not doing their share or not evolved enough etc. He then concentrates on their flaws which takes his attention away from his own light.

(8) Sacrifice. Even tough the keynote for the coming age is not sacrifice he must be willing to make essential sacrifices for the work and dominate lower desire.

(9) Wrong use of sexual energy. This is especially disruptive if it involves betrayal and can disrupt the whole molecule.

(10) Not following the highest he knows. The disciple must follow the truth when he sees it.

(11) Feeling love. The disciple must actually be able to feel love at any given or required time toward all members of the group.

(12) The disciple must be able to drop all the cares of the world and seek the soul as an individual or with the group at the drop of a hat no matter what the circumstance may be.

There are more but this gives the general idea.

Larry
Also I get the impression that once a soul achieves access to a higher part of him/herself, perhaps they no longer need to access the lower parts because the higher part they now operate from can access and use the capabilities/senses of the lower any time.

JJ
The disciple does not lose the ability to access or use the lower when he learns to use the higher. He uses the highest that is available and is able to use the lower more efficiently.

Larry
Speaking of groups, where will JJ find the 24 people for the very first latter-day molecule?

JJ
They’ll be found a number of different ways – some may even surprise me.

Larry
If it (the molecule) takes someone who lives from the Intuitional level then only Hercules need apply.

JJ
Keeping the mind centered in the light is more important than which body your focus is in. If you get some good intuition now and then but are offended at small things then your focus will be taken off the light, off the soul and away from love.

Ruth wants to know if the disciples of old will return to be in molecules.

Some will and some will not. Some will be people who are not known to history.

As far as the unfulfilled prophetic utterances go… Some were inspired and some were not. The important thing is always that which your own soul reveals to you.

Blayne rsponds:
Thanks for pointing out all my flaws so succinctly to remind me of what I need to work on… 😉

JJ
I hope I didn’t give the impression that perfection is required for none of us are there yet and when human molecules appear they will be made of flawed human beings just as existed in the time of Jesus. If I had to boil the needed qualities for the molecules down to one thing it would be this.

The applicant must have the self control necessary to shift his attention back to the light when human weaknesses have distracted him.

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Fiat Money of the Past, Part 4

May 29, 2011July 20, 2017 Joseph Dewey

This entry is part 19 of 31 in the series 2011B

Fiat Money in the American Colonies

If someone wanted to create a control group to experiment with differing forms of alternative money it would be difficult to put together a better set of ingredients than existed in the colonial times of the American continent. Their situation was a little like the group in the parable who didn’t have the gold. They had to improvise.

We must remember that England, France and other nations were not investing in America out of the spirit of good will – just to help them advance into prosperity and freedom. Just the opposite is true. They didn’t give a hoot about the comfort the colonists may or may not have had. Instead, they were in it for the money – the profit.

The dominant mother country, England, did everything in its power to insure the maximum amount of gold and silver that found its way into the colonies was shipped back home. Essential goods and taxes had to be paid in coin yet the flow was one way, for English laws prohibited sending coins to America and even discouraged colonies from trading with each other. England wanted all available commodity wealth for herself with as little as possible going to the colonies. Most of the gold and silver money that found its way to the colonies came from pirates or trade with the Spanish West Indies. Other coins came from the Netherlands, the German States, France and other foreign countries. In turn, many of these coins went back to England.

This illustrates one of the weaknesses of gold and silver money. Their quantity can be manipulated so those gaining the favor of the bankers and powers-that-be have all the advantages whereas a lesser power such as the colonies have a monetary famine.

Fortunately, the colonies did not just roll over and play dead, or America as we know it may have never been. Their independent spirit shined forth in their creation of numerous alternative and fiat currencies that allowed them to prosper and continue their growth.

They tried using various non-metallic commodities as money but people wanted to pay with the least desirable available and this caused problems. They tried monetizing tobacco but the different quantities available from the various harvests created inflation and deflation. In 1639 when a bumper crop threatened severe inflation they decided to burn half the crop. What a waste!

Something else had to be done or it seemed the colonies would turn into a poor man’s slave camp whose only purpose was to serve the crown.

One of the not so well known experiments with non metallic money were bills of exchange where farmers or manufacturers could use bills drawn up for the promised sale of products and use these like cash in trading or purchasing.

Another item used as money were “shop notes,” also called “notes of hand.” When a merchant sold some something on credit he drew up one of these notes and often traded it to someone else for other items he needed just as if it were money.

Massachusetts was the first to come up with the fiat paper money solution in 1690. They printed paper bills from copper plates, which were called bills of credit. These were promissory notes based on no present commodity, but a future delivery and supported by the full faith and credit of the government. This allowed the colonists to buy supplies and pay labor so agriculture and production could move forward.

Within ten years other colonies saw the new prosperity in Massachusetts through this fiat currency and a number of variations appeared in Rhode Island, Connecticut and New Hampshire.

The Massachusetts money was at first issued in moderate amounts (starting with 7,000 pounds) and the money held its value well for 20 years. Then they got a little greedy and dramatically increased their issue until it reached 420,000 pounds. On top of this counterfeiters jumped in and added a significant amount of false currency. Inflation crept in but, even so, the economy hummed along much better than it did before the fiat currency.

In 1723 Pennsylvania (followed by Delaware, New York and New Jersey) successfully created another type of money, seemingly out of thin air that was more stable and successful. The State created money by the shear power of fiat and loaned it out to citizens at 5% interest. These were more secure than bills of credit as they were loaned against collateral, which was usually the plentiful supply of land available. They were also issued more responsibly so the money supply was not excessive. The issuance of this new money not dependent on any precious metal but only upon the fiat of the government and the resources and labor of the people.

Instead of the interest going to private banking it went to finance the government. From 1723 to 1750 Pennsylvania citizens had to pay no taxes as all government expenses were financed by the interest paid by citizens. This money system worked very well and little or no inflation occurred.

It wasn’t long before the authorities back in England sensed a problem. The injection of new money caused the colonies to trade more with each other and to cease relying on or even seeking gold and silver coin. England felt their trade and flow of new cash was threatened by the new money and also upset at the inflation in Massachusetts. In response King George II in 1751 issued a ban on creating any new colonial paper money.

This made things more difficult but fortunately they were still able to use money in circulation and the governors were lax in enforcing the ban so some new money was still added to circulation. Several years later Franklin was forced to make a trip to England to petition Parliament to lift the ban. When he got there he saw that the economic situation of the common people in the mother country was dire.

The situation in the colonies was much different as related by Congressman Charles G. Binderup in a radio address in 1941.

He first quoted Franklin

“There was abundance in the Colonies, and peace was reigning on every border. It was difficult, and even impossible, to find a happier and more prosperous nation on all the surface of the globe. Comfort was prevailing in every home. The people, in general, kept the highest moral standards, and education was widely spread.”

When Benjamin Franklin went over to England to represent the interests of the Colonies, he saw a completely different situation: the working population of this country was gnawed by hunger and poverty. “The streets are covered with beggars and tramps,” he wrote. He asked his English friends how England, with all its wealth, could have so much poverty among its working classes.

His friends replied that England was a prey to a terrible condition: it had too many workers! The rich said they were already overburdened with taxes, and could not pay more to relieve the needs and poverty of this mass of workers. Several rich Englishmen of that time actually believed, along with Mathus, that wars and plague were necessary to rid the country from man-power surpluses.

Franklin’s friends then asked him how the American Colonies managed to collect enough money to support their poor houses, and how they could overcome this plague of pauperism. Franklin replied:

“We have no poor houses in the Colonies; and if we had some, there would be nobody to put in them, since there is, in the Colonies, not a single unemployed person, neither beggars nor tramps.”

His friends could not believe their ears, and even less understand this fact, since when the English poor houses and jails became too cluttered, England shipped these poor wretches and down-and-outs, like cattle, and discharged, on the quays of the Colonies, those who had survived the poverty, dirtiness and privations of the journey. At that time, England was throwing into jail those who could not pay their debts. They therefore asked Franklin how he could explain the remarkable prosperity of the New England Colonies. Franklin replied:

“That is simple. In the Colonies, we issue our own paper money. It is called ‘Colonial Scrip.’ We issue it in proper proportion to make the goods and pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power and we have no interest to pay to no one.”

The information came to the knowledge of the English Bankers, and held their attention. They immediately took the necessary steps to have the British Parliament to pass a law that prohibited the Colonies from using their scrip money, and then ordered them to use only the gold and silver money that was provided in sufficient quantity by the English bankers. Then began in America the plague of debt-money, which has never since brought so many curses to the American people.

The first law was passed in 1751, and then completed by a more restrictive law in 1763. Franklin reported that one year after the implementation of this prohibition on Colonial money, the streets of the Colonies were filled with unemployment and beggars, just like in England, because there was not enough money to pay for the goods and work. The circulating medium of exchange had been reduced by half.

Franklin added that this was the original cause of the American Revolution – and not the tax on tea nor the Stamp Act, as it has been taught again and again in history books. The financiers always manage to have removed from school books all that can throw light on their own schemes, and damage the glow that protects their power.

Franklin, who was one of the chief architects of the American independence, wrote it clearly:

“The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament, which has caused in the Colonies hatred of England and the Revolutionary War.”

(Author’s note: This exact quote cannot be verified though Franklin did express this thought in different wording.)

This point of view of Franklin was confirmed by great statesmen of his era: John Adams, Jefferson, and several others. A remarkable English historian, John Twells, wrote, speaking of the money of the Colonies, the Colonial Scrip:

“It was the monetary system under which America’s Colonies flourished to such an extent that Edmund Burke was able to write about them: ‘Nothing in the history of the world resembles their progress. It was a sound and beneficial system, and its effects led to the happiness of the people.’”

John Twells adds:

“In a bad hour, the British Parliament took away from America its representative money, forbade any further issue of bills of credit, these bills ceasing to be legal tender, and ordered that all taxes should be paid in coins. Consider now the consequences: this restriction of the medium of exchange paralyzed all the industrial energies of the people. Ruin took place in these once flourishing Colonies; most rigorous distress visited every family and every business, discontent became desperation, and reached a point, to use the words of Dr. Johnson, when human nature rises up and assets its rights.”

Another writer, Peter Cooper, expresses himself along the same lines. After having said how Franklin had explained to the London Parliament the cause of the prosperity of the Colonies, he wrote:

“After Franklin gave explanations on the true cause of the prosperity of the Colonies, the Parliament exacted laws forbidding the use of this money in the payment of taxes. This decision brought so many drawbacks and so much poverty to the people that it was the main cause of the Revolution. The suppression of the Colonial money was a much more important reason for the general uprising than the Tea and Stamp Act.”

The next step in fiat money came though the Continental Congress on May 10, 1775 in creating the first fiat money for the nation – the Continental Currency. Money historian
Alexander Del Mar sees this as a major ingredient of the revolution

“…the creation and circulation of bills of credit by revolutionary assemblies…coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America … constituted acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible . . . There was but one course for the crown to pursue and that was to suppress and punish these acts of rebellion. There was but one course for the colonies; to stand by their monetary system. Thus the Bills of Credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy were really the standards of the Revolution. They were more than this: they were the Revolution itself!”
History of Money in America; Alexander Del Mar 1895, Page 96

They started with $2 million and reached a total of $200 million. In addition to this coined and colonial money continued to circulate.

Continental Currency has received a lot of bad press because of the massive inflation associated with it but we need to take a breath and reflect with reason and see that there would have been no way to fight, let alone win the war without it. There just was not enough gold and silver coin available to the government to fight the most powerful kingdom on the planet.

$200 million was a lot in those days and this amount would have caused inflation but it was not enough to cause the bottom to fall out by the end of the war. Two other events were responsible.

First is that the colonial states began printing their own scrip in massive amounts. At the beginning of the war there was about $3.8 million in colonial scrip and at the end there was $209 million – more than the total amount of the continental currency. Congress realized this additional scrip would be a problem and asked the states to discontinue printing, but they mostly ignored this request.

Secondly, they faced and even greater threat from British counterfeiting. Benjamin Franklin wrote of this time:

“The artists they employed performed so well that immense quantities of these counterfeits which issued from the British government in New York, were circulated among the inhabitants of all the states, before the fraud was detected. This operated significantly in depreciating the whole mass.”
Kenneth Scot, Counterfeiting in Colonial America (Philadelphia: University of Pennsylvania Press, 2000), 259–60

They shipped special presses from England for this specific purpose and distributed massive amounts of bogus, but high quality currency for some time before the colonists caught on to the sabotage. Throughout the war the British distributed this a much as possible, sometimes by the wagonload.

It is a mystery as to exactly how many counterfeit bills wound up in circulation. For some reason the British government to this day has never revealed any data on it. Judging by the stories and the amount of inflation that occurred Thomas Jefferson concluded there must have been as much counterfeit as there were authorized continentals.

If not for the vast inflow of bills not authorized by Congress the Continental would not have failed.

There is another reason for the great inflation. During wartime, especially a war of survival, resources and labor are directed away from production that brings wealth to society and is directed toward war materials that create no wealth but only serve to defeat the enemy and afterwards become mostly useless or destroyed in the war itself. Most of the labor during such a war produces no wealth. A fiat currency is backed up by the wealth of a nation and if the wealth is diminished inflation will occur no matter what.

At the beginning of the war the was only $9.2 million worth of coins in all the colonies and only a tiny amount was in the hands of congress to fight a war – a war that required much more money than they had if they were to win. Despite having an inflationary $400 million added to circulation in addition to the $200 million continentals this fiat scrip saved the day and paid our soldiers to fight and financed the war for six years. A final loan from France then saved the day and allowed us to continue the final six months until victory was obtained.

We owe the foundation of our nation and the victory over the crown to the Continental. There’s no way we could have won the war with a handful of gold and silver coins.

It would be interesting to see how the results would have been different if $200 million worth of continentals would have been circulated as the main currency in a time of peace with no counterfeiting and competing bills from the colonies. Instead of $600 million spent mostly on war we would have had $200 million on production, transportation, manufacturing, farming etc. If the Continental had the advantage of being backed by lots of new wealth the results would have been much different.

Nothing destroys a money system or economy like a war of survival. After any such a war there is rebuilding with a restructured money system and progress toward prosperity begins anew.

This happened to the United States, which was on the fiat system with some coins. After the Revolutionary War they rebuilt and prospered. It also happened after World War I when all nations were on the gold standard. Here the economies of the world were devastated despite reliance on gold, but they rebuilt and prospered.

Fortunately there is no war, no disaster or human screw up so bad that it cannot be surmounted by the best that is in us.

Sources:

Web of Debt by Ellen H. Brown, 2008

The Secret World of Money by Andrew M. Gause, 1996

The Lost Science of Money By Stephen Zarlenga

Money Masters Video. Transcript at: http://www.no-debts.com/anti-federalist/files/moneymasters.txt

History of Money in America; Alexander Del Mar 1899

Kenneth Scot, Counterfeiting in Colonial America (Philadelphia: University of Pennsylvania Press, 2000)

Greenback, Jason Goodwin, 2003

Read This entire series. Here are the links.

Index for Older Archives in the Process of Updating

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

Fiat Money of the Past, Part 3

May 25, 2011July 20, 2017 Joseph Dewey

This entry is part 17 of 31 in the series 2011B

TALLY STICK MONEY

The tally stick was a unique form of money that seemingly existed on the power of thin air through the fiat principle. They were most prominent in medieval England and also used to a lesser degree in France, Germany and numerous other nations and settlements of ancient times.

Tallies in one form or another have existed from prehistoric times but the most significant use of them was began by King Henry I in England in 1100 AD and were in use for an amazing 726 years. The split tally was accepted as legal proof in medieval courts and the Napoleonic Code of 1804 still makes reference to the tally stick in Article 1333.

The tally sticks owed their prominent financial use to King Henry’s response to a dire economic situation when he assumed the throne. He discovered that the Crusades had siphoned off most of the gold and silver that could be used as money. He found himself in a similar situation to Lincoln before the Civil War. He either had to borrow at excessive interest from the money lenders of the day or improvise with a system of his own.

Just as Lincoln chose to create a fiat money that did not borrow from any lender even so did Henry create a tally system that was backed by no commodity and was interest free. There was a huge difference on how the two financial instruments were used. The greenbacks bought war materials that were either destroyed or of little use after the war. These added little or nothing to the nation’s actual wealth.

On the other hand, many of the tallies were used to finance agriculture, construction and essential trades that helped the people live more abundant lives.

Some critics of fiat money have claimed that the tally stick was not fiat, or even money but merely IOUs that had to be paid off in gold or silver coin.

This presentation is extremely misleading and distorted. First there was very little gold and silver in the kingdom as most of it was shipped out of the country for the Crusades. Many of the tallies were redeemed for commodities instead.

As for whether they were fiat or not – let us examine how they worked and see.

“A tally was a stock about nine inches or so long with each of the four sides about ½ inch wide. On two of the sides, the value of the “tally” was carved into the wood. On the other two sides, the amount was printed in ink.
“The tally was then split in half lengthwise. One half remained in the treasury and the other half was given to soldiers for their pay, to farmers for wheat, to armorers for armor, and to laborers for their labor.
From War Cycles – Peace Cycles by Richard Hoskins, Virginia Publishing (2000)

There were a number of advantages for using the tally sticks.

(1) They could be used like money, but they were interest free.

(2) They were virtually impossible to counterfeit. Each tally had different grains in the wood and different records and notches engraved that appeared on both halves. To be legal you had to match your half with the King’s half.

(3) They did not need any gold or silver to back them but were backed by commodities that did not even exist at the time of issue. These commodities could be future produce, something manufactured or even gold or silver that the person hoped to acquire.

(4) They were basically inflation proof. Unlike money in our current system they could not be produced in unlimited amounts. The number of tallies made would be limited by the estimated production or wealth of the people. Then when the tallies were turned in for taxes or payment during Michaelmas (the harvest time) they no longer existed within the system and new ones had to be created. There could only be an increase in tally sticks if there was a corresponding increase of anticipated production and since each person was responsible for the value of his tally stick there was little desire to inflate its value.

(5) Tally sticks were widely accepted by the people for two reasons. First, tally sticks of some kind have been used for elementary record keeping since civilization began and people trusted them. Secondly, the king insured its equivalency to money by issuing a fiat that they can be used to pay taxes. In addition the various kings used tally sticks for money themselves.

It wasn’t long before the value of tally sticks in circulation far exceeded gold and silver money. Richard Hoskins (cited earlier) estimates that by the end of the seventeenth century the tallies in circulation had a value of about fourteen million pounds yet the coined metals at the time never exceeded a half million pounds in value.

By 1694 the tally sticks evolved into being represented by paper bills and by 1697 they circulated interchangeably as money with banknotes and bankbills.

The amazing thing is that life was a good during the height of the tally system. Contrary to popular belief the people prospered and had to work much fewer hours to make a living than they do today.

Monetary author Ellen Brown makes this interesting observation:
“Modern schoolbooks generally portray the Middle Ages as a time of poverty, backwardness, and economic slavery, from which the people were freed only by the Industrial Revolution; but reliable early historians painted a quite different picture. Thorold Rogers, a nineteenth century Oxford historian, wrote that in the Middle Ages, “a labourer could provide all the necessities for his family for a year by working 14 weeks.” Fourteen weeks is only a quarter of a year! The rest of the time, some men worked for themselves; some studied; some fished. Some helped to build the cathedrals.
Web of Debt by Ellen H. Brown, 2008, Page 60

She continues:
“Economic historians like Rogers and Gibbins declare that during the best period of the Middle Ages – say, from the thirteenth to the fifteenth century, inclusive – there was no such grinding and hopeless poverty, no such chronic semi-starvation in any class, as exists to-day among large classes in the great cities . . . . In the Middle Ages there was no class resembling our proletariat, which has no security, no definite place, no certain claim upon any organization or institution in the socio-economic organism. Page 61

The great cathedrals were not only built with mostly unpaid voluntary labor but they were also maintained by volunteers. The people had free time and used it to increase the wealth of the kingdom and took pride in keeping public buildings and works of art in good shape.

They also had free time for learning, which explains why many great universities, libraries and centers of learning were established during that time.

There is an interesting book in the public domain by James J. Walsh called “The Thirteenth, Greatest Of Centuries” detailing how this was actually the most wonderful century in which to live that set the foundations to many of the amenities we value today. This was also the century when the use of the tally stick matured and came into almost universal use and acceptance in England.

The tally stick worked great and everyone was happy except the bankers. They were not getting their cut in interest from the tallies and decided to act as soon as they had the opportunity.

That opportunity came near the end of the seventeenth century after lengthy and costly wars with France and the Netherlands. The tally sticks did a great job of keeping the internal economy functioning, but external wars demanded large expenditures of gold and silver which were accepted outside the country. Goldsmiths were charging 30-80% interest on small loans and what coinage was left was clipped about 50%. The public lost millions of pounds because of goldsmiths going bankrupt.

Bankers proposed creating a Bank of England to solve the money problems. With a name like this it sounded like a government bank but in reality it was a private bank composed of private investors. The bank practiced fractional reserve banking and loaned the government money that it could have created for itself. Government debt went from 1.4 million pounds in 1694 to 16 million in 1698. The prices of most things doubled.

It is interesting that tallies were one of the sources used to finance this bank yet after it became established the bank saw the tallies as competition and from that point on sought to destroy them. Even so, some continued to be used until 1826 when they were removed from circulation and stored in the houses of Parliament.

In 1834 the tallies were ordered to be burned in the two furnaces in the House of Lords. This wound up starting a fire that got out of control and burned down both Houses of Parliament. It almost seemed like divine retribution for trashing a money system that worked so well.

Those with a negative view of fiat money cannot deny that the tally system was successful so they save face by saying that it was not fiat money at all, or not even money but merely like a promissory note. Others have said they were used like a modern day credit card.

No matter how you look at it the fiat principle was behind the use of the tally stick. Yes, the tally stick was like a promissory note, but a note authorized to be used as money. Many promissory notes of today or yesterday are not backed by gold, silver or any commodity. They are a promise to pay only backed by fiats of the issuers and the power of their good names. Just like our fiat dollars today are promissory notes from the Federal Reserve and are used as money even so were the tally sticks individual promissory notes also used as money.

There was a huge difference however. The tally sticks did not involve interest and never drove the government deeper into debt and did not contribute to inflation. This was why they were successful for numerous centuries.

Then the tallies had the fiat of the King authorizing them to be used as money to pay taxes. It’s difficult to see the reasoning as to why some critics do not see the Tallies as fiat money when two different fiats were involved and they were virtually backed by thin air. Just because they do not exactly fit the parameters of fiat money of today does not mean they were not based on the fiat principle.

Another criticism is the tallies were not even money because they were sometimes discounted or that discounting them was as bad as paying interest.

If an owner waited for the tally to mature then he received the full value but if he needed the value early in or if he had to use it in another country he had to trade them at a discount for commodities or coins. For internal use they were traded as money at a standard value just as money is today.

The occasional discounting does not alter the fact that they were used as money and had a more consistent value than does the fiat money of our age. Even in our time promissory notes and contracts are used as money on a number of levels, but the tally had the additional legal monetary authorization of the King.

The tallies were not in the same category money loaned at interest today for they drew no interest. First, only a small number were discounted whereas all new money today is created through loans at interest. Secondly, the tallies did not add to the public debt as is the case with today’s money.

Unless one takes the path of splitting hairs there is no other way to view the era of the tally sticks then as one of a successful fiat money.

Sources:
War Cycles – Peace Cycles by Richard Hoskins, Virginia Publishing (2000)

Web of Debt by Ellen H. Brown, 2008

The Thirteenth, Greatest Of Centuries, James J. Walsh

The Secret World of Money by Andrew M. Gause, 1996

The Lost Science of Money By Stephen Zarlenga

The Tally Stick: The First Internal Control? by Nicholas Apostolou and D. Larry Crumbley http://www.bus.lsu.edu/accounting/faculty/lcrumbley/Tally%20Stick%20Article.pdf

Money Masters Video. Transcript at:
http://www.no-debts.com/anti-federalist/files/moneymasters.txt

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Fiat Money of the Past, Part 2

May 21, 2011July 20, 2017 Joseph Dewey

This entry is part 16 of 31 in the series 2011B

CHINA – THE FIRST FIAT PAPER MONEY

China deserves a mention for their fiat money even though their use of it is considered a colossal failure by gold standard anti fiat advocates.
What is not pointed out is that every money system has had its failures. In fact, every advance that humanity has made has had failures along the way. Perfection is achieved when the causes of failure are examined and the lessons learned are incorporated.

Take our space program for example. We had all kinds of failures with the early Jupiter rockets as we competed with the Soviets. Did we throw our hands up and run away from creating a system that could orbit satellites?

Of course not.

We looked at the principles involved and knew that we could achieve stable rocketry if we worked out the bugs.

The same applies to fiat money. The principle is sound, but the obstacles to the principle working soundly must be discovered and removed.

China invented paper and was the first to use paper currency that was backed by metals as well as pure fiat money.

Their first paper money was way back in 140 BC though little is known about it outside of the fact it existed.

During the Song dynasty (960-1279 AD), paper money surfaced again. During the reign of Chengtsung in 997-1022, the Chinese beat our bankers to the punch in creating fractional banking and issued more paper money than was covered by bullion. To make sure there was not a run on the money they restricted redemption to once every three years The people called these notes “changelings” to describe their uncertain character. They also called it “flying money.”

Wars that took three quarters of the tax revenues and the increasing bureaucracy made the temptation to print up excessive money too great to resist and they began to suffer from inflation.

They tried to rectify the problem by legalizing metallic money again but this was siphoned off to Korea, Southeast Asia, Japan, and Vietnam leaving the country with a famine of the metallic money supply.

With little money left for redemption in 1189 AD they changed the fractional money with redemption to 100% fiat with no redemption. They seemed to have no other choice.

This was not a planned fiat currency but was a desperate attempt to save their financial system. Attempting to go back to gold, silver and copper didn’t work so maybe a fiat system would.

As one would expect the people felt cheated. They felt lied to for they were told they could redeem their money for coins and now they could not. Obviously in this situation the currency was doomed to failure and by 1197 AD the situation was dire.

In a desperate move they minted coins of all the silver they could get their hands on but inflation just became worse. Nothing seemed to work.

In this weakened state they were invaded and conquered by the Mongols.

Despite the discontent of the people with paper money the Mongols liked the paper money idea and continued with it. When you think of it this comes as no surprise for it has obvious value for convenience alone and that convenience continues to be a positive factor to this day.

In 1260 they passed laws making the use of copper, silver and gold coins illegal while claiming their paper money was backed up with gold, silver and silk floss.

This Yaun Dynasty called the money the “Yaun” which is term is still in use today. This money then gained wide acceptance not only in China but neighboring countries.

Because gold and silver money was illegal the people mainly redeemed the paper money for metals to be used as jewelry, or perhaps as a secure investment. Because of the low redemption rate it appeared the government could issue large amounts of paper and not worry about a run on their reserves.

They didn’t seem to anticipate another problem though which was inflation. They allowed provinces and private enterprise to also issue money which created more problems. Del Mar says:

“Many kinds of paper were in circulation – government, provincial, and private – besides many counterfeits; and the government was powerless to limit the circulation. The notes therefore continued to depreciate.”
A History of Money in Ancient Countries from the Earliest Times to the Present By Aleander del Mar Page 31

This system sounds like a combination the U.S. monetary policy in the 19th century and FDR after 1933. In 19th century America there were many private banks issuing many different versions of banknotes some securely backed and others fraudulent or counterfeit. Then after 1933 U.S. citizens were forbidden to own gold and use it as money but the dollar was supposedly backed by gold.

By 1351 a monetary crises was exacerbated and reform was attempted, again with no positive results. The Yuan Dynasty fell and was replaced by emperor Hongwu the first of the Ming Dynasty.

Even though paper money had major problems from the beginning Hongwu decided to use it again, but this time with a communist style very authoritarian approach controlling all aspects of life. They prohibited the citizens from using gold and silver as money and in 1374 AD created a fiat currency, this time backed by nothing but the authority of the emperor. Even though the money was not backed they tried to create the illusion of it being backed by assigning the notes, called “Da Ming baochao,” a value equal to one ounce of silver or a quarter ounce of gold. The people didn’t buy this and seemed to think the emperor was pulling a fast one on them.

It helps to put yourself in the situation of a peasant in those days who was used to seeing silver as money or the value behind money. Then the government takes away this money and gives him a piece of paper and says, “Here. This piece of paper is like one ounce of silver which you can no longer have.” One can see here why the common people in that age didn’t have faith in this from the beginning.

Within nine years the depreciation was astounding. Within 25 years it had become virtually worthless but circulated until about 1450 AD. The people, and then the government, switched over to bartering with silver and commodities which became their main form of money for some time.

It is interesting to break down this turbulent economic period of 450 years. During this time, except for a couple decades, the kingdom used paper money backed by gold and silver or the coins themselves. There were only a couple short decades where 100% fiat money dominated, yet this whole paper money period is pointed out as an example by many as a time where fiat money ran amuck.

Using this same logic one could say these times illustrated gold and silver backed paper money and coins themselves are not workable since they dominated most of the tempestuous period.

Reasonable investigators will acknowledge that both conclusions fall short of the true picture, which is this. The Chinese made a great discovery in using paper money. They tried to implement it in turbulent uncertain times and they had no instruction book to follow. They experimented, and, as with all innovations, a lot of mistakes were made.

The fact that there were problems did not mean paper money was useless. We know it is not for without it civilization as we know it would not exist. They had problems with gold and silver coined money also, but these have been useful for thousands of years. Even so, for two short periods of time they had problems with 100% fiat money. Again this is far from enough evidence to condemn this type of money.

Outside of using some bad judgment the problems they had stemmed from a shortage of precious metals for coins. The creation of paper money, fractional banking and fiat money were all moves designed to improve the money supply. In the process they created too much money on one hand, and, after failure, they wound up with metallic shortages again on the other.

This problem has plagued all civilizations since money first appeared in history and is with us today. Lack of enough sound money still creates havoc and no solution seems to be in sight.

To understand why fiat money didn’t work in China it is helpful to realize there are two ways it can be created.

The first is through debasement of currency. In this situation the people are led to believe their money is either backed by a commodity or has a certain value and then by fiat that value is diminished or removed. When this happens the people feel cheated and are reluctant to accept the money at the decreed value. This was the type of fiat money that appeared in China and it is usually doomed to failure.

The second is fiat money that is not a debasement of current money with promised value, but a new creation using no deception, debasement, or short changing the people. Its introduction should not go against the will of the majority.

This second fiat system can work as long as excessive money is not moved into the economy.

Greece and Rome’s early fiat money operated on this second system and was well accepted because the people did not feel cheated. Next we’ll give a few more examples.

Sources:
A History of Money in Ancient Countries from the Earliest Times to the Present By Aleander del Mar

The East Asian maritime world 1400-1800: its fabrics of power and dynamics … By Angela Schottenhammer

Imperial China 900-1800, By Frederick W. Mote

The Chinese Monetary System: From Ancient Times to the Early Modern Period By Sarah Gruen 2004

A History of Money by Glyn Davies, 1994

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