The First Principle of Money

The First Principle of Money

The essential first principles are being lost, or buried, in the discussions and debates about money.  There is almost a universal confusion surrounding the difference between money and wealth.  Without clarity on the essentials and fundamentals in any discussion understanding cannot be obtained.

Wealth is always some combination (0 to 100 percent) of natural resources and labor (creativity and invention are types of labor) that results in a product or service.

Money, by distinction and definition, is not wealth, but a substitute or proxy for wealth, used for the exchange of wealth (goods and services).

This is the most basic and fundamental distinction between money and wealth that exists, and when that distinction is blurred or erased, rational discussion on either subject is impossible.  In today’s environment that is so hostile to the truth this blurring of definitions is nearly universal, as well as intentional.  It serves the entrenched “private money interests” to promote and protect this ideational confusion.

George Orwell said it plainly:  “during times of universal deceit telling the truth becomes a revolutionary act”.  A restatement of the obvious is the first duty of those who wish to get beyond propaganda and modern self-serving fairy tales and myths.

Money can take almost any form, and historically it has, from gold to cattle, from grain to salt, and hides to land.  These are all forms of wealth, commonly called commodity wealth with the exception of land, which is known as “real wealth” or “real estate” because it has certain distinctions that commodity wealth does not.  Notes or deposit receipts for grain, metals, gems, or other items of value have served throughout time as a safer, more convenient means of transferring payment.  Here the reputation of the issuer was the key factor in its acceptance.

But the point here is that “money” is a medium, or means of exchange that takes the place of the items being exchanged.  It is not the things themselves.  When items of value are exchanged that is called “barter”.  Money is used in place of barter.

The most important thing about money is its universal acceptance among the people belonging to that economy, state or nation that is issuing or guaranteeing the money.  It is the taxing authority, or the authority of government, that properly legitimizes what we call “money’.  Currency is circulating money that should be issued in sufficient quantity to support a prosperous and healthy economy, commerce, trade, goods and services.  Balance is essential.  Both too much and too little currency are damaging to an economy and its people.

The central controversy around “money” or “currency” is, and has always been, who gets to issue and control it.  In Western Civilizations up until about 350 to 400 years ago it was usually the government, or treasury, of a monarchial state or principality that issued “money” or currency.  This could be done in many ways, but most commonly it was through its agents, noble houses, tax collectors, sheriffs, or whatever sub-authorities that existed.  Temples and churches were also employed as tax collection agents, as it was easier to collect a tax when disguised as a donation to spiritual authorities, or “agents of God.”

The key point in the above is that the power to issue and control money has always been inseparable from the power to tax, and that power has always been some form of government authority and control of a given area and population.  That was true generally, until the rise of central and investment bankers.  This was during the age of Mercantilism, when monarchs granted licenses to companies and corporations in profit sharing ventures on land and sea.  They also licensed trading and professional “guilds” in return for shares in their profits.  But it was the “Smiths”, the Silversmiths and Goldsmiths, particularly the latter, that became wealthy enough to rival and even exceed the temporal power of the traditional ruling nobilities, kings, princes, dukes, barons and such.

The great growth of wealth of the Goldsmiths was propelled by the discovery of a practice of issuing many times more “receipts” for gold or silver than was actually on deposit.  Thus they collected many times the interest charged on those notes than otherwise.  This practice grew into what we know today as “fractional reserve banking” or issuing (loaning) many times the value of actual deposits.  This “loaning” of fractional reserve based “money” actually constitutes the creation of money “out of nothing”.  More accurately it creates it out of using the borrower’s “promise to pay” as an asset on deposit with the bank.  This means that if the borrower defaults, then the underlying “asset” (promissory note) is worthless.  The bankers recourse is to rely on whatever “collateral” the borrower may have used to secure the loan.  Thus “repossession” of cars and houses comes into play.  But I digress.  The point is that private bankers essentially grew wealthier and more powerful than rulers, and became the issuers of “money” or currency.  Since the early Central Bankers were Goldsmiths, and they as a group possessed and controlled most of the refined gold, gold became the standard or “preferred” currency, especially when trades were between different economic areas or nations.

More accurately, it was the bankers notes supposedly “backed” by gold, or gold receipts, that became the circulating paper currency because of its convenience, and ease of use.  They key here is that the “paper” money was issued by private bankers, rather than by the government authorities or treasuries.  This, more than anything else, led to the distrust of “paper money” improperly called “fiat money”.  Perhaps no other word is so commonly misused today as “fiat”, as it is applied to money.  Fiat does NOT mean paper money!

The word “fiat” simply means “by decree of law”.  It is money because the governing authority declares that it is “legal” money, and will be accepted by all government agencies and taxing authorities as “legal tender”.  This universal acceptance is what makes money money, or currency.  Gold or silver coins are, or were, while they were legally circulated, “fiat” money.  The “fiat” part simply means the coin was stamped or minted with a specific face value, and is not valued at its market price at any given moment (even assuming that can be practically ascertained at the time of transaction, which is an impossibility).

To sum up, wealth and money are two separate things.  Wealth has value as a good or service rendered.  Money has value mainly in its exchange for wealth.  Commodity money such as gold and silver are controlled by a small consortium of people who have a very special interest in propagating the lie that money is gold and vice versa.  Of all the commodities that could be used as money, gold (and all the rare and precious metals and gems) are the most subject to the market manipulation of the world’s major holders (including the mining companies).  The ugly game is called Monopoly.  It doesn’t matter if it’s a private or a state monopoly.  They are all destructive of true freedom and liberty.

Chains do not have to be of iron or steel.  They can be less easily seen, as in the economic variety.  Control of a nation’s currency is the same as control of that nation, or people.  When one controls the means by which one eats, or earns a living, or finds shelter, there is little need for visible chains.  Governments are no better or worse than those who control them.  The same is true with banks.  However banks are supposed to operate for the profit of those who invest in them, while governments are supposed to operate for the general welfare and benefit of the people, the commonwealth.

When private, for-profit enterprises become more powerful than governments, or in fact control them or their representatives, then the populations under those governments are no longer free from oppression.  When money, PR and ad campaigns decide elections then that government is no longer representative of the people, but of the money interests, and those who create, regulate, distribute and control the money and its value.  Political democracy is not possible without a fair degree of economic democracy.  The voice and will of the people must be represented in each of these arenas of organized and civilized human life.

When the proper balance between the economic, political, social and spiritual life of a nation is obtained, then, and only then, will that nation be truly “free”.

Jere L Hough



3 Responses

  1. When Benjamin Franklin was called before the British Parliament in 1757 and asked to account for the great prosperity in the American colonies, he explained, “That is simple. In the colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to anyone.”

    That prosperity was destroyed by the Bank of England and the British Crown when King George III demanded taxes paid with gold and British agents flooded the colonial money supply with counterfeit notes, drastically devaluing their currency. Forced to function with scarce British coinage and private bank credit, commerce declined, prosperity ceased and intense poverty spread throughout the colonies. It was the battle for financial sovereignty that precipitated the American Revolution.

    That war never ended. It will end only when the people have obtained economic democracy. People who must depend on others for food and shelter are not free, no matter what laws may claim they are.

  2. Jere,

    You have an excellent understanding of Money. Have you considered teaming up with author Stephen Zarlenga and Rep. Dennis Kucinich in the promotion of Zarlenga’s American Monetary Act and Kucinich’s National Emergency Employment Defense (NEED) bill?

    I know of your close association with Ellen Brown. (that is how I got here). I am also aware of Zarlenga’s unfortunate criticism of Ellen Brown’s admirable work at the grass roots level.

    Best regards,
    Luis Brandtner

    • Thanks Luis. Unfortunately, after attending several AMI conferences in Chicago and always being supportive of Zarlenga’s positions, as well as his excellent book, he apparently took offense at something I wrote in defense of Ellen and her positions on state banking, or ways the states could create their own form of money. When I called him last year to ascertain if Ellen and I would be welcomed at the conference, he made it clear that opposing opinions to his ACT would not be welcomed, and that I should “give someone else the chance to attend”, then abruptly (and rudely) hung up. So there seems little chance Stephen and I will be working on much. I will always be a supporter of Dennis Kucinich on most issues. Any kind of federal spending on our crumbling infrastructure even without money reforms would greatly stimulate the economy and employment. After all, the govt can borrow money at almost zero interest now, along with the banks. Thanks Luis.

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