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January 27, 2005

Gold and the Money Unit
by Alex Wallenwein

The Trouble with Money

The trouble with money is that people believe in their hearts that everything other than earning, saving, and spending money is something "too difficult" for them to understand and is better left to economists. Why do they think this? Because it is horrendously complex and difficult - but it doesn't need to be.

The reason money is such a difficult subject to think about is that its foundation was literally screwed up from the very beginning. Yes, I said "from the beginning." Even in the days when gold was king, the money concept was still screwed up. It is that very "screwed-up-edness" that has enabled the money powers of today to subvert the concept so completely that even noted economists like Al Greenspan don't know what "money" is anymore. He admitted as much sometime back in 2003.

The truth is, though, that money is very easy to understand if you get rid of the most important misconception in its history, and that misconception is this: That the value of gold, history's primordial money, needs to be expressed in terms of something other than gold.

That misconception is the root-cause of all confusion about money and every scientific and policy-making process involving it, especially economics. It is the reason people believe this ruse that economics is so "difficult."

Unfortunately for all of us, the experts have turned out to be most expert in one thing, and one thing only: in extracting and arrogating to themselves the control over the value of money. In doing so, they took it away from you and me where this control originally belongs. In doing so, they were able to switch real money - money with real, intrinsic value - with little more than confetti, right under our noses.

It is not my point at all to say whether this misconception is an intentional fabrication of a few well-heeled insiders or an historical quirk in the ways people have learned to think about money. That is irrelevant. The fact remains that it is indeed a misconception, and that's bad news - but it is also good news.

The bad news is that this misconception is the cornerstone of most people's concept of the economic and financial universe. Most people alive today have never lived in a time when gold was official money.

The good news is that, just as any misconception, this one can easily be cleared up by facts and solid reasoning. In other words: by truth.

History has proven that gold is the best money - bar none. Our current experiment with a world-wide, all-fiat, currency system is only about 30 years old. But even during the classical gold standard's heyday money wasn't "real" - because gold wasn't really "money" in those days - at least not in the complete and unified sense we are about to discuss.

In the gold-standard days, gold was only the stuff that backed the "money" of the day - money that had already begun to be thought of in terms of paper bank notes and gold certificates. Yes, gold itself was also circulated as currency, but far less so than its paper-proxy. It was mainly saved or used to settle international trade accounts and very large transactions.

I will go so far as to say that gold wasn't really "complete money" back when gold pieces themselves were still changing hands, in the days before the invention of paper-bills and drafts.

How can I say this?

In those days, gold was surely the medium of exchange, and it certainly was the store of value of the day - but what was its value stated in? It was almost always stated in terms of something else. Most of the time, gold was never counted as "so-and-so-much gold." It was always counted in terms of "ten Dukaten", "twenty Dollars", "fifty Marks", "one hundred Gulden", etc.

That's where the problem lies.

People's popular concept of money was never really unified in the substance that was used to represent it. Without getting too esoteric about it, let's look for a moment at the commonly accepted functions of money. There are three of them: money's functions as

You can immediately see that fiat completely fails to fulfill the last function. Fiat has no intrinsic value, so it can't store any. It's value must be supplied "from the outside" if you will, by the government/central bank complex that issues it. This is usually done by sheer force (legislation) and empty promises. Both the force and the promises are only worth anything as long as the government is able (and willing) to back up that value. And that, as we all know, can change over time, sometimes very suddenly, which leaves you hanging out to dry.

Even when actual physical gold changes hands as money, with or without official sanction, these three functions are never perfectly united in the actual substance of money, i.e., the gold or silver bullion itself. That is, the physical weight of the bullion itself was never used as the method of counting the value of the money, i.e., as the "unit of account." As long as the 'unit of account' function is described in terms of an arbitrary measure that lies outside the very piece of bullion you are dealing with, all kinds of evil can be perpetrated on a currency.

Again:

"As long as the 'unit of account' function is described in terms of an arbitrary measure that lies outside the very piece of bullion you are dealing with, all kinds of evil can be perpetrated on a currency."

It is this idea, the idea that money needs to be called something other than what it is (namely, a certain quantity of gold of a certain purity) that has allowed bankers and money-lenders the world over to totally subvert and debauch our money to the point where it has no value other than the one they tell us it has. And it is also what now makes it so hard for them to figure out what "money" actually is anymore (under their own screwed-up definition of it).

They surely are experts, aren't they?

Right. But experts at what? They are like modern baking companies that manufacture bread of the US "white bread" variety. Modern bakers leech all real nutrients out of the flour they use to bake the bread, and then they artificially "enrich" it with stuff that wasn't in there before.

Modern-day money changers (bankers) do the same thing. They take our money (precious, intrinsically valuable, and stable gold) away from us and leave us with a disembodied, hologram-like substitute that has no value at all. They then proceed to "enrich" its value by what they call "monetary policy", which is essentially another name for "inventing ever more complicated lies to make you believe that what you work so hard to earn, spend, and save every day has any real value."

All the while, that so-called "value" constantly decreases.

How can all this confusion, this deception, be prevented?

By firmly establishing in the public's mind the concept of the "Money-Unit" - that is, the perfect and organic union of all three functions of money in the very thing that is traded and exchanged for goods itself - the physical gold coin in your hand or pocket.

It makes no sense at all to call an ounce of gold that was stamped into a little metal disc a "twenty-dollar piece" or whatever. It makes far more sense to call it a "one-ounce piece of gold." How much is that worth? One ounce of gold. There can never be any confucion about the value of money anymore if this is how monney is constituted and counted.

To do this effectively, a gold (or silver) piece must be of a certain minimum fineness of gold, must have certain universally acknowledged dimensions, and must be stamped with nothing other than its actual, physical weight.

Objections, Objections ...

People may ask: "How can you be sure that what you earn or receive from another is actually gold of that purity and weight? You'd have to assay it every time you accept one." (Oh, if only people were as suspicious of paper-money as they are of gold. But that day will come!)

Have you ever gone to a grocery store to exchange your accumulated small change for dollar bills in one of those coin-changing machines?

The technology is very simple. The machine gauges the coin's weight and dimensions very quickly. Only coins of the correct weight and dimensions are accepted as "real" and given credit for. (Only coins of the exact bullion content required can meet the dual weight and dimension criteria.) Given the atomic weight of gold, this dimension-to-weight ratio is extremely difficult if not impossible to fake. The very same thing can be done by installing smaller versions of this kind of machine on any super-market (or other store) checkout counter.

"But ... gold is so heavy. You'd have to carry sacks of it around with you every time you go shopping."

Maybe if you are shopping for cars or homes. For everyday transactions, silver would be more suitable. For very small change maybe even copper. If you are security conscious, you can use a private digital gold-currency debit card that automatically adds and subtracts balances of physical gold in your "holding" as you buy and sell things. Although such cards would represent a "proxy" for gold/silver and not the real thing itself, they are still denominated in terms of actual bullion weight - not "dollars", "francs", etc.

"But ... you won't find any stores that accept gold instead of paper-cash or checks, credit cards, etc., that are denominated in national paper currencies."

That's just a matter of convincing a few large retail chains that they are better off earning bullion from their customers than fiat - because bullion's value cannot be inflated away or diluted by falling forex values. This is especially easy to do in environments like our current one where the dollar just keeps on falling and falling, and where the threat of a total currency collapse cannot be ruled out. Once these retail chains latch on to the idea, others will, too. Eventually, people can demand to get paid in bullion by their employers.

"But ... the government won't go along with that. They'll just confiscate gold all over again and call it a 'national emergency' or whatever."

Sure, they could do that - but what if they did?

It would only serve to make clear to the entire world that gold is the true value underpinning all fiat "currencies" - despite all of their claims and treaties that attempt to establish the contrary idea in people's minds. It would also only serve to make crystal-clear that all past attempts at marginalizing gold in the eyes of the public amounted to nothing but fraud, theft, and collusion. And that means people, this time,would know that such a renewed attempt to confiscate is nothing but more of the same - and would hopefully respond by showing some moral backbone. (I'm an optimist, I know!)

By the time the use of pure bullion currency and its electronic variant (like GoldMoney, Pecunix, e-gold, etc.) becomes widespread enough to make the government pay attention, people will have understood this concept of the "Money-Unit". Once they do, imagine a government trying to take gold away from them and tell them: "Here, take this recently-proven-to-be-worthless paper-currency in 'payment' for your valuable bullion pieces."

Good luck!

Preventing Further Deception

Back in the days of FDR when he confiscated all private gold during 1933, the paper-bills floating around in which he "paid" Americans for their bullion were called "dollars". The gold coins they (at least in theory) represented was also called "dollars" - so it was easy to confuse the public by saying: "Hey, look here, we're giving you your money's worth, dollar-for-dollar, so don't complain!"

Public awareness has progressed to the point where the government is forced to take note, let them try to convince even an apathetic public that paper-dollars are the monetary equivalent of actual weights in gold or silver. Ha! I'd like to see that!

"Constant Marginal Utility"

As most people reading this know, gold has several huge advantages over other "monies":

1. It's compact, easily transportable, infinitely divisible, non-perishable - and it cannot be over-produced.
2. Production is slow, so any possible inflation of the volume of bullion money is slow as well. Price-inflation, that scourge of modern life, is therefore nipped in the bud as well.
3. Gold has a "constant marginal utility."

Okay, so there is some economist-jargon. No big deal. "Constant marginal utility" means simply that each additional unit of gold owned or acquired by an individual, business, or government, is worth the exact same amount to that entity as the previous one.

With other commodities, this isn't so. Think about frozen T-bone steaks. Once you have a year's supply (or whatever amount) stored up, i.e., once you are "satisfied" that you have "enough", each additional (marginal) steak you procure is of less and less USE (utility) to you.

In economist's terms, that means steaks have a "declining marginal utility."

With gold it's different. It is so tradeable, so easily storable, it keeps its value so well, is souniversally acceptable, and is therefore so useful to people, that each additional unit is of no less use than the previous one.

With fiat, it's more like the case of the T-Bone steaks, although for different reasons. Fiat can be printed at will. Its amount in circulation can be increased virtually over night, so the temptation for the regulators of fiat (central banks) to do exactly that to get themselves out of an occasional "tight spot" is huge - and as we all know, they regularly succumb to that temptation.

Fiat can be created at such a rapid pace, in such enormous amounts, that its value shrinks dramatically over time. More money competes for the same amount of goods, so prices rise very fast. When this happens, the next dollar you earn is worth less to you (it buys less) than the previous one, so fiat's marginal utility declines just like that of the T-Bone steaks.

That means you are not in control of what your saved money will be worth in ten, twenty, fifty years.

A bullion currency can be inflated, too - but only with great effort and expense - and not by very much. A country can trade for gold and accumulate a surplus, or can dig it out of the ground. As the amount of gold coins in circulation increases, prices rise - but only very, very slowly. When citizens of a country own lots of gold and circulate it (i.e., the domestic money supply increases) and they see domestic prices rise as a result, they tend to buy cheaper foreign goods. As a result, gold flows out of the country to pay for the imports until prices fall again - naturally.

The result: an AUTOMATIC price-adjustment."

This happens automatically, i.e., THE MARKET (all people interacting and exchanging goods and services voluntarily) determines the level of prices and the flows of bullion from one country to another. No central banks, no governments are needed for this process in any way! And the value of the bullion is very stable over time. In such an economic environment, governments are reduced to their proper function: to make sure that people don't steal from each other or kill each other, to provide for the common defense, and to provide a forum for legal disputes over contracts, etc.

That's why bankers and governments are so scared of gold, and that's why they will fight to the death before they re-institute a gold standard on their own. That is why such a bullion-standard needs to be initiated as ...

A Private-Issue Currency

This bullion-weight currency must be issued and distributed privately, by the people only, without any government input, until governments are confronted with a fait-accomplis.

Another benefit is that, in the case of a bullion currency, the market similarly operates to keep interest rates very low and consistent. Interest is what one charges for loaning out bullion. When bullion is lent, the lender actually parts with the value of the bullion lent out. When fiat is lent on the other hand, the bank parts with precisely nothing!

The bank creates a bookkeeping entry on your account (a "credit") and a piece of paper (your loan contract) says that you must "repay" that "loan". You have to now work or make a profit to repay that money with interest. The bank gets the benefit of your labor and effort. You get - in essence - NOTHING.

Fair deal?

No.

In the process, money is created. The banks loan it into existence. People buy and sell with it, and prices rise. Inflation heats up. So banks raise their interest rates to stop this process and cool it off a bit.

At the same time, governments love the fiat arrangement because it lets them borrow unlimited amounts of money and run huge deficits whenever needed. This debt-created money is what allows governments to fight endless wars.

So, don't count on your government - whichever government you happen to live under - to "do the right thing" and "go back on a gold standard." If you want one, do it yourself.

The Thing to Remember:

Valuing bullion in terms of a fictional, arbitrary unit of account other than the bullion's exact weight leaves the door open for bankers and politicians to tinker with the currency. What happens when they get to do that we all can witness first hand right now. Only a purely weight-denominated, 100% bullion content currency can prevent that, and such a currency must be privately issued and distributed, using nothing but free-market forces and channels.

That's the way out of the stealth-tax called 'inflation.' That's the way out of having only worthless pseudo-money to earn, save, and buy things with. That's the way to protect yourself and the world from government tinkering with your life's savings by "adjusting" your money's value according to their own needs - and that "need" is always to cover up their accumulated policy blunders.

The Founders' Biggest Blunder

At the same time, once use of this private bullion currency is sufficiently widespread, a drive to amend the Constitution must be initiated to make it the law of the land that any attempt to subvert the Money Unit - legislatively or otherwise - is punishable by death.

When the Constitution of 1787 was written, the founding fathers failed to write that provision into their document. They also failed to properly define the Money Unit and to expressly bind the federal government itself to the use of only gold and silver as money - not just the several states.

That needs to be corrected.

A tall order, I know, but so what? The founders and the people who lived in their days (a small minority when compared to the total, often pro-British, US population at the time) fought off the British Empire, the most powerful political, economic, and military force of the then-known world, willingly pledging - and in many cases sacrificing - their Lives, their Fortunes, and their Sacred Honor.

So, can we take upon us whatever little risk and effort lies in establishing and educating the public about The Money Unit?

I think we can...

... I think we must!

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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