Honest Money: What It Is and What It Isn't - Part IV

By: Douglas V. Gnazzo | Wed, Apr 5, 2006
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Store of Wealth
Part IV

Quality vs. Quantity

Last week we ended with a discussion of the difference between present and future time preferences, and how they affect direct and indirect exchange accordingly. We saw that there are both direct and indirect credit transactions because of different time preferences.

This week we will discuss the importance of money retaining its purchasing power into the future. Money is only good for one thing - to exchange for other goods. You cannot eat or drink money.

The quality theory of money emphasizes the purchasing power of money as the most important determinant of a sound currency.

The quantity theory of money emphasizes the number of units of money as being the factor of greatest importance. The quantity theory is inferior to the quality theory of money.

The more purchasing power that money retains, the more goods that can be purchased with it. If money loses purchasing power, then fewer goods can be purchased with the same amount of money. Loss of purchasing power is loss of wealth.

Staying Even

If the quality of money is decreasing, then one has to accumulate more units of money to buy the same amount of goods as before. This means that one must work harder in order to earn more income just to stay even with the loss of purchasing power.

When one's income buys less than it used to, more income is needed to keep one's standard of living the same as before.

The loss of purchasing power is also referred to as inflation, or the debasement of the currency. Whatever you want to call it, the bottom line is that your bottom line is getting worse - you are losing wealth.

If the quality of our money is losing 10% if its purchasing power, then we will have to earn 10% more units of money just to keep our standard of living the same as before.

Since the Federal Reserve took control in 1913, our money has lost 95% of its purchasing power or value. This is why it takes both parents to work to support a family today.

Our income has not kept up with the loss of purchasing power.

This means our standard of living is going down - not up, as the establishment would have you believe. Just because one is in possession of more stuff, it does not mean that they are necessarily wealthier, or better off.

Bottom Line

Wealth is measured by the bottom line, after you subtract out what you owe from what you own.

If you own more than you owe, you have a positive net worth. If you owe more than you own, you have a negative net worth.

Whatever your net worth is - that is your bottom line - that is your financial wealth.

If the mortgage never gets paid off in full, one does not legally own the title to their house. The bank holds the title and owns the house until the mortgage is paid off in full.

If an individual is fortunate and pays off the mortgage, if taxes and other debts exist, one's house remains subject to forfeiture.

A 30-year mortgage, if paid every year for 30 years, adds up to 3 times the original amount of the loan paid out as the total final cost. The extra is the interest - the vig - paid to the man for loaning money that he created out of nothing - by fiat.

If 2/3 thirds of the way through all of the payments, one suddenly loses their job and cannot pay, the bank can foreclose on the house. One must sell and move out.

The bank gets the house and whatever money paid to date.

Then the banker will extend another loan to a different party and they will purchase the mortgage payments, and the cycle starts over anew.

Nice work if you can get it and rest peaceful at night. It might present a slight problem on the final day of reckoning, however, when all is weighed in the balance.

From the above we can see that it is very important for money not to lose its purchasing power. If the quality of our money is eroding, our standard of living is eroding along with it.

We must work harder and earn more income - just to stay even.


If money retains its purchasing power, it is a good store of wealth into the future.

For example, say one is a very hard worker and thrifty to boot. They produce more than they consume and save the excess income. The money is placed in the bank for a period of 5 years.

At the end of the 5 years, the money is withdrawn from the bank. The money has earned 1% interest per year. If one goes to buy a car with the money, they find the price of the car has gone up 20%.

What this means is that the value or purchasing power of the money has gone down by 20%, consequently, it takes 20% more units of the money to buy the same amount of goods, i.e. - the car.

The 1% interest earned on the deposit of your money does not go very far in making up the 20% loss of purchasing - the sticker price shock of the goods purchased: i.e. the car.

Inflation is not the prices of stuff going up. Rising prices are the result of inflation.

Inflation is the loss of purchasing power - of the value of money.

When one is prudent enough to work hard and save, the money repaid must be money that is as good as the money they deposited with the bank. It MUST REMAIN SOUND.

It must retain its purchasing power.

The money should have the same quality - the same purchasing power. If our money does not retain its purchasing power, this causes us to lose wealth.

If purchasing power is lost, our wealth decreases. Even after figuring in the interest earned, and even after compounding that interest, we are still behind the curve.

This is why the United States has become the largest debtor nation in the world.

We have allowed our money to lose so much of its purchasing power that we are becoming poorer - we owe more than we own. There is more debt than assets. This why they are called money-changers.

The net international investment position of the U.S. is our country's bottom line or net worth. The assets the U.S. owns minus the assets that foreign entities own in the U.S. is how it is calculated.

The U.S. International Investment Position is -3 TRILLION DOLLARS.

This figure (-3 trillion) is equal to 25% of our gross domestic product. At the present rate that our deficits are growing, within the next few years this percent will be 50%.

This is not the way to run a household. This is not the way to run a business. This is not the way to run the country. This is complete fiscal irresponsibility and wastefulness.

It is wealth transference by the elite collectivists.

From the above we see why it is so important for money to be a store of wealth - of purchasing power. If our money isn't a good store of wealth, then how is our standard of living going to improve?

If the quality of our money keeps eroding, then how will all the debt be paid off? And who will pay it off - our children, or their children?

Only savings can accumulate wealth - by producing more than one consumes and saving the excess. The accumulation of debt is the opposite of savings - it is the opposite of wealth.

Wealth is what you own - debt is what you owe.

It is impossible to accumulate wealth

When the currency is an obligation of debt servitude.

Come visit our new website: Honest Money Gold & Silver Report

And read the Open Letter to Congress


Douglas V. Gnazzo

Author: Douglas V. Gnazzo

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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