Updates for Sunday, August 1st [2004]
Nothing is troublesome that we do willingly...?
Dear Fellow Journeymen,
So it was that I asked Daniel the other day about money. I noticed each of the dollars say "Federal Reserve Note", and that made me intensely curious. What kind of money is this? Is it really Federal?
Daniel: I guess it works, I mean, I'm not broke right now. That bill is worth one dollar.
Me: Oh, I know it's one dollar in exchange, I meant in weight of fineness, if I turned it back in for gold and silver.
Daniel: Why would you want to buy silver?
Me: If I'm holding this I've already bought silver. Right?
Daniel: Man, I don't even know what you are yappin' about now. You gotta go down to the store, or whatever, and buy some silver or gold, if you want silver or gold. You don't just get it for free.
Me: Now it's me who doesn't know what you are talking about. It isn't free, that's the promissory for this reserve note. If this reserve note doesn't reserve me gold or silver, then what does it reserve me?
Daniel: Dude, "reserve note" doesn't mean anything. It's just a name. That's what we call our dollar bills, it doesn't actually reserve you anything! Since when was it any different?
I apologize, dear reader, in my account of this story, because it was near this point that I fainted, and fell to the floor. A dollar not backed by the worth of silver or gold? What has this world come to?
In my time, we coined silver or gold because silver and gold were worth something outside their use as a currency. We could always forge silver and gold into something worth trading if it wasn't worthwhile to keep it as coin, making sure the coin and worth of silver/gold bullion was always the same. It was this value that regulated the worth of money. When we don't print paper money with something worthwhile it reserves, then the banks borrow on the difference, in the form of a hollow promise not to overprint or underprint their fiat money. It was then I realized that the eyes of our citizens are not sufficiently open to the true cause of our distress. They ascribe them to everything but their true cause, the banking system; a system which if it could do good in any form is yet so certain of leading to abuse as to be utterly incompatible with the public safety and prosperity. Banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale. To give them the power to make money in whatever measure they want and have it be worth only what it's fit to print, is a danger.
The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their Property until their Children will wake up homeless on the continent their Fathers conquered. Then it was this way I realized, if the authority of the Federalists who print our dollars decide they need to pay down debts, or borrow more for spending, all they need to do is instruct the speedier printing of monies. In times of crisis they could suck up all the money and break our backs, and we'd have a Great Depression. In times of excess they could print too much, and our money too quickly becomes not worth having. The only way to keep money from staying too high in circulation is to take it from the people on a regular basis. Only then could they not know to what extent you overprint or underprint.
But even then, that is not true. Would not over the course of one's life that Man not notice how in years of his Youth prices were cheap and equitable, but how if he had saved that money for the years and years, he could not buy nearly as much? If anything, should not the prices go down for certain things? I heard, when I went to the movie theater last with Natalie, an eldery couple complaining about the prices. The woman said in her time, it was not more than $3 for a ticket. Now it's in upwards of $6 and $8, or even $10? The inflation can't be wiped out, but it can be controlled. Are they, the printers of money and the central banks, scheduling an inflation so small that the people don't notice it, allowing them to benefit from the difference of the money printed? Why would they ever print the right amount of money? Not that they can ever tell, it's only really worth the paper it's on, and really even less, since there is ink all over that paper.
The thought was so overwhelming I fell to the floor. I've always said that nothing is troublesome what we do willingly, and while I see Daniel spending this money everywhere willingly, I think this may be an exception to the rule, with regards to how troublesome it is.
I tender you the assurances of my constant friendship & high consideration and respect.
- TH. Jefferson
Editor's Notes:
Well, today's update is about the Federal Reserve. Finally created in 1913, the central bank was something many of the Founders hated and feared. Jefferson particularly saw it fit to doom society.
Since the creation of the Federal Reserve, we've had a lot of economic problems. First, not more than 10 years after it was created, banks started failing due to bad credit policies. Then, after a notable stock market crash, the Federal Reserve restricted the money flow so greatly that no one had the ability to find the amount of money needed to buy what they needed to get by. This is called the "Great Depression".
The Federal Reserve balanced itself but never fully found a way to prevent the danger of inflation, or secure us from the threat of deflation, meaning another Great Depression may be only one rash national emergency away. It now uses interest rate manipulation and arbitrary measures of dollar value to print out a scheduled overprinting. Money is roughly overprinted 2%, which is the current going rate of inflation. It's true, prices today are lower than prices our elders had. Ask some of them who remember conventional prices during the 60's and before. Everything was cheaper, dollar-wise.
Now, money is not a true measure of wealth. However, we lose real wealth in proportion to the failures of our money to represent it, because that money is the primary medium of exchange, and only through exchange do we find real wealth. That 2% price increase every year means that our money is not stable. If that stays steady there, and people like Alan Greenspan will ensure it stays steady at even higher rates, then $100 you save for 10 years will only be able to buy $81.70 of what it was capable of buying when you started saving it. Inflation makes it less worthwhile to have long-term savings, and it ensures those who do save for long periods of time get shafted out of a noticeable portion of the exchange value of their money.
In times when money was printed based on it's relation to a specie (like gold or silver) inflation and deflation were so minute that they were imperceptible. It's not to say they never happened, but money circulation usually changed for other reasons, because the rareness of gold and silver are steady. Since the money is tied to something, if there is too little money, the gold/silver it represents is worth less, and that gold/silver will be coined to make more money. If there is too much money, then the gold/silver bullion that money represents is worth more, and the coins will be melted down. This keeps the right amount of coins (and thus, promissory paper notes for coins, like what we used to have), in circulation, keeping prices stable. During years of the orthodox gold standard, we had inflation of .1% (1880-1914). That means if you saved $100 for 10 years during that time, that same money would buy what equals $99 during the year you started saving. You do the math on which system is better.
Two Jefferson quotes are used in this entry, they are...
"... the eyes of our citizens are not sufficiently open to the true cause of our distress. They ascribe them to everything but their true cause, the banking system; a system which if it could do good in any form is yet so certain of leading to abuse as to be utterly incompatible with the public safety and prosperity. Banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale." - Letter to Richard Rush, June 1819
"The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their Property until their Children will wake up homeless on the continent their Fathers conquered." - Letter to Dr. Thomas Cooper, January 1814
Of course, the Federal Reserve was an impotent body in the face of the gold standard, until Franklin Delano Roosevelt, by Executive Order, made it illegal for citizens to hold gold. After this period of time of gold abolition, the Federal Reserve stopped using the gold standard. The last vestiges of this standard went away in the 70's. Since then, inflation is a fact of life, controlled by people like Alan Greenspan and the Reserve Board members, who are appointed by the President. Congress now does not do a single ounce of coining or minting, despite this being a power given to them by the Constitution. I encourage you to do more research on the subject of the Federal Reserve and the history of the gold standard as a viable money alternative.
There is a new currency getting started, backed by silver and gold reserves, calling itself the "Liberty Dollar". It's aim is to make an alternative currency available, slowly but surely. It is entirely legal and confirmed by a regular independent audit (unlike the Federal Reserve), and you can learn more about that at it's homepage, www.norfed.org.
