Whatever Happened to Penny Candy? by Richard J. Maybury

4.  Dollars, Money and Legal Tender

 

There is no subtler, or surer means of overturning the existing basis of society than to debase the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which only one man in a million is able to diagnose.  ~ John Maynard Keynes, 1883-1946, Economist

 

For 40 centuries gold has been used as money and for 25 centuries silver has been used as money, both for very good reasons.  But first, let’s look at the term “money”.  Money is the most easily traded item.  Many things can be traded but they are not easy to move (as in a house) or not easy to figure (like a diamond) or they are not desired by very many people or they rot or rust (like iron).  Good money must be easy to move, desired by many, not corrosive, scarce and hard to copy.  Gold and silver fit these characteristics.  People have tried many other things, such as stones, cattle, beads, salt, fish, etc. but they always return to gold and silver.

But there is a problem with using gold and silver as money; how do you know how much you have, the weight and the purity. And thus we have the invention of the coin, so people could determine how much gold or silver he had.  Gold and silver coins are real coins.  A real coin has three things:

• the weight of the coin
• the fineness of the metal
• the name of the mint that made the coin, or the hallmark

The hallmark tells you how good the coin is; if it is made by a reputable mint, people would be more likely to accept it.  During the Middle Ages, there was a mint in Joachimthal in Bohemia in the Czech Republic.  They made a one-ounce silver coin called the Joachimthaler and which was considered an excellent coin.  The name was eventually shortened to “thaler” so people had a name to call it.  Thaler was eventually changed to “daler” and then became known as the “dollar”.  One dollar was one -ounce of silver.

Names of other monies:

• British Pound Sterling = one pound of sterling (925 fine) silver
• French Franc = one-one hundredths of an ounce of gold
• Gold shekel of Babylon = half-ounce of gold
• Silver shekel of Babylon – half-ounce of silver

Next, people had a problem of where to store their money.  They ended up storing it in money warehouses where they would get a receipt for it. Eventually the money warehouses became banks, and the receipts, I.O.U.s

Until the 1960s, your wallet contained one dollar banknotes called Silver Certificates, but now they are called Federal Reserve notes.  Up until then, the U.S. dollar was very popular and coveted by many, but this is not true now. Let’s examine why.

The government printed too many Silver Certificates.  The government over-printed them because it wanted to pay for things that it was buying but eventually the government did not have enough gold and silver to back them.  Nowadays, the government prints Federal Reserve notes and because there is no money to back them, they are not I.O.Us; they are simply paper being printed in excess quantities.

To understand why these pieces of paper aren’t worthless, we will travel back in time to 1270 A.D.  Kubla Khan ruled a good portion of Asia and, because he was afraid to tax his people, he invented paper money.  If he wanted to buy something, he would simply write on a piece of paper: “Twenty Ounces of Gold” along with his signature.  People were initially sceptical and refused to accept the paper money so Kublai Khan passed a law forcing people to accept the money. This type of legal tender money is often called fiat money.  In the 1790s, the French government did the same thing; printing bogus money, they enforced with legal tender law and if you did not accept it, off with your head with the guillotine!  Nowadays, in the U.S. the punishment is not so dire but over two hundred years ago anyone who disobeyed this law would be charged with treason and jailed.

During the Revolutionary war, the government began inflation by printing the Continental dollars, which eventually became worthless and, as to not forget this mismanagement, the first sentence of Article One, Section Ten, of the U.S. Constitution reads:

ARTICLE 1, SECTION 10
U.S. Constitution

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Not only was the Continental dollar destroyed by inflation but also the Civil War Greenback lost much of is value and the Confederate dollar as destroyed as well.  Today, our Federal Reserve notes have already been severely damaged.

The author states:

“….. economic problems are only symptoms; the cause is law.  Inflation, recessions, business failures, unemployment, and poverty are caused fundamentally by corruption of America’s legal system ……. The legal system we have today is not the one America’s founders intended …….. I can’t stress strongly enough how important it is for you to understand how today’s legal system affects the economy ……”

Of which we will find out more in later chapters!

 

⇐  Chapter 3:  Inflation    Chapter 5:  Revolutions, Elections and Printing Presses ⇒