Council on Foreign Relations

Council on Foreign Relations
Thomas Allen

[Editor’s note: Footnotes in original have been omitted.]

To guarantee more surely their control over government, Illuminists set up organizations to train and provide Illuminists and their agents for high governmental posts and to develop plans to bring about their illuministic New World Order. The Council of Foreign Relations (CFR) in the United States and the Royal Institute of International Affairs in Great Britain serve the purpose of training and providing Illuminists for governmental offices. Through these organizations, the Illuminists control the financial and foreign polices of the United States and Great Britain Other groups, such as the Bilderberg Group, were organized to coordinate illuministic activities among governments, banks, business, academia, and the media. Groups were also organized to defend the interest of the Illuminists and to advance the cause of Illuminism.

Between 1909 and 1913, Milner help found Round Table Groups, semi-secret groups, in England; the chief British dependencies of South Africa, Canada, Australia, and New Zealand; and the United States. The Round Table Group in the United States included Frank Aydelotte (Rhodes scholar), George L. Beer, Erwin D. Canham (Rhodes scholar), Andrew Carnegie, Jerome D. Greene, Edward House, Otto Kahn, Thomas W. Lamont, Walter Lippman, J.P. Morgan, John D. Rockefeller, Whitney Shepardson, Benjamin Strong, Paul Warburg, and William Wiseman.[1] According to Dr. Carroll Quigley, “The original purpose of the groups was to seek to federate the English-speaking world. . . .”[2]

Money for organizing these Round Table Groups came from the Rhodes Trust, Alfred and Otto Beit, Sir Abe Bailey (owner of the Transvaal mines and collaborator with Milner in starting the Boer War), and other associates and followers of Cecil Rhodes. After 1915, the Astor family became financial backers. By 1925, financial backers included Carnegie United Kingdom Trust, organizations associated with J. P. Morgan, Jr., the Rockefeller family, the Whitney family, associates of Morgan, Grenfell, and Co., associates of Lazard Brothers, and various foundations and other wealthy individuals.[3] Other financial backers of the Round Table Groups were Lord Nathaniel Mayer Rothschild, the Duke of Bradford, and Lord Iveagh.[4]

Out of the Round Table Groups came the Royal Institute of International Affairs in Great Britain and the Council on Foreign Relations in the United States. (The original plans for these two organizations were drawn up in Paris while the peace negations at the end of World War I were taking place.) These two organizations were set up as independent bodies instead of branches of a single institution to conceal that they were fronts for the Round Table Groups.

In 1919, F.D.L. Astor, Baron John Jacob Astor of Hever (later chairman of The Times and director of Hambros Bank), M.L. Astor, Sir Abe Bailey, Sir Otto Beit (trustee of the Rhode estate and director of the British South Africa Co.), Sir Julien Cahn, Lionel Curtis (colonial secretary of Transvaal), Alfred Milner, Percy Alport Molteno, and John W. Wheeler-Bennett (later General Eisenhower’s political advisor during World War II) founded the Royal Institute of International Affairs.[5] Curtis had the primary task of organizing the Royal Institute of International Affairs in Great Britain and each British dominion. The Royal Institute of International Affairs was a front organization of the Round Table Groups. Sir Abe Bailey, Sir Alfred Beit, and the Astor family were the principal financial supporters of this institute. (Later various Rothschild interests, the Rockefeller Foundation, and Carnegie Corp. became the major sources of financing.) R.W. Leonard, president of the Coniagas Mines, was its first president.

The primary goal of the Royal Institute of International Affairs was to perpetrate British power, to unite the world under British control, that is under the control of the Illuminists who control Great Britain. However, with the death of Milner in 1925, the international financiers gained control of the Royal Institute of International Affairs and the Round Table Groups. They changed the goals of these organizations to serve their purposes.

Edward Mandell House was the principal organizer of the Council on Foreign Relations, which was incorporated in 1921. Jerome Greene was House’s principal aide in organizing the Council on Foreign Relations. It was founded as a front for the American branch of the Round Table Group and for Morgan’s financial empire. (By World War II the Rockefeller financial empire had gained preeminence over Morgan in control of the Council on Foreign Relations.) Among the Morgan agents involved in organizing and running the Council on Foreign Relations were Lamont and Beer. Russell Leffingwell, one of Morgan’s partners, was its first chairman. Other Morgan men who were early members were Paul Cravath, John W. Davis, Norman Davis, and Russell Leffingwell.[6] Financial backers included Nelson Aldrich, Bernard Baruch, J.P. Morgan, Jr., John D. Rockefeller, Jacob Schiff, and Frank Vanderlip—all of whom were either international financiers or closely allied with them.[7] Among the charter members were Nelson Aldrich, Bernard Baruch, John W. Davis (J.P. Morgan Jr.’s personal attorney and a founder of the English-Speaking Union), Allen Dulles (later head of the Central Intelligence Agency), John Foster Dulles (later Secretary of State), Averell Harriman, Christian Herter (later Eisenhower’s Secretary of State), Walter Lippman (“the authentic spokesman in American journalism for the Establishment”), J.P. Morgan, Jr., Elihu Root (Theodore Roosevelt’s Secretary of State), Henry L. Stimson (later Secretary of War and a member of Skull and Bones), William Boyce Thompson (director of the Federal Reserve Bank of New York), Otto Kahn, John D. Rockefeller, Jacob Schiff, and Paul Warburg (who was one of the incorporators).[8] In 1929, the Rockefellers provided the headquarters building.

The Council on Foreign Relations became a powerful force in the United States after 1927 when the Rockefeller Foundation began funding it. Later, the Carnegie foundations, German Marshall Fund, McKnight Foundation, Dillon Fund, Ford Foundation, Andrew W. Mellon Foundation, Rockefeller Brothers Fund, Starr Foundation, and Pew Charitable Trusts became significant sources of funds.[9] Major corporations also funded it. (Their financial support bought them special briefings from high ranking governmental officials on information not publicly available—thus, they gain advantage over their competitors.)

One of its primary purposes was to ensure that the United States would become part of the world governance following the next world war as part of the Illuminists’ goal of creating a one-world socialist system that included the United States (where the elite of the international financiers would have a global banking monopoly). Thus, a primary goal of the Council on Foreign Relations is to destroy the United States Constitution and the United States as an independent country. (A necessary step toward this goal was the destruction of the sovereignty and independence of the 50 States. They had to be reduced to administrative provinces of the United States government. This destruction has been achieved.) Its goal is according to Admiral Chester Ward, CFR member, “to bring about the surrender of the sovereignty and the national independence of the United States. . . . Primarily, they want the world banking monopoly from whatever power ends in the control of global government.”[10] The American Legion has condemned the Council on Foreign Relation “as being actively engaged in destroying the Constitution and sovereignty of the United States of America.”[11] The Council on Foreign Relations seeks to fulfill the illuministic dream of submerging the United States into the global state of the New World Order where the international financiers and other Illuminists rule.

When Franklin Roosevelt assumed the office of the President, he brought with him the idle rich, Communists, and members of the Council on Foreign Relations. With the outbreak of World War II in 1939, the Council on Foreign Relations began formulating the war and foreign policies of the United States. By 1942, it had captured control of the State Department. Through the Council on Foreign Relations, the Illuminists gained control of the United States government during the Roosevelt administration. They have maintained control ever since then.

Through the Council of Foreign Relations, the Illuminists have gained control of both major political parties in America and the federal government. Since its founding a majority of the presidents (Hoover, Eisenhower, Kennedy, Nixon, Ford, Carter, G.H.W. Bush, and Clinton) have been CFR members. Since the 1920s, the Council on Foreign Relations has controlled the foreign policy of the United States. Since World War II, a member of the Council of Foreign Relations has nearly always held the offices of the Secretary of the Treasury, Secretary of State, Secretary of Defense, and National Security Advisor, which are the four most influential offices in the United States government next to the President.[12] All but one director of the Central Intelligence Agency have been members of the Council of Foreign Relations.[13] More than 90 percent of the Kennedy administration were members of the Council of Foreign Relations.[14] In the Nixon administration, at least 110 people in top governmental positions were members of the Council of Foreign Relations. The Clinton administration had more than 100 members.

About the power of the Council on Foreign Relations, the Chicago Tribune wrote in 1950:

The members of the council are persons of much more than average influence in their community. They have used the prestige that their wealth, their social position, and their education have given them to lead their country toward bankruptcy and military debacle. They should look at their hands. There is blood on them—the dried blood of the last war and the fresh blood of the present one [the Korean War].[15]

This commentary is more true today than when it was written. (The Council on Foreign Relation wasted more than 50,000 American lives in the Vietnam War and now seems determined to waste at least that many in its War on Terrorism.)

Tax-free foundations, such as the Rockefeller, Ford, and Carnegie foundations, which members of the Council on Foreign Relations control, have supported the Council of Foreign Relations and allied organizations. Also, through the Council on Foreign Relations, Illuminists control the Federal Reserve System and, thereby, the economy of the United States. Members of the Council on Foreign Relations also control major universities and most multinational corporations.

Through the Council on Foreign Relations, Illuminists have gained control of West Point and the United States military. Commandants of West Point over recent decades have been members of the Council on Foreign Relations. Many senior commanders have been members of the Council on Foreign Relations. They include John T. Chain (Deputy Chief of Staff, Plans and Operations, U.S. Air Force), Paul F. Gorman (Commander and Chief, U. S. Southern Command), Bernard W. Rogers (Supreme Allied Commander, Europe), John W. Vessel, Jr. (Chairman, Joint Chiefs of Staff), John W. Wickham, Jr., (Chief of Staff, U. S. Army). With one exception, every secretary of defense since 1957 has been a member of the Council on Foreign Relations or Trilateral Commission.[16] Thus, using the Council on Foreign Relations, the Illuminists have executed Weishaup’s strategy: “First, the military academies and the military.” (In Great Britain, the Illuminists seem to rely more on Freemasonry to control the military.)

Through the Council on Foreign Relations and foundations, Illuminists control think-tanks, such as Brookings Institute, Rand Corp., Hudson Institute, and Middle East Institute. These think-tanks spew out information that influences government, public education, and public opinion. The propaganda produced by these think-tanks subtly promote socialism and globalism—hence, the New World Order. They are “little more than propaganda divisions of the Rockefeller establishment, generating tainted data.”[17]

Furthermore, the Council on Foreign Relations controls the news media. Thus, its control over the United States government is never really revealed in the establishment media—NBC, CBS, ABC, CNN, etc. Not only are most chief executives of the major networks members of the Council on Foreign Relations, so are most of the broadcasters and chief reporters. (Not only do the Rockefellers control the major networks through the Council on Foreign Relations, they also control them through their banks, which own a controlling interest in them.) The Rockefellers through the Council on Foreign Relation also control the major wire services. Members of the Council on Foreign Relations control the major newspapers and magazines. Members of the Council on Foreign Relations even control the major publishers. Furthermore, through interlocking directors, the international bankers and multinational corporations control the major news media. Most of the newspapers not directly controlled by Illuminists are controlled through advertising money. If a newspaper prints a story that the Illuminists do not want printed, the paper loses advertising revenue. Thus, the media “do not simply report the news, they actively manage information, censor information, and manipulate images in order to promote those cause they espouse.”[18] The illuministic controlled media often select and report news that support the positions of Illuminists or that undermine contrary positions. As Walter Lippman, a founder of the Council on Foreign Relations, wrote, “News and the truth are not the same thing. . . .”[19] So much for an independent press.

Some of communication executives, journalists, and correspondents who are (or were) members of the Council on Foreign Relations are Steward Alsop (Newsweek), William Atwood (Look), Frederick Beebe (Newsweek), Michael Bloomberg (Bloomberg Financial Markets), David Brinkley (NBC), Tom Brokaw (NBC), William F. Buckley, Jr. (National Review), John Chancellor (NBC), Robert Christopher (Newsweek), Norman Cousins (Saturday Review), John Cowles (Look, Harper’s, Harper and Row, Minneapolis Tribune, Des Moines Register), Gardner Cowles (Look, Harper’s, Harper and Row, Cowles Communications), Orvil E. Dryfoos (New York Times), Michael Eisner (Disney/ABC, a Jew), Osborne Elliot (Newsweek), Georgie Anne Geyer (syndicated columnist), Katharine Graham (Washington Post, Newsweek, Associated Press), Philip Graham (Newsweek), George V. Grune (Reader’s Digest), Karen Elliott House (Wall Street Journal), Walter Isaacson (CNN News Group and a Rhodes Scholar), Peter Kann (Dow Jones and Co.), Ted Koppel (ABC), Jim Lehrer (PBS), Irving R. Levine (NBC), Sol Linowitz (Time, Inc.), Richard Lowry (National Review), Henry Luce (Time, Inc., Life, Time, Fortune, Little, Brown and Co.), Jason McManus (Time, Rhodes Scholar), Bill Moyers (CBS), Malcolm Muir (Newsweek), Rupert Murdoch (News Corp.), Frank Murphy (Los Angeles Times), Thomas Murphy (ABC), Michael O’Neill (CBS), William S. Paley (CBS and a Jew), Richard D. Parsons (AOL Time Warner), Dan Rather (CBS), James Reston (New York Times), A.M. Rosenthal (New York Times), David Sarnoff (NBC and a Jew), Dianne Sawyer (ABC), Tony Snow (Fox News), Frank Stanton (CBS), Donna Shalala (Gannett News Service), Arthur Hays Sulzberger (New York Times), Arthur Ochs Sulzberger (New York Times), Arthur Taylor (CBS), Laurence A. Tisch (CBS), Barbara Walters (ABC), John F. Welch, Jr. (NBC), and George Will (Washington Post, Newsweek).

Through their control of movies, television, radio, and newspapers and other print media, the Illuminists have achieved what Edward Bernays, “the Father of Public Opinion,” wrote about in 1928: “Those who manipulate the organized habits and opinions of the masses constitute an invisible government which is the true ruling power of the country. . . .”[20] Thus, the Illuminists are the invisible government of the Western World, if not the planet, and are truly the ruling power.

The international banks (Kuhn, Loeb and Co.; Lazard Freres, which is directly afflicted with the Rothschilds ; Dillon, Reed; Lehman Brothers; Goldman, Sachs; Brown Brothers, Harriman; J.P. Morgan Chase and Co.; First National City Bank; Chemical Bank; and Manufacture Hanover Trust Bank) are represented on the Council of Foreign Relations. Most major multinational corporations are also represented on the Council on Foreign Relations, i.e., members of the Council on Foreign Relations control the major multinational corporations.

The ultimate goal of the Council on Foreign Relations is to destroy the sovereignty and independence of the United States and to merge them into the world government of the New World Order. To accomplish this goal, it must suppress racial, ethnic, and national loyalty.

According to Arthur Schlesinger, Jr., a CFR member, the Council on Foreign Relations is among the front groups of the power elite, the Illuminists. Using the Council on Foreign Relations, the Illuminists have brought about a concealed revolution in the United States. Because this revolution lacked the violence of the French Revolution or the Bolshevik Revolution, most Americans have been unaware of it. The United States government was changed from a constitutional federal republic ruled by the people to a democratic fascist state ruled by the Illuminists. The trappings of the Constitution remain as there is still the President, Congress elected by the people, and the Supreme Court, and State governments elected by the people. However, the soul of the United States Constitution has been gutted. What now passes for the constitutional federal republic today is completely alien to what the founding fathers established.

[Editor’s note: References in original are omitted.]

Endnotes
1. “House of Morgan,” http://lovesphere.org/b/Bankers/morgan.org, May 1, 2001. “Kuhn-Loeb,” http://lovesphere.org/b/Bankers/morgan.org, May 1, 2001. W. Cleon Skousen, The Naked Capitalist: A Review and Commentary on Dr. Carroll Quigley’s Book Tragedy and Hope (Salt Lake City, Utah, 1971), p. 33.

2. Stanley Monteith, Brotherhood of Darkness (Oklahoma City, Oklahoma: Hearthstone, 2000), p. 90.

3. Skousen, p. 33.

4. Eustace Mullins, The World Order: Our Secret Rulers (Second edition. Staunton, Virginia: Ezra Pound Institute of Civilization, 1992), p. 22.

5. Ibid., pp. 50-51.

6. “Council of Foreign Relations,” http://lovesphere.org/b/Bankers/morgan.org, May 1, 2001.

7. Gary Allen, None Dare Call It Conspiracy (Seal Beach, California: Concord Press, n.d.), p. 82.

8. William Blase, “The Council on Foreign Relations (CFR) and the New World Order,” 1995, http://www.conspiracyarchive.com/NWO/Council_Foreign_Relations.htm, Dec. 12, 2002. Dennis L. Cuddy, Now Is the Dawning of the New Age New World Order (Oklahoma City, Oklahoma: Hearthstone Publishing, 2000), p. 162. Gary H. Kah, En Route to Global Occupation (Lafayette, Louisiana: Huntington House Publishers, 1992), p. 31. Skousen, pp. 52-53.

9. Sterling E. Lacy, Valley of Decision (Texarkana, Texas: Dayspring Products, Inc., 1992), p. 55. Jim Marrs, Rule by Secrecy: The Hidden History That Connects the Trilateral Commission, the Freemasons, and the Great Pyramids (New York, New York: Harper Collins Publishers, 2000), p. 34. Dan Smoot, The Invisible Government (Dallas, Texas: The Dan Smoot Report, Inc., 1962), p. 4.

10. Marrs, p. 35.

11. Dennis L. Cuddy, The Globalists: The Power Elite Exposed (Oklahoma City, Oklahoma: Hearthstone Publishing, 2001), p. 114.

12. Kah, p. 53.

13. Monteith, p. 37.

14. H.S. Kenan, The Federal Reserve Bank (Los Angeles, California: The Noontide Press, 1966), p. 84. Mary M. Davidson, The Profound Revolution (Omaha, Nebraska: The Greater Nebraskan, n.d.), p. 4.

15. Allen, pp. 92-93.

16. Kah, p. 53.

17. Ibid., p. 61.

18. Paul McGuire, Who Will Rule the Future: A Resistance to the New World Order (Lafayette, Louisiana: Huntington House Publishers, 1991), p. 53.

19. Dennis Behreandt, “Understanding the News,” The New American, Feb. 10, 2003, col. 2, p. 55.

20. Cuddy, Globalists, p. 87

Copyright © 2010 by Thomas Coley Allen.

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Some Nineteenth Century Illuministic Organizations

Some Nineteenth Century Illuministic Organizations
Thomas Allen

[Editor’s note: Footnotes in the original are omitted.]

During the nineteenth century, several illuministic organizations were established. They included the Mormons, Skull and Bones, B’nai B’rith, and the Bohemian Club.

Mormons
In 1830, Joseph Smith published his Book of Mormon. The Book of Mormon was Smith’s translation of golden plates revealed to him by an angel named Moroni, who was the son of Mormon, the leader of the extinct Nephites, a Jewish people who had migrated to North America. Mormons consider the Book of Morons to be divine revelation superior to the Bible.

Twelve years later, Smith joined the Freemasons as a first degree Freemason. He became a 32nd degree Freemason the following day. Soon afterwards, he started teaching his Mormon leaders Masonic doctrines as his divine revelations. (Most of the early leaders of the Mormons were Freemasons.[1]) What Smith intended as a form of a super rite of Freemasonry became the basis of Mormonism after Freemasonry rejected the rite.[2] Nearly every member of the Mormon hierarchy either was or became a Master Mason. Comparing Mormonism to Freemasonry, Blanchard, a 33rd degree Freemason, remarked, “The two institutions are morally and legally the same.”[3] (Ironically, Freemasons were involved in, and were probably behind, the murder of Smith.) Such were the beginnings of the Church of Jesus Christ of Latter-day Saints (the Mormon church).

Some of its teachings are proxy baptism, celestial marriage, sealed marriage, Adam as God who took on a body and came to Eden with Eve, one of his heavenly wives, an anthropomorphic God, humans as preexisting spirits begotten by God with a divine mother-wife, man may become God, eventual salvation of all mankind, rejection of the doctrine of original sin, Mary Magdalen, Martha, and her sister as wives of Jesus, and Jesus and Lucifer as brothers. “The Mormon dogma is universality, materialism, and Pantheism. It blends Judaism and Christianity, aiming at a progressive universal religion while seeking to unite in itself all faiths and the cults of every people on earth.”[4]

Skull and Bones
In 1833, one of America’s most important secret societies was founded at Yale University. It was the Skull and Bones, which was also known as the Brotherhood of Death. After his return from Germany, William H. Russell, along with Alphonso Taft (a Freemason), founded Skull and Bones at Yale.[5] Skull and Bones was a chapter of a German secret society. It was probably a direct descendant of the Bavarian Illuminati.

Members must place their allegiance and loyalty to Skull and Bones above all others, including country, family, and God. They are instructed to obtain positions of prominence and to use their position to promote fellow members. Skull and Bones emphasizes the use of military power, imperialism, the “white man’s burden,” placing the team above any individual member, secrecy and ambiguity, and political power. Honor and morality are absent from the vernacular of Skull and Bones. Members of Skull and Bones consider themselves an elite chosen by God (Lucifer, not the God of the Christians) to rule North America, if not the world.

Most members of Skull and Bones are from the old elite merchant families of New England, most of whom got their wealth from the opium and slave trade. These families are the Cabot, Coolidge, Forbes, Higginson, Sturgis, Lodge, Lowell, Perkins, and Russell. Much of their wealth came from working with and for Baring Brothers, N.M. Rothschild Co., and the East India Co.[6]

Other elite New England families connected with Skull and Bones are the Allen, Adams, Bundy, Gilman, Lord, Phelps, Stimson, Taft, Wadsworth, and Whitney families. Later the Davidson, Harriman, Payne, Pillsbury, Rockefeller, and Weyerhaeuser families would buy their way into this elite through the enormous fortunes that they acquired in the nineteenth and twentieth centuries.[7]

Its members would play an important role in advancing the New World Order in the twentieth century. Among its members are William Buckley (founder of National Review), McGeorge Bundy (president of Ford Foundation, Presidents Kennedy’s and Johnson’s national security advisor), William Bundy (member of the CIA, director of Council on Foreign Relations, and author of Gulf of Tonkin Resolution) George H.W. Bush (41st President), George W. Bush (43rd President), Prescott Bush (banker), Thomas Cochran (partner of Morgan), Henry P. Davison (senior partner of Morgan Guaranty Trust), J. Richardson Dilworth (manager of the Roosevelt fortune), E. Roland Harriman (banker), W. Averell Harriman (banker and ambassador to Russia), Pierre Jay (first chairman of the Federal Reserve System), Robert Lovett (Brown Brothers, Harriman; Truman’s Secretary of Defense), Henry Luce (publisher of Time and Life), John Perkins (Morgan’s partner), Percy Rockefeller (director of Guaranty Trust Co.), Harold Stanley (founder and president of Morgan, Stanley and Co.), Potter Stewart (Supreme Court Justice), Henry Stimson (Taft’s Secretary of War, Coolidge’s Governor-General of the Philippines, Hoover’s Secretary of State, and Franklin Roosevelt’s and Truman’s Secretary of War), William Taft (27th President, Chief Justice of the U.S. Supreme Court), Harry Payne Whitney (director of Guaranty Trust Co.), and William Collins Whitney (director of Guaranty Trust Co.).[8]

In 1856, William H. Russell, John S. Beach, Henry B. Harrison, Henry T. Blake, Henry D. White, and Daniel C. Gilman incorporated the Russell Trust Association to finance Skull and Bones. They were all members of Skull and Bones, which has run the Russell Trust ever since. Russell was its president.[9] Since 1873, members of Skull and Bones have controlled Yale’s finances. Since Timothy Dwight, a member of Skull and Bones, became president of Yale in 1886, all presidents of Yale have been members of Skull and Bones.

To make sure that books would be written to promote the illuministic objectives of the Skull and Bones, it established the American Historical Society, American Psychological Association, and American Economic Association in the 1880s.

The Illuminists of New England would use the Skull and Bones to capture and control great fortunes created by others, such as Andrew Carnegie and Henry Ford. According to Ron Rosenbaum, the initiation rite of Skull and Bones is “far more secret—and far more significant, in terms of real power in the United States—than that of the Costa Nostra.”[10]

B’nai B’rith
Another important secret society began in 1843. It was the Independent Order of B’nai B’rith, a Jewish Masonic organization. Twelve German Jews founded it in New York. Its founders included Henry Jones, William Renau, Reuben Rodacher and Isaac Rosenbourg, all of whom were Freemasons.[11]

Using “benevolence and philanthropy,” B’nai B’rith concealed its political activities as have most illuministic societies. Using “internationalism,” it sought to make the German Jews supreme in all world affairs. Its goal was to unite and elevate Jews. By 1928, B’nai B’rith had achieved supremacy in the Jewish world.

Henry Lord Palmerston was behind the founding of B’nai B’rith. (He created the Zionist movement as a weapon of British espionage.) Aiding Palmerston in developing B’nai B’rith as a worldwide power was Baruch Rothschild. B’nai B’rith was an arm of British intelligence with the objective of subverting and destroying the United States. It directed much of the abolitionist movement in the northern United States, the Southern secession movement, and the resulting war. It was probably involved with the assassination of President Lincoln.[12]

Bohemian Club
The Bohemian Club is an occult club founded in 1872. Originally, it was a club for newspaper reporters. (News reporters are now barred from the Bohemian Grove.) It was soon opened to men of the arts and literature. In the 1880s, businessmen began to join and soon came to control the Club. Also, during the early 1880s, the Bohemian Club began its annual summer camping retreats in an area now known as the Bohemian Grove. The Bohemian Club would be an extremely important, but little known, illuministic organization in the twentieth century.

Meetings of the Bohemian Club are held annually in secret at a campground in California north of San Francisco in a place known as Bohemian Grove. Only males can be members. Typically, between two thousand and three thousand men attend the annual meetings although the actual number of members is half this number. Some of the most powerful men in the world are members of the Bohemian Club.

The Bohemian Club has more than twenty-five hundred members. Although a majority of the members reside in California, hundreds come from other States and a dozen foreign countries. About 20 percent are prominent business leaders, governmental officials, members of policy councils, or officers major foundations.

While at Bohemian Grove, members participate in pagan rituals including worshiping Moloch, develop policy for carrying out their illuministic New World Order, and receive insider information from other Illuminists that is not publicly available. They also enjoy numerous lectures, various types of entertainment, partying, and large quantities of alcoholic beverages. Sexual promiscuity is rampant. Some engage in homosexual sex. Others use the services of prostitutes who congregate just outside the Grove when the Club meets. Members of the Bohemian Club may have also been involved in kidnaping, rape, pedophilia, and ritual murder as part of their Bohemian Grove rituals. (MK-Ultra appears to provide mind-controlled victims for sadistic pleasures of the Bohemian Grove elite.) Presidential candidates for the United States are picked at Bohemian Grove. Another important decision made at the Grove is whether the United States will have economic boom or bust (Bohemian Club members control the money supply thorough the Federal Reserve Bank). Bohemian Grove provides opportunity for powerful Illuminists to network and scheme.[13]

Participants at Bohemian Grove include Stephen Bechtel, Jr., William Buckley, George H.W. Bush, George W. Bush, Joseph Coors, Gerald Ford, Newt Gingrich, Merv Griffin, Henry Kissinger, Colon Powell, Ronald Reagan, George P. Shultz, William Simon, and Casper Weinberger.[14]

Endnotes
1. Arthur Preuss, A Dictionary of Secret and Other Societies (St. Louis, Missouri: B. Herder Book Co., 1924), p. 279.

2. Lady Queenborough (Edith Starr Miller), Occult Theocracy (Two Volumes, Hawthorne, California: The Christian Book Club of America, 1933), p. 459.

3. Ibid., p. 464.

4. Ibid.

5. Kris Millegan, “ The Order of the Skull and Bones,” http://www.conspiracyarchive.com/NWO/Skull_Bones_1.htm, Dec. 13, 2002. James W. Wardner, Unholy Alliances: The Secret Plan and the Secret People Who Are Working to Destroy America (James W. Wardner, 1996), p. 118.

6. “Other Western Elites: The Skull and Bones – Yale University,” http://www.bilderberg.org/skulbone .htm, Apr. 28, 2003.

7. Ibid.

8. Jim Marrs, Rule by Secrecy: The Hidden History That Connects the Trilateral Commission, the Freemasons, and the Great Pyramids (New York, New York: Harper Collins Publishers, 2000), pp. 63, 90. “Other Western Elites: The Skull and Bones – Yale University,” http://www.bilderberg.org/skulbone.htm, Apr. 28, 2003. Antony C. Sutton, The Secret Cult of the Order (Phoenix, Arizona: Research Publications, Inc., 1984), pp. 9, 14. Wardner, pp. 119ff.

9. Sutton, p. 88.

10. Dennis L. Cuddy, The Globalists: The Power Elite Exposed (Oklahoma City, Oklahoma: Hearthstone Publishing, 2001), p. 271.

11. “The Story of the Covenant.”

12. Eustace Mullins, The World Order: Our Secret Rulers (Second edition; Staunton, Virginia: Ezra Pound Institute of Civilization, 1992), p. 255.

13. Suzanne Bohan, “Bohemian Club: Bohemian Grove & Global Elite,” Aug. 2, 1999, http://www. mt.net/%7Ewatcher/bohemiangrove.html.

14. Ibid.

[Editor’s note: List of references in original are omitted.]

Copyright © 2010 by Thomas Coley Allen.

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Why Did Gold and Silver Become Money

Why Did Gold and Silver Become Money
Thomas Allen

Before man discovered money, he traded by barter. Under the barter system, a person trades what he does not need with someone who has what he wants. Barter occurs when two people agree to exchange items that they possess.

For example, a hunter wants a spear. He has a knife that he can trade for a spear. He has to find someone who has a spear and who wants a knife more than he wants a spear. Once he finds such a person, he can trade his knife for a spear. The two come together and exchange the knife and spear. This is barter.

If the person with the spear wants a bowl instead of a knife, the trade does not take place. The hunter with the knife must find someone with a bowl who is willing to trade it for a knife. If he finds such a person, he trades the knife for the bowl. Now he can trade the bowl for the spear that he really wants.

This hunter is on his way to discovering money. He has obtained the bowl not to consume it, but to exchange it for that which he wants to consume. In this exchange, the bowl is functioning like money for the person who wants to exchange a knife for a spear.

In another example, an egg man wants a pair of shoes. A pair of shoes is worth 12 dozen eggs. However, the shoemaker wants only two dozen eggs. The egg man wants shoes, and the shoemaker wants eggs. Yet the shoemaker does not want 12 dozen eggs at once. Under barter, the only way that the trade can be made is for the shoemaker to suffer a great loss and accept only two dozen eggs or accept 12 dozen eggs and discard 10 dozen eggs that he does not want. Thus, this trade will not take place unless the shoemaker changes his valuation of eggs and values two dozen eggs more than he values the shoes. How are the shoemaker and egg man going to solve this problem?

The shoemaker discovers that eggs are highly marketable in his community. He realizes that he can easily trade excess eggs for other things that he wants. Thus, the shoemaker accepts the egg man’s 12 dozen eggs for a pair of shoes. The shoemaker keeps the two dozen that he wants to consume and uses the other 10 dozen to trade for other things. He trades one dozen to the baker, who always needs eggs for his products, for a loaf of bread. Next, the shoemaker trades three dozen eggs with the butcher for a pound of meat. Finally, he trades the remaining six dozen eggs with the tanner for leather.

Observing the action of the shoemaker, the tanner uses eggs to obtain other things that he desires. As the tanner only wants two dozen eggs, he trades one dozen for bread and five dozen for his assistant’s labor. Following the example of his master, the tanner’s assistant consumes one dozen and trades one dozen for bread and three dozen for meat.

Thus, the shoemaker, the tanner, and the community have discovered money. Eggs have become money. People start acquiring eggs not to consume them, but to trade or exchange them. They are trading for eggs so that they can trade eggs for products and services that they want.

Barter is a highly inefficient system of exchange. With barter, trades often cannot be made because one party does not want what the other has to trade. Or the difference in value of the items being offered for trade is too great for the trade to occur. That is, one or both parties in the potential trade value what he has to offer more than he values what the other person is offering.

Furthermore, with barter no common denominator of value exists. Under the above example with eggs, eggs become the common denominator of value. People begin comparing the value of things in terms of eggs. Thus, three loaves of bread (worth one dozen eggs each) equal one pound of meat (worth three dozen eggs). In other words, the price of bread is one dozen eggs per loaf, and the price of meat is three dozen eggs per pound. (Under the gold standard, people compare the exchange value of various things in terms of gold, or more correctly, in grains of gold.)

Money makes the comparison of the values of various items easy by reducing everything to a common denominator. Consequently, money measures value.

In order for money to function as a measure of value, i.e., the thing by which the values of things are compared, it must have value itself. It must have purchasing power. People must be able to exchange it for the items that they are comparing.

Jevons sums up the difficulty of barter as follows:

The first difficulty in barter is to find two persons whose disposable possessions mutually suit each other’s wants. There may be many people wanting, and many possessing those things wanted; but to allow of an act of barter, there must be a double coincidence, which will rarely happen. . . .

A second difficulty arises in barter. At what rate is any exchange to be made? If a certain quantity of beef be given for a certain quantity of corn, and in like manner corn be exchanged for cheese, and cheese for eggs, and eggs for flax, and so on, still the question will arise—How much beef for how much flax, or how much of any one commodity for a given quantity of another? In a state of barter the price-current list would be a most complicated document, for each commodity would have to be quoted in terms of every other commodity, or else complicated rule-of-three sums would become necessary. Between one hundred articles there must exist no less than 4950 possible ratios of exchange, and all these ratios must be carefully adjusted so as to be consistent with each other, else the acute trader will be able to profit by buying from some and selling to others. . . .

A third but it may be a minor inconvenience of barter arises from the impossibility of dividing many kinds of goods.[1]

Money eliminates the first two of Jevons’ difficulties. It eliminates the first because people trade for money not to consume it, but to exchange it for things to consume. It eliminates the second because it is the common denominator by which values are compared. If a commodity like gold or salt becomes money, it eliminates the third as gold and salt are highly divisible.

Man has used many and various commodities for money. In different times and places, these commodities have included salt, furs, tea, tobacco, sugar, cocoa, iron, copper, base metals, ivory, and cowrie shells. Slaves and women have also functioned as money. Cattle were the most popular form of money in the ancient world as cattle were usually the most saleable commodity. The cattle standard still existed in some regions at the time of Mohammed.[2] As more people began living in towns and cities, the marketability of cattle declined, which caused their use as money to decline. Eventually, the markets settled on gold and silver as the best commodities for money. What each of these commodities possessed at one time or another and in one place or another was their high saleability. Each was the commodity most easily sold at that time and place. Thus, money became the medium through which exchanges were made. That is, it became the medium of exchange. Ultimately, gold and silver became the most saleable commodity and, therefore, money.

One of the earliest recordings of a precious metal being used as money is Genesis 23:16. Abraham bought a burial plot for 400 shekels of silver. This verse shows that commodity money (real money) has three components: quantity (400), measurement of weight (shekel), and substance (silver).

In pre-1933 money, if a person bought something with a $20 gold coin, he paid with money that had quantity (20), measurement (dollar, a unit of weight equal to 23.22 grains), and substance (gold). If he paid with a $20 gold certificate, his currency promised to deliver money containing these three components on demand.

The current federal reserve note lacks two of these three components. For example, a $20 federal reserve note has quantity (20). The dollar appears to be its measurement. However, it is not. It is an abstraction. It measures nothing of substance. A unit of measurement has to be something concrete and definable like the foot, ounce, minute, or horsepower so that things can be compared to it. It has to be something that instruments can determine. It also lacks substance as its monetary value exceeds the value of the material of which it is made and it does not promise to deliver anything concrete.

With pre-1933 gold money, a $20 gold coin weighed twice as much as $10 gold coin. Even if the disks had no inscription on it, a disk containing 464.4 grains of gold had twice the purchasing power of a disk containing 232.2 grains of gold. It was twice as large and weighed twice as much.

Federal reserve notes cannot be measured. If all the inscriptions are removed from them, a $20 federal reserve note would look like a $10 federal reserve note. They would both have the same value: nothing.

What are the attributes of gold and silver that led them to become the money of choice? For any commodity to serve adequately as money, it needs to be portable (relatively high value per unit of weight), homogeneous or uniform, durable, divisible, recognizable, highly marketable (highly liquid, universally acceptable), and stable in value. Only the most marketable or saleable commodities become money. They must be readily acceptable in exchange for all goods offered in the markets. Gold and silver possess these qualities. They have survived the historical test of time to emerge as the monetary commodities par excellence.

The great advantage that gold and silver have over other commodities is that their flow-to-stock ratio is extremely low. That is, newly mined gold or silver coming into the markets each year (flow) is small compared to the existing quantity that can be easily converted to monetary use (stock). (Some refer to the quantity of a commodity that is readily available for conversion to money or anything else as “inventory.” They call stock the total quantity of the commodity in existence, which includes inventory and the quantity of the commodity bound up in products, such as copper wire in houses or gold in fillings.)

Zurbuchen estimates that 4,720 million ounces of gold have been mined through 2004. (All ounces in this paper are troy ounces.) Of this amount, he estimates that 4,250 million ounces are available for monetary use.[3] The rest has been lost, or its recovery is not economically feasible. About 79 million ounces of gold were mined in 2004.[4] Thus, the gold supply available for monetary use increased by about 1.9 percent in 2004.

For silver, Zurbuchen estimates 45,380 million ounces of silver has been mined through 2004.[5] Of this amount, he estimates that 20,990 can be easily converted to monetary usage; this is the silver inventory. With a sufficient increase in value, another 4,000 million ounces could be converted, which gives a total of 24,990 million ounces.[6] Much more silver than this is recoverable, but under present conditions, such recovery is not economically feasible. About 40.2 million ounces were mined in 2004.[7] Thus, the silver supply readily available for monetary use increased by about 0.2 percent in 2004. However, because manufacturers use a large quantity of silver as essential components in their products, the quantity of newly mined silver available for monetary usage would be much less.

Platinum is a precious metal that has occasionally been used as a monetary metal and is at times promoted as a monetary metal. However, platinum lacks one of the important characteristics of gold that makes gold an excellent monetary metal and platinum a poor one. Unlike, gold, platinum’s flow to stock ratio is high. That is, the quantity of newly mined platinum entering the markets is high compared to the existing stock that could easily be used for money. Most of the above-ground platinum is in products that make its conversion to money uneconomical.

Platinum has an available stock (inventory) of about 10 metric tons or 321, 510 ounces. The annual production of platinum is about 200 metric tons or 6,430,000 ounces. Thus, platinum’s flow to stock is about 200 percent as compared to gold’s less than 2 percent.[8] Conversely, the stock-to-flow is 5 percent for platinum and 54 percent for gold.

When a commodity’s stock is large compared to its flow, its value varies little. Consequently, gold’s value is fairly stable. Conversely, when a commodity’s flow is large compared to its stock, its value can fluctuate enormously. Such large changes in value are seen annually in many agricultural commodities. Likewise, platinum is prone to more significant changes in value than either gold or silver.

However, a commodity with an extremely low stock-to-flow ratio does not necessarily make it a good candidate for money. Land has an almost infinitesimally small stock-to-flow ratio. Yet it makes poor quality money. It lacks homogeneity as its value is highly dependent on location, fertility, and underlying mineral content. It is not portable; one cannot move an acre of land from Australia to Greenland. Land lacks liquidity and is not universally acceptable and, therefore, is not highly marketable. Unlike gold, land cannot be exchanged (sold) quickly without a noticeable loss in value.

When land has been used to back the currency, the results have been disastrous. France used land for money, i.e., as backing for the assignat, between 1790 and 1796. Even the Reign of Terror failed to maintain its value. The assignat inflated itself to death.

People have many misconceptions about the gold and silver standards. Under the gold and silver standards, gold and silver are money, i.e., the monetary unit is defined as a specific weight and fineness of gold or silver. Paper money is a substitute for gold or silver and is redeemable in gold or silver on demand. Neither the government nor its central bank manages the money. If the government or its central bank manages gold and silver to carry out a monetary policy, then a true gold and silver standard does not exist. When the government or its central bank decides the money supply instead of the markets, fiat money exists even if the money is made of gold or silver.

Gold is often used in the monetary system in ways that do not constitute the true gold standard.

First, gold can be used to back a currency that is irredeemable. For example, between 1933 and 1968, Congress required federal reserve notes to have some gold backing.

Second, the government may issue paper money that is redeemable in gold. The government buys gold and uses it, either as coins or bullion, to back its paper money. Often it issues more notes than it has gold backing it. An example of this type of money is the U.S. note between 1879 and 1933.

Third, the government buys gold on its own account and coins it. This type of monetary system looks like a gold coin standard, but it is not. The government arbitrarily decides the quantity of coins to issue. An example of this system in the United States involved silver dollars between 1873 and 1900. After 1873, the U.S. government no longer allowed the free coinage of silver. Instead, it bought silver bullion on its own account and coined it into silver dollars, which it declared legal tender and standard money and did not directly redeem them into gold until 1900.

Fourth, requiring the Federal Reserve to expand or contract the money supply and credit to keep the price of gold within a specific range, as some supply-side economists recommend, is obviously not a gold standard. It is a fiat monetary system where the price of gold becomes the index by which to adjust the money supply.

Fifth, Irving Fisher’s plan to make dollars redeemable in gold based on purchasing power as determined by an index instead of weight is not a true gold standard.

Although these systems use gold (or silver), they are not commodity standards. They are forms of fiat money because the government or its central bank arbitrarily controls the money supply. The quantity of money does not expand or contract to meet the needs of commerce; the law and the U.S. government’s collections and disbursements fix the quantity.

Two other forms of standards that use gold are sometimes promoted. They are the gold bullion standard and gold exchange standard. These standards, especially the gold bullion standard, are more like commodity standards. However, gold coins do not circulate under either of these standards.

Under the gold bullion standard, paper money is redeemable only in large bars of gold bullion. The country’s money is not redeemable in gold coins. Consequently, it is considered a rich man’s standard. Because redemption is in large high-value bars, few besides specialists in foreign trade redeem notes for gold. Gold bullion presented to the government or its central bank is not coined. Instead, the government or its central bank pays the presenter in government notes or bank notes.

About the gold bullion standard, Hazlitt comments, “A full gold-coin standard is desirable because a gold-bullion standard is merely a rich man's standard. A relatively poor man should be just as able to protect himself against inflation, to the extent of his dollar holdings, as a rich man.”[9]

Under the gold exchange standard, gold can only be used to transfer payments in gold to approved foreign institutions. Governments created the gold exchange standard. It is a politically created system and not a product of the markets. The gold-exchange standard allows governments and their central banks to manipulate international gold flows for political reasons. The government holds the reserves of its foreign claims in gold. Most of the world’s gold ends up in the vaults of a few central banks. The gold exchange standard offers little resistance to the desires of governments to inflate their currencies. Gold is subordinated to governmental policies and goals. Because of domestic inflation, against which it offers little resistance, the gold exchange standard becomes unstable and dysfunctional. Most of the world operated under a modified gold exchange standard between 1944 and 1971. (This standard was more of a dollar standard as foreign currencies were pegged to the dollar, which was pegged to gold at $35 per ounce.) It ended when President Nixon refused to exchange gold for dollars held by foreign institutions.

Under the true gold standard and silver standard, the value of the metal in its monetary uses equals its value in its nonmonetary uses. To maintain this equality, people must be free to convert bullion into coins and coins into bullion and other products. No restrictions, including tariffs and quotas, can be placed on the importation and exportation of the monetary metal in any form. Restrictions on importation and exportation distort the markets and the value of the monetary metals and artificially interfere with the equalization of the value of the metal in its monetary and nonmonetary uses.

In summary, the true gold and silver standard has the following attributes:[10]

1. Gold and silver do not back the money; gold and silver are the money.

2. The price of gold and silver is not fixed. The monetary unit is a specific weight of gold or silver.

3. Gold and silver coins circulate as money.

4. The value of a coin is the value of its metal content.

5. There is the free coinage of gold and silver: Anyone can bring any amount of gold and silver to the mint, which does not have to be owned by the government, and get it coined.

6. Anyone can melt coins without restriction and use their metal for nonmonetary purposes.

7. No restrictions are placed on exporting or importing gold and silver.

8. All paper money is redeemable in gold or silver on demand.

9. The supply of money is self-regulating and automatically adjusts to meet the demand for metallic money. The government does not manage or otherwise manipulate the money supply. No monetary policy is necessary, and none is desirable.

10. The government does not issue any paper money or buy gold or silver and coin it on its own account.

11. Gold and silver coins are the property of the individual holding them; they are not the property of the government. No restrictions or controls are placed on the private ownership of gold or silver.

12. Legal tender laws are unnecessary and undesirable.

13. The government’s monetary duties are limited to defining the monetary unit, coining all gold and silver presented to it for coinage and guaranteeing the weight and fineness of such coins, punishing counterfeiters of such coins, punishing issuers of paper money who fail to redeem their paper money on demand, and punishing acts of fraud and enforcing contracts in monetary matters.

A common misunderstanding about a commodity standard is that the government fixes the price of the monetary commodity. Many people believe that under the gold standard, the government fixes the price of gold. For example, if an ounce of gold exchanges for $20, the government has fixed the price of gold at $20 per ounce. No one would sell gold bullion for less than $20 per ounce because he could take the bullion to the mint and get it minted into coins at $20 per ounce. Furthermore, no one would pay more than $20 per ounce for bullion because he can melt coins to obtain bullion.

Under the gold standard, the government does not fix the price of gold. It defines the monetary unit, such as the dollar, as a specific weight of gold. That is, the dollar is a specific weight of gold. For example, the dollar is defined as 1/20 of an ounce of gold or 24 grains of gold. The dollar is 24 grains of gold. It is a unit of weight like the pound. It is just limited to money. By declaring the dollar to be 24 grains of gold, the government has no more fixed price of gold than it has fixed the price of a pound by declaring it to be 7000 grains. The dollar is a unit of weight like the pound or gram. It is just limited to gold. The dollar is fixed in terms of gold; gold is not fixed in terms of the dollar.

Another way of stating this point is in terms of the independent variable and the dependent variable. People who claim that the price of gold is fixed under the gold standard are claiming that an abstract unit of value, e.g., the dollar, is the independent variable. A concrete weight of gold is the dependent variable. Thus, an abstraction fixes the value of a concrete weight of gold.

Conversely, people who claim that under the gold standard that the price of gold is not fixed claim that the value of gold is the independent variable. The monetary unit is the dependent variable as it is a fixed weight of gold. A concrete weight of gold fixes the value of the monetary unit.

“The metre is the length of the path travelled by light in vacuum during a time interval of 1∕299 792 458 of a second.”[11] If they are consistent, people who claim that the government fixes the price of gold instead of gold defining the value of the monetary unit must argue that the government fixes the distance that light travels in a fraction of a second instead of defining that distance as the length of a meter. How absurd. The government defines the abstraction, the “meter,” in terms of the tangible distance that light travels in a fraction of a second. It does not define the tangible distance that light travels in a fraction of a second in terms of the abstraction. Likewise, with gold, the government defines the abstract monetary unit in terms of a tangible weight of gold.

This discussion may seem to be an unimportant discourse about semantics. It is not. The distinction is highly important. Is gold to be fixed in dollars, i.e., gold is priced in dollars? That is, the government declares that the dollar is an abstraction, and it has arbitrarily fixed the price of gold. This notion leads quickly down the road to paper fiat money. On the other hand, is the dollar to be fixed in gold, i.e., the dollar is a unit of weight of gold? The government declares the dollar to be a tangible and defines it as a measurable amount of gold. This notion is the essence of the gold standard; the monetary unit is a weight of gold.

In closing here is what some notables, in no particular order, have said about the gold standard.

Friedrich A. Hayek:

[I]t [the gold standard] created in effect an international currency without submitting national monetary policy to the decisions of an international authority; it made monetary policy in a great measure automatic and thereby predictable; and the changes in the supply of basic money which its mechanism secured were on the whole in the right direction.[12]

Henry Hazlitt:

The gold standard not only helps to ensure good policy and good faith; its own continuance or resumption requires good policy and good faith. . . . just as “managed” paper money goes with a statist economy in which the citizen is always at the mercy of bureaucratic caprice, so the gold standard is an integral part of a free-enterprise economy under which governments respect private property, economize in spending, balance their budgets, keep their promises, and above all refuse to connive in inflation—in the overexpansion of money or credit.[13]

Ludwig von Mises:

The eminence of the gold standard consists in the fact that it makes the determination of the monetary unit’s purchasing power independent of the measures of governments. It wrests from the hands of the “economic tsars” their most redoubtable instrument. It makes it impossible for them to inflate. This is why the gold standard is furiously attacked by all those who expect that they will be benefitted by bounties from the seemingly inexhaustible government purse.[14]

Benjamin Anderson:

Gold is an unimaginative taskmaster. It demands that men, banks, and the government be honest. It demands that they create no debt without seeing clearly how these debts can be paid. If a country will do these things, gold will stay with it and come to it from other countries. But when a country creates debt light-heartedly, when a central bank makes interest rates low and buys government securities to feed its money market, and permits an extension of credit that goes into slow and illiquid assets, then gold grows nervous. There comes a flight of capital out of the country. Foreigners withdraw their funds from it, and its own citizens send their liquid funds away for safety.[15]

Barry Eichengreen:

There can be no question that the development of the international gold standard in the second half of the 19th century and the enormous growth of international trade and investment which took place are no mere coincidences. The hallmark of the prewar gold standard was precisely its ability to accommodate disturbances to financial markets without causing severe business cycle fluctuations. . . . For more than a quarter of a century before WWI, the gold standard provided the framework for domestic and international monetary relations. Currencies were convertible into gold on demand and linked internationally at fixed exchange rates. Gold shipments were the ultimate means of balance of payments settlement. The gold standard had been a remarkably efficient mechanism for organizing financial affairs. No global crisis comparable to the one that began in 1929 had disrupted the operation of the financial markets. No economic slump comparable to that of the 1930s had so depressed output and employment.[16]

Alan Greenspan:

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense —perhaps more clearly and subtly than many consistent defenders of laissez-faire—that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.[17]

Edwin Vieira:

Silver and gold as currencies supply the foundation necessary for economic democracy and limited government; whereas fiat currencies inevitably function as the tools of fascism, socialism, and every other form of financial imperialism.[18]

Mises again:

The excellence of the gold standard is to be seen in the fact that renders the determination of the monetary unit's purchasing power independent of the policies of governments and political parties. Furthermore, it prevents rulers from eluding the financial and budgetary prerogatives of the representative assemblies. Parliamentary control of finances works only if the government is not in a position to provide for unauthorized expenditures by increasing the circulating amount of fiat money.[19]

Mises again:

The eminence of the gold standard is . . . that the gold standard alone makes the determination of the monetary unit’s purchasing power independent of the ambitions and activities of dictators, political parties and pressure groups.[20]

Joseph Schumpeter:

An “automatic” gold currency is part and parcel of a laissez-faire and free-trade economy. It links every nation's money rates and price levels with the money rates and price levels of all other nations that are on gold. It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of economic liberalism. This is the reason why gold is so unpopular now and also why it was so popular in a bourgeois era. It imposes restrictions upon governments and bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man might quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of statism and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.[21]

Mises again:

The struggle against gold which is one of the main concerns of all contemporary governments must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction which is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.[22]

Walter E. Spahr:

It should not be surprising that apparently all who would socialize our economy are opposed to the restoration of a redeemable currency in the United States. Either because they understand the relationship between an irredeemable currency and the processes of socialization or because they simply note that Socialist, Communist, and Fascist governments employ irredeemable currencies as a means of controlling and managing the people, advocates of government dictatorship seem invariably to defend irredeemable currencies with the utmost vigor. The evidence seems overwhelming that a defender of irredeemable currency is, wittingly or unwittingly, an advocate of socialism or of government dictatorship in some form.

So long as a government has the power over a people that is provided by an irredeemable currency, all efforts to stop a government disposed to lead a people into socialism tend to be, and probably will be futile. The people of the United States have observed all sorts of efforts, organized and individual, to bring pressure upon Congress to end its spending orgy and processes of socialization. It should be amply clear by this time that none of these efforts has succeeded. Moreover, there is no reason for supposing that any of them, except the restoration of redeemability, can succeed in arresting our march into socialism.[23]

Spahr again:

A gold-coin standard provides the people with direct control over the government's use and abuse of the public purse. . . . When governments or banks issue money or other promises to pay in a manner that raises doubts as to their value as compared with gold, those people entertaining such doubts will demand gold in lieu of . . . paper money, or bank deposits. . . . The gold-coin standard thus places in the hands of every individual who uses money some power to express his approval or disapproval of the government's management of the people's monetary and fiscal affairs.[24]

Spahr again:

What is the meaning of a gold standard and a redeemable currency? It represents integrity. It insures the people’s control over the government’s use of the public purse. It is the best guarantee against the socialization of a nation. It enables a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless. It tends to force standards of honesty on government and bank officials. It is the symbol of a free society and an honourable government. It is a necessary prerequisite to economic health. It is the first economic bulwark of free men.[25]

Ferdinand Lips:

. . . the abandonment of the gold standard of the nineteenth century is the greatest tradey of all time.[26]

Lips again:

Gold is a precondition for a free society.[27]

Harry Schultz:

. . . we should fight for a pure gold standard, the old-fashioned form, because it worked! And not just for fiscal reasons! It forced nations to limit their debt, spending and socialist schemes, which meant sound behavioural habits were formed around those limitations, and those habits rubbed off on everyone. People were more honest, moral, decent, kind, because the system was honest and moral. Cause and effect. Today we have cause and effect of the opposite standard: no limits on what governments can do, control, dictate; no limit on government debt, welfare or socialist schemes. There is no governor on the government.

This habit rubbed off on the public, causing them to go into debt, lose respect for the system and morality. The effect brings us more divorce, fraud, crime, illegitimate births, broken homes.[28]

Philip Cortney:

It is the gold standard which has made possible the expansion of international commerce and the distribution throughout the world of the benefits that are derived from the international division of labor. It is gold and its general acceptance which permits each individual to buy what he wants and to sell the fruit of his labor any place in the world, thereby spreading the benefits of competition. It is gold which assures the individual his independence and which is the best shield of the small states against the arbitrariness of the large ones. Contrary to what a superficial judgment would indicate, gold and the gold standard are not the weapons of oppression of the well-to-do, but rather the weapons of defense of the weak and the disinherited. It is the stability of gold, its general acceptance and its liberty of movement which have made possible the development of backward countries by the savings of the capitalistic world (which means privations and individual risks!). It is gold, to sum up, which has been the best weapon against economic nationalism and its dangers.[29]

Turgot:

Gold and silver were constituted, by the nature of things, money and universal money, independently of all conventions and all law.[30]

Hugo Salinas Price:

The gold standard is the generator and protector of jobs.[31]

Endnotes
1. W. Stanley Jevons, Money and the Mechanism of Exchange (New York, New York: D. Appleton and Co., 1896), pp. 3-6.

2. Carl Menger, Principles of Economics, trans. James Dingwall and Bert F. Hoselitz (New York, New York: University Press, 1976), p. 264.

3. David Zurbuchen, “The World’s Cumulative Gold and Silver Production,” Jan. 14, 2006, http://www.gold-eagle.com/ editorials_ 05/zurbuchen011506.html, Oct. 8, 2008.

4. William A. McGeveran, Jr. et al., ed., The World Almanac and Book of Facts 2006 (New York, New York: World Almanac Books, 2006), p. 106.

5. David Zurbuchen, “The World’s Cumulative Gold and Silver Production,” Jan. 14, 2006, http://www.gold-eagle.com/editorials_05/zurbuchen011506.html, Oct. 8, 2008. David Zurbuchen, “The Real Silver Deficit” http://www.gold-eagle.com/editorials_05/ zurbuchen052006pv.html, Oct. 16, 2008.

6. David Zurbuchen, “The Real Silver Deficit” http://www.gold-eagle.com/editorials_05/ zurbuchen052006pv.html, Oct. 16, 2008.

7. McGeveran, p. 106.

8. [Sandeep Jaitly], “Currency and Marginal Utility” http://www.bullionbasis.com/web_documents/ currency_and_marginal_utility.pdf, July 10, 2010.

9. Martin A. Larson,. The Federal Reserve and Our Manipulated Dollar (Old Greenwich, Connecticut: The Devin-Adair Company, 1975), p. 217.

10. Thomas C. Allen, Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money (Franklinton, North Carolina: TC Allen Co., 2009), p. 106-107.

11. “Metre,” Wikipedia, http://en.wikipedia.org/wiki/Metre, July 10, 2010.

12. Friedrich A. Hayek, Individualism and Economic Order (Chicago, Illinois: Henry Regnery Co., 1948), p. 209.

13. Larson, p. 216.

14. Ludwig von Mises, The Theory of Money and Credit, new edition, translator H.E. Batson (Irvington-on-Hudson, New York: The Foundation for Economic Education, Inc., 1971), p. 438.

15. Antal E. Fekete, “Monetary Economics 101: The Real Bills Doctrine of Adam Smith,” Lecture 13, Oct. 28, 2002, http//www.shoemakerconsulting.com/GoldisFreedom/PVFfiles/lecture101-13pvf.htm, Sept. 12, 2007.

16. Richard M. Salsman, Gold and Liberty (Great Barrington, Massachusetts: American Institute for Economic Research, 1995), p. 44-45.

17. Alan Greenspan, “Gold and Economic Freedom,” Capitalism: The Unknown Ideal, (New York, 1967) p. 96.

18. Edwin Vieira, Jr., “Silver and Gold Guarantee Freedom,” Apr. 18, 2008, http://www.gata.org/ node/6244, Apr. 23, 2008.

19. Mises, Theory of Money and Credit, p. 416.

20. Percy L. Greaves, On Current Monetary Problems: An Interview with Professor Ludwig von Mises (Lansing, Michigan: Constitutional Alliance, Inc.), p. 30.

21. Salsman, p. 58.

22. Ludwig von Mises, Human Action: A Treatise on Economics, 3rd revised edition (Chicago, Illinois: Henry Regnery Company, 1963), p. 475.

23. Garet Garrett, The People’s Pottage (Caldwell: The Caxton Printers, Ltd., 1953), p. 46.

24. Murray N. Rothbard, A History of Money and Banking in the United States (Auburn, Alabama: Ludwig von Mises Institute, 2002, 2005), pp. 383-384.

25. The Gold Standard Institute, Newsletter #3, August 24, 2009, p. 1.

26. Ferdinand Lips, Gold Wars: The Battle Against Sound Money as Seen from a Swiss Perspective (New York, New York: The Foundation for the Advancement of Monetary Education, 2001), p. 21.

27. Ibid., p. 174.

28. Ibid., pp. 243-244.

29. Charles Rist, The Triumph of Gold, translator Philip Cortney (New York, New York: Philosophical Library, 1961), pp. 5-6.

30. J. Laurence Laughlin, The History of Bimetallism in the United States (New York, New York: D. Appleton and Co., 1886), p. 5.

31. Hugo Salinas Price, “The Gold Standard: Generator & Protector of Jobs,” June 16, 2010, http://www.gold-eagle.com/editorials_08/salinas061610pv.html, June 16, 2010.

Copyright © 2010 by Thomas Coley Allen.

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What Is the Difference Between Commodity and Fiat Money

What Is the Difference Between Commodity and Fiat Money
Thomas Allen

Monetary systems can be divided into two major categories. One category is fiat money, which is sometimes called managed money, debt money, forced paper money, or irredeemable paper money. The other is commodity money, which is sometimes called full-bodied money, metallic money, specie, hard money, or precious metal money.

Commodity money is “that sort of money that is at the same time a commercial commodity.”[1] Gold and silver are the premier commodities used as money.

Fiat money “is a legal claim, since it derives all its properties from the law.”[2] It is simply a purchase voucher, whose purchasing power varies, that can be exchanged for goods and services. The settlement of debts is its only fixed right.

Webster’s New International Dictionary (second edition, unabridged) defines fiat money as “paper currency of government issue which is made legal tender by fiat or law, does not represent, or is not based upon, specie, and contains no promise of redemption.” The government or its central bank issues fiat money, and the government declares it to be legal tender. Currently, in the United States fiat money occurs as federal reserve notes.

Commodity money differs from fiat money in two important ways. First, under a commodity monetary system, the money supply adjusts automatically to monetary needs. “[T]he demand for, and supply of, money react simultaneously, through market prices for all goods and services and the monetary metal, to determine a given quantity of money.”[3] The markets decide how much money to create and issue. Under a fiat monetary system, the money supply is regulated artificially. The government or its central bank regulates the money supply. The government decides how much money to create and issue. Second, the value of commodity money is directly related to the material of which it is made. For fiat money, value is independent of its material and depends solely on the demand for and supply of money. Of these two differences, the most important lies in the method used to regulate the supply of money.

Johnson makes the following comparison between commodity money and fiat money: “(1) commodity money, or money made out of material of which the free use is permitted as money, so that its value is the product of two sets of utilities, namely its utility as money and its utilities as an ordinary commodity; (2) fiat money, or money the value of which has no relation to the value of the material out of which it is made, being the product solely of its utility as money.”[4]

Many people often confuse commodity money with fiat money when the fiat monetary system incorporates gold or silver. A money backed by gold is not necessarily commodity money. (Under the true gold standard, gold does not back the money. Gold is the money.) For example, legal tender federal reserve notes between 1933 and 1968 were legally required to be backed by gold. Yet it was not commodity money. No American citizen could redeem federal reserve notes for gold. The Federal Reserve decided how many federal reserve notes to issue instead of the markets. The value of gold backing them was much less than the monetary value of the notes. Hoppe makes this error.

Hoppe compares fiat money with commodity money as follows: “Fiat money is the term for a medium of exchange which is neither a commercial commodity, a consumer, or a producer good, nor title to any such commodity: i.e., irredeemable paper money. In contrast, commodity money refers to a medium of exchange which is either a commercial commodity or a title thereto.”[5] Hoppe’s description overlooks an important feature of fiat money, and, that is the issuance of fiat money is arbitrary. Under Hoppe’s description, silver dollars issued in the 1880s and 1890s were commodity money as they contained a commercial commodity. They were money in their own right and were not directly redeemable in gold on demand. However, as Congress and the Secretary of the Treasury arbitrarily fixed the amount issued, they were fiat money. Moreover, the coin’s face or monetary value was greater than the value of its metal content.

Rist explains the difference between commodity money and fiat money as follows:

[I]t must be recognised that the belief in gold arises not from age old superstitions of a more or less magical character, but from age old experience. A claim on gold—a cheque or a banknote—is something clear and precise that everybody understands, just as everybody understands a mortgage on a piece of land or a house that he knows. Paper [fiat] money is a claim on something unknown, on a country or a government, whose political, social or financial escapades and arbitrary decisions nobody can be sure of beforehand.[6]

Vieira compares commodity money with fiat money as follows:

With commodity money, the actual commodity, the silver or the gold, is both the medium of exchange and the standard of value. The supply of commodity money is self-limited because of the costs of minting, refining, and coining the silver and gold. New supplies of commodity money will be coined only to the extent that coinage is economically profitable. The market will simply not produce more gold and silver coin than is necessary compared to all the other uses of that capital. . . . [F]iat money is composed of some intrinsically valueless substance which the issuer does not promise to redeem in a commodity or in a fiduciary money. Because fiat money has no legal connection to a commodity money, and, therefore, has no real economic cost in terms of production, the supply of fiat money is never self-limiting and is always largely a matter of public confidence in the economic or political stability of the issuer.[7]

Vieira's description of commodity money and fiat money fails to account for silver dollars of the 1880s and 1890s. They contained a valuable substance, silver, which seemed to make them commodity money. However, the government decided the quantity to issue instead of the markets, which makes them fiat money.

It also fails to account for U.S. notes between 1879 and 1933. U.S. notes were redeemable in gold on demand during those years. However, Congress decided the quantity to issue. Also, the gold backing them varied between about one-third and one-half. Thus, they were not genuine warehouse receipts as were gold certificates, which were required to be fully backed by gold.

Mises describes the difference between commodity money and fiat money as follows:

. . . it is the commodity in question that constitutes the money, and that the money is merely this commodity. The case of fiat money is quite different. Here the deciding factor is the stamp, and it is not the material bearing the stamp that constitutes the money, but the stamp itself. The nature of the material that bears the stamp is a matter of quite minor importance.[8]

Mises’ description accounts for silver dollars of the 1880s and 1890s The stamp instead of the metal content gave these silver dollars their value. His description also accounts for U.S. notes between 1879 and 1933. The stamp and not the metal backing gave them their value as they were not fully backed by gold.

With commodity money, the commodity makes the money. “The value of a coin has always been determined, not by the image and superscription it bears nor by the proclamation of the mint and market authorities, but by its metal content.”[9] With fiat money, the stamp and force of government make the money. Fiat money derives its power to make purchases and to pay debt solely from words printed on the currency, i.e., it derives its power from governmental fiat.

Fekete notes that commodity money is “tied to a positive value: the value of a well-defined quantity of a good of well-defined quality.”[10] Fiat money is “tied not to positive but to negative value—the value of debt instruments.”[11]

Commodity money is the only form of money that is a present good. All paper money, including certificates and fiat money, is a promise to pay; it is a future obligation. With fiat money the payment is never made; it is only discharged. Payment with commodity money completes the transactions; payment with fiat money is an extension of credit. (In this respect a gold certificate is like fiat currency. The gold certificate is credit, a promise to pay in gold, and the transaction is not completed and the debt retired until the certificate is redeemed in gold.) With irredeemable fiat currency, the transaction can never be completed because the currency is irredeemable. The transaction is discharged by a transfer of credit.

Under a fiat monetary system, debt, promise, or obligation is used as money and as final payment. Fiat money is basically paper money and its electronic equivalent representing nothing but a promise or an obligation. Under a fiat monetary system, a final payment can never really occur as one is always paid with debt, promise, or obligation, a representation that something else is owed. Thus, fiat money can only discharge debt; it can never retire debt.

Under a pure commodity monetary system, the final payment is always in the commodity being used as money in the transaction. The commodity can function as final payment because it is no one’s obligation. Receipt of the commodity in payment ends all further obligations. Thus, it retires debt.

In fiat monetary systems, the monetary unit is a nebulous abstraction, a legal fiction. Fiat money is not tangible, lacks definition, and has no defined unit of measure. It is an illusion with no connection to reality.

In commodity money systems, the monetary unit is tangible and measurable. It is a specific and definable weight of a particular commodity, usually gold or silver. Unlike fiat money, commodity money has value in and of itself independent of its monetary use.

Under a commodity monetary system like the gold or silver standard, the quantity of money is not subject to governmental manipulation. With fiat money, the government maintains control of the money and can change the money supply to suit political considerations.

With a commodity monetary system like the gold standard, market forces determine the quantity of gold coined. The people decide how many gold coins that they need by the quantity of gold brought to the mint for coinage and by the quantity of gold coins melted for other usages. Thus, a commodity monetary system uses the knowledge and wisdom of all the people to regulate the money supply.

With a fiat monetary system, a definite governmental monetary policy is needed to regulate the quantity of the fiat money. Development of this policy requires the opinions of “experts” on the desirable goals. Thus, this policy is nothing more than the personal value judgment of these experts. Once they have selected a policy, the force of government is needed to carry it out. Neither the experts who develop the policy nor the governmental agents who impose it can accurately foresee the long-term effects of the policy. Adolph Miller, a member of the Federal Reserve Board, in his testimony before Congress, summed up this major problem with fiat money: “Up to this day it has never yet been demonstrated that any agency can be invented to which power to govern the currency could be entrusted without ultimately disastrous consequences.”[12]

Commodity money is an economic currency. The needs of the economy determine its quantity. It is directly connected with the production of real goods and services.

Fiat money is a political currency. The needs of politics determine its quantity. It is directly connected with government debt even if the government issues the currency directly and interest-free. (When the government issues a currency like U.S. notes, it is issuing interest-free government debt that is used as money. Often such debt is never paid.)

With fiat money, the government gains a monopoly over money. Using its monopolistic control of money, it can inflate until the money becomes completely worthless. With legal tender laws, it can force people to accept ever-depreciating money.

Under a commodity monetary system, the value of the monetary commodity comes from its production. Under a fiat monetary system, the value of money comes from its legal obligation.

With fiat money, people trust politicians, bureaucrats, and bankers. They trust paper and promises. With commodity money, people trust gold and silver. They trust that which is no one’s obligation or promise.

Fiat money is totally dependent on commodity money, at least initially, for its value. Greaves describes this dependency as follows:

The original value of any money was the use value that commodity had in its other uses before it was first used as a medium of exchange. It then had an objective exchange value based on some other use or uses. This historical link is absolutely necessary, not only for commodity money, but also for every legally sanctioned credit or fiat money. No fiat money ever came into use without first satisfying this requirement. It is absolutely impossible to start a new money without an historical use value, or without its being related to some previous money or commodity with a prior use value. Before an economic good or a “paper money” begins to function as money, it must possess, or be given, an exchange value based on some use or good other than its own monetary value.[13]

“Money cannot originate as a new fiat name, either by government edict or by some form of social compact.”[14] Fiat money grows out of commodity money. “Money must emerge as a commodity money because something can be demanded as a medium of exchange only if it has a pre-existing barter demand. . . .”[15]

Unlike commodity money, fiat money does not come into use spontaneously. Conversion from commodity money to fiat money requires coercion. People do not naturally and freely abandon commodity money for fiat money.

Fiat money rests upon the premise that the power of government is enough to give value to a piece of paper that has no intrinsic value. Fiat money adherents firmly believe that a government can create value by simply proclaiming that a piece of paper has value. Evidence of this is seen in the federal reserve note. Originally, the note promised to pay in gold. Now it just declares itself to be so many dollars. It went from being a legitimate substitute for real money, gold, to being fiat money.

Gold and silver protect the people. Fiat money enslaves them. Frederick von Hayek remarks:

With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people. What is dangerous and ought to be eliminated is not the government's right to issue money, but its exclusive right to do so and its power to force people to accept that money at a particular rate.[16]

Commodity money limits the power of the government.

Gold and silver money limits the size of the government by restraining its growth. Fiat money allows the government to expand almost without limits.

Endnotes
1. Ludwig von Mises,. The Theory of Money and Credit (New edition. Translator H.E. Batson. Irvington-on-Hudson, New York: The Foundation for Economic Education, Inc., 1971), p. 61.

2. Charles Rist, History of Monetary and Credit Theory from John Law to the Present Day (1940; reprint. Translator Jane Degras. New York, New York: Augustus M. Kelly, 1966), p. 337.

3. Richard H. Timberlake, “Gold Standards and the Real Bills Doctrine in U.S. Monetary Policy,”Econ Journal Watch, II (August 2005), 199.

4. Joseph French Johnson, Money and Currency: In Relation to Industry, Prices, and the Rate of Interest (Revised edition. Boston, Massachusetts: Ginn and Company, 1905), p. 32.

5. Hans-Hermann Hoppe, “How is Fiat Money Possible?—or, The Devolution of Money and Credit,” The Review of Austrian Economics, VII (1994), 49.

6. Rist, p. 434.

7. Edwin Vieira, Jr., “Restoring the Dollar,” http://www.citizensforaconstitutionalrepublic.com? Vieira_Restoring_the_Dollar.html, Apr. 23, 2008.

8. Mises, p. 62.

9. Mises, p. 62.

10. Antal E. Fekete, “Whither Gold?”, Oct. 29, 1996, http://www.sagold.com/whithergold.html, Sept. 13, 2007.

11. Ibid.

12. Percy L. Greaves, Jr., Understanding the Dollar Crisis (Belmont, Massachusetts: Western Islands, 1973), p. 231.

13. Ibid., p. 157.

14. Murray N. Rothbard, The Case for a 100 Percent Gold Dollar (Washington, D.C.: Libertarian Press, 1974), p. 10.

15. Hoppe, p. 51.

16. Antony C. Sutton, War on Gold (Seal Beach, California: ‘76 Press, 1977), p. 65.

Copyright © 2010 by Thomas Coley Allen.

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What Are the Functions of Money

What Are the Functions of Money
Thomas Allen

Money has four basic functions. They are a medium of exchange, standard of exchange value, store of value, and payment of debt.

As a medium of exchange or purchasing medium, money is used to buy goods and services. It is immediately available in its existing form to the buyer and immediately acceptable by the seller. Not only is money a means of payment; it is also the thing used as final payment for purchases. After a purchase has been made, money involves no continuing or further obligation. As a medium of exchange, money can transport value through space.

Fiat money is a failure as a medium of exchange. When a person buys something with fiat money, he pays with credit (the fiat notes). Buying goods and services with fiat money is more like nothing-for-something than something-for-something that occurs when commodity money is used. Fiat money is a poor semblance as a medium of exchange.

When a person buys with commodity money, he exchanges a real asset whose material value equals its monetary value for assets. Even if he buys with a form of credit money, such as a bank note or check, instead of commodity money itself, he still buys with a real asset. The credit money that he uses quickly converts into the underlying commodity. Fiat money can only be converted into another obligation.

Besides being a medium of exchange, money also serves as the standard unit of exchange value, i.e., as a standard of prices and of account and debt. Money is the standard by which the value of various things is measured and compared. Thus, money is a measure of value. As a standard of value, money can transport value through time. It enables people to estimate the present value of future acts.

With commodity money, the standard of value is objective. It is the value of the commodity in its nonmonetary use. With fiat money, it is an arbitrary arithmetical abstraction.

Being the standard of value, money is the common denominator by which the value of things is compared. It is the measure. As a measure of value, money simplifies the comparison of contemporaneous values of goods and services. By comparing prices of various goods and services, a buyer can determine their relative value to each other. For example, if a haircut costs $15 and a hamburger costs $3, then a haircut has the value of five hamburgers. Money becomes the common denominator by which the values of things are reduced to their prices. Price is simply “the exchange value of an article in terms of the monetary unit.”[1] Price makes possible the keeping of general accounts. Thus, as the standard of value, money becomes the unit of accounts.

However, for money to function properly as the common denominator by which values are compared, the monetary unit itself must have value. The monetary unit must have a specific definition and made of something that has value.[2] To measure value, it must be a unit of concrete value. For example, a silver dollar, the dollar mentioned in the U.S. Constitution, is 371.25 grains of fine silver or 412.5 grains of standard silver (nine-tenths fine). Money should contain material that is in itself valuable. It ought not to be an abstraction. It must be able to move value from one place to another and from one time to another.

The value of paper fiat money becomes an abstraction. Initially, its value is based on the commodity money that it replaces. No paper fiat money spontaneously comes into existence without a relationship to a preexisting commodity or tangible asset.

As a standard of value, fiat money also fails. It is useless as a long-term accounting unit without adjustments. These adjustments are poor substitutes for sound money. Furthermore, “business profits are widely overstated because historically determined depreciation charges are inadequate in terms of current replacement costs. Likewise for inventory accounting and charges for goods sold.”[3]

Money is also a store of value, i.e., wealth can be held in the form of money. As a store of value, money must be able to retain its value when moved from one place to another and from one time to another. It transports value over time and space. Money serves “as a standard of deferred payments.”[4] It “stores up the value of future goods and services sold”[5] and bridges the present with the future. People expect today’s money to serve as payment ten to thirty years from now. Such expectations make long-term contracts practical. The expectation is that today’s money will retain its purchasing power over the long term. Also, as a store of value, money serves as insurance against the uncertainties of the future.

To serve as a store of value, money must be stable in value for an indefinite time. As a store of value, fiat money is a miserable failure. In the United States since 1933, the dollar had lost 93 percent of its purchasing power by 2005. Since its complete divorce from gold in 1971, it had lost 79 percent of its purchasing power by 2005.

On the other hand, gold has retained its value through the millennia. The ancient Babylonian and Hebrew gold shekel contained about 252 grains of gold or about as much gold as an American eagle (a $10 gold coin).[6] Those 252 grains of gold are still worth 252 grains today.

If a time traveler carried a $10 gold coin back two thousand years, he would have the buying power equivalent to about 58 days of wages of a common laborer. A common laborer’s wage at that time was about 17¢ per day.[7] Moreover, because a double eagle (a $20 gold coin) contains twice the gold of an eagle, it would have twice the buying power. If he carried a $100 and a $1 federal reserve note with him, he would get only what he could trade his bills for as a curiosity. He would find the $1 bill worth more than the $100 bill if the person with whom he is trading finds that the occult symbols on the back of a $1 bill have great value whereas a picture of Independence Hall on the back of a $100 bill has none. Unlike commodity money, fiat money fails to maintain its value over time.

Nevertheless, the purchasing power of gold and silver does fluctuate. At times their purchasing power rises; at other times it declines. Gold and silver’s value tends to rise for about 10 to 20 years and fall for about 10 to 20 years. However, compared to fiat money, whose purchasing power usually trends downward, gold and silver are stable.

Money is not the only store of value. Commodities, financial assets, land, and collectibles can serve as a store of value. However, there is a cost to converting money into other assets and these assets into money. Money is merely the most liquid asset for a store of value as no conversion is needed.

Finally, money must be able to pay debt. It provides a means to pay debt.

When a person pays a debt, he either retires it or discharges it. If he pays with commodity money, such as a full-weight gold coin, he retires the debt. He has paid the debt with something that is no one else’s obligation.

If a person pays with paper money (gold certificates, bank notes, or government notes), a check, or any other kind of money substitute (credit money or representative money), he merely discharges the debt. He has paid the debt with another obligation or debt. The debt is not retired until the paper money is converted into commodity money or the check transfers the commodity money to the creditor’s account.

Although the same substance can perform all four functions of money, it does not have to do so. Much convenience is often found in one substance performing all four functions. For example, a 10-pennyweight gold coin can be a medium of exchange, the standard by which value is measured, a store of value, and a payment for debt.

Under bimetallism, gold and silver were used as money with a legally fixed exchange rate or ratio between the two. In the United States, silver was the standard of value until 1862. In 1834 Congress changed the exchange rate or ratio between gold and silver. The new ratio reduced the value of gold in terms of silver. Thus, full-weight silver coins soon ceased circulating, and gold coins became the medium of exchange. Silver was the standard of value. Gold was the medium of exchange. Both were a store of value.

Endnotes
1. E.C. Harwood, Cause and Control of the Business Cycle (Great Barrington, Massachusetts: American Institute for Economic Research, 1974), p. 58.

2. J. Laurence Laughlin, The Elements of Political Economy (New York, New York: American Book Co., 1887), pp. 61, 68.

3. Ernest P. Welker, editor, Why Gold? (Great Barrington, Massachusetts: American Institute for Economic Research, 1978), p. 11.

4. Joseph French Johnson, Money and Currency: In Relation to Industry, Prices, and the Rate of Interest (Revised edition. Boston, Massachusetts: Ginn and Company, 1905), p. 15.

5. Charles Rist, History of Monetary and Credit Theory from John Law to the Present Day (1940; reprint. Translator Jane Degras. New York, New York: Augustus M. Kelly, 1966), p. 84.

6. Madeleine Miller and J. Lane Miller, Harper’s Bible Dictionary (New York, New York: Harper & Brothers Publishers, 1959), pp. 454-455.

7. John D. Davis, The Westminister Dictionary of the Bible (Revised by Henry Snyder Gehman. Philadelphia, Pennsylvania: The Westminster Press, 1944), p. 630.

Copyright © 2010 by Thomas Coley Allen.

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