CHAPTER 11: Storing Value for the Future

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If we add the concepts from the previous chapters of the Organic Economics™ series regarding labor and wealth to the things we covered earlier in The Biblical Genesis of Money, we can now take our understanding to another level. It is now time to start getting into the MAJOR aspects of monetary and economic truths, and to begin tying these issues to the modern financial crisis. You will now begin to see more clearly than ever what is wrong, and why it is wrongand what to do to prepare for the financial systems collapse that is about to happen soon.

Let’s begin by reviewing briefly ONLY those previous key elements which directly apply to this chapter:

  • Shortly after the Fall of humanity, trade became very necessary and mutually beneficial, as it enabled (and further encouraged) specialization according to one’s abilities. This also permitted a more efficient use of the earth’s finite resources, including labor itself.
  • A person’s specialized labors produced goods and/or services beneficial to others, but through trade they were able to obtain the things that they were not producing themselves (whether due to inability or inconvenience).
  • So in essence, what people actually traded with one another (and still trade with one another today) was their labor and the fruit of their labor, in exchange for those things produced by the labors of others.
  • Money developed as a medium of exchange to make trade more efficient—partly from the innate knowledge of the value of certain things built into mankind by God at creation, and partly due to the confirming nature of marketplace experience.
  • These “monies” were primarily precious metals (gold and silver) and cattle, which were also themselves commodities within the marketplace.
  • Because the “monies” were commodities themselves, the original and true monies also had intrinsic value of their own (besides their usefulness as mediums of exchange).
  • Labor (work) is a key component of all wealth, and we exchange our “labors” for money in order to use that money to purchase the labors of others elsewhere.
  • Valuations within the market place also include the subjective valuations of individuals with regard to the labor (“sweat equity”) they have invested into goods or services as a seller, or into earning their money as a buyer.

The next point we need to explore is the concept of “labor storage” as an inherent characteristic of true money. So in this chapter, we will take our understanding of “money” one giant step further.

Storing Labor

As we discussed in an earlier chapter, all of us have used phrases such as, “I earn my money,” “I worked hard for that,” or “I paid for that with my sweat.” Again, such expressionsand many more like themreveal that within each of us is an innate comprehension that our money represents our labors. We worked to obtain the money, and in a very real way, that money represents our “labors” in a stored form.

Understandably, when money first arose within the marketplace as an agreed upon medium of exchange, it was in the form of high-demand commodities which could be easily and quickly traded with just about anyone for the goods and services they wanted to buy. In short, a person traded the “fruit “of their labors for something that represented a somewhat equivalent amount of labor in a tangible form. The gold, silver, cattle, and other things used as “money” were all labor-intensive commodities themselves.

So people traded the “fruit” of their labors in order to obtain something that could store that labor. Since these true monies were so widely accepted within the marketplace as mediums of exchange, they could then take those “stored labors” and purchase something else that someone had labored to produce (i.e. the goods and services supplied to the market by others). This should remind my readers of the Organic Economic™ truth that we explained previously in The Biblical Genesis of Money:

The Nature of Exchange: All exchange transactions are in their essence simple “barter” transactions that exchange goods/services for other goods/services. Indirect exchange transactions are simply more efficient “barter” exchanges in that they exchange a good/service for an intermediary monetary commodity, which is then exchanged in turn (and time) for other goods/services as the buyer desires.

Therefore, we can easily identify our related Organic Economic™ truth:

Labor Storage: True money serves as an excellent “storehouse” of past human labors, because it is itself a product of labor.

Gold Bars and NuggetsGold, for example, is not just a pretty yellow metal that everyone wants. There is labor required to find it (due to its scarcity), then to refine it, and to form it into some shape suitable for trading with others.

I am sure you remember the three main characteristics of gold given by the Lord Himself in Genesis 2:12, as we discussed back in The Biblical Genesis of Trade. The Hebrew adjective which is translated in that verse as “good” (describing the gold of the “Land of Havilah”) literally means:

  1. “Good, pleasant, agreeable” to the senses;
  2. “Good, rich, valuable in estimation” economically; and
  3. “Good, right” morally.

Again, God made gold by His own design, and then defined it as attractive in appearance, precious in value, and morally “right” for possession.

However, part of what enables gold to be “good, rich, and valuable” economically is the labor component required to bring it to market. Many economists emphasize its scarcity—which is certainly a factor. However, its scarcity also makes it hard to find and to mine from the ground (i.e. scarcity often results in higher labor expenditures). The scarcity or rarity of any goodin contrast to the demand for itcertainly affects the subjective valuation of people in the market place, and thus, its “price” relative to other goods within the market. However, it is equally true that people also esteem things automatically based upon how much labor they had to invest to acquire them.

Silver BarsSilver is similarly labor-intensive like gold is, but it is about ten to twelve times more abundant within the earth’s crust. Thus, it has a lower intrinsic value due to both its lower labor expense and increased supply. Copper is again similarly labor-intensive, but it is yet even more abundant; and so it is significantly less intrinsically valuable than either silver or gold.

Consequently, these three metals, throughout history, have worked well in tandem with each other to supply the marketplace with appropriate true monies to trade for goods of varying prices. They did this because they each had varying intrinsic values, and therefore “stored” labor in varying degrees. Copper alloys (generally brass or bronze) were used for smaller purchases, as well as to make “change” for larger silver-based transactions. Silver was used for MOST transactions within the marketplace, as that was the “common man’s” money of first choice. Again, it could also be used to make change for larger gold-based transactions as well. Each metal—gold, silver, and copper—were valued within the marketplace for their own properties, but also as monetary mediums of exchange.

Again, all values are subjective (i.e. uniquely an opinion of each person). In other words, “value is in the eye of the beholder,” as we explained before in Subjective Valuations within the Marketplace. Consequently, each person naturally takes into account how much “sweat equity” (work) they had to invest into a particular good, service, or commodityto include moneyin order to obtain it. Thus, they negotiate with “buyers” of those goods and services to obtain a “price” that they can both agree is reasonable for the exchangetypically a payment in either copper, silver, or gold, or some combination of the three. They then take the true money they received for their labors elsewhere, and exchange it again for the “fruits” of the labors of others.

So our newest Organic Economic™ truth to note is:

Laboring For True Money: For thousands of years, human beings would not accept anything but “labor-filled” goods, services, and commodities in trade for the “fruit” of their own labors. Thus, true monies have always been commodities of high-labor content (to store their own labors in a tangible form) and high-marketability (to ensure broad acceptance within the marketplace).

Imagine a man working his field with an oxen-powered plow, and later harvesting his crop. All this would have taken quite a lot of time, and a massive amount of labor on his partas well as the labor expended through the use of his very expensive oxen (like a farmer might use a tractor today to increase his production through more efficient labor). He would then transport that grain by cart to market, which also required a lot of work. Do you think he would then trade the “fruit of his labors” for just a few pieces of intrinsically worthless paper?

We can imagine that the merchant begins by saying, “Samuel, I would like to buy your entire cart load of wheat. I have here ten pieces of paper that I would like to trade you for them. They are printed with some really pretty pictures. So I just KNOW that you will value them highly and consider them a fair trade for the fruit of all your labors.” I don’t think so! I am quite sure that such a proposal would NOT have been well received during most of the last five thousand years of human history.

Unless that paper had a guaranteed title to something of value (e.g. a deed to land, or a valid legal claim on gold or silver bullion, such as a deposit receipt) the seller would certainly consider the alleged “buyer” to be a fool or insane. No, all sellers throughout MOST of human history have wanted VALUE in exchange for his or her goodsbecause of the labor which they had expended to produce them.

That is why it has often been said, “Gold is the crystallized labor of times past.” (The same would apply to silver to a lesser degree, of course.)

A man or woman could labor within their own particular vocation, and thereby trade the “fruit” of their labors with others for gold or silver (or even copper). This “crystallized” their labor (so to speak) into a tangible form that they could then carry anywhere easily in order to trade that money for the goods and services they desired or needed. Thus, another Organic Economic™ principle:

Labor Transport: Another key benefit that arises out of true money’s Labor Storage nature is that it can effectively and conveniently transport the “fruit” of labor across distances.

This is one reason that cattle served well in ancient economies for buying lands and other high-priced goods, as the animals could walk (with some coaxing) from one place to another. However, there is another human need that made precious metals far more practical than livestock as a medium of exchange: Its ability to transport labor through time…

Time Travel

One of the most important characteristics that money MUST have is the ability to store value over time. Of course, this has been implied throughout this entire chapter so far. Let’s discuss it more directly now.

When a person traded their labors or the “fruit” of their labors for true money, they obviously “stored” that money for use at a future time. It may only be a few minutes or hours later before they then trade that income for something else, of course. Nevertheless, we can easily see that their past labors were carried into the future in order to exchange them for other goods and services.

Good judgment will also tell a person that unexpected things can happen. So it is good to have a store of “value” from past labors on hand in case it is needed. The biblical story of Joseph illustrates for us through Genesis chapters forty-one and forty-two that “seven years of famine” could certainly follow “seven years of plenty.” It is scripturally very wise to be prepared for the unexpected:

In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.

(Proverbs 21:20, NIV, emphasis added)

Furthermore, there are KNOWN future needs for which one should prepare. A modern example would include saving for a child’s future education or to make a future purchase of something with a high “price tag.”

Throughout all of history, mankind has had to also prepare for the (hopefully) inevitable years of old age. Therein, one’s strength and ability to labor for daily sustenance has to give way to the consumption of stored up labors from times past:

Behold, what I have seen to be good and fitting is for one to eat and drink, and to find enjoyment in all the labor in which he labors under the sun all the days which God gives him—for this is his [allotted] part. Also, every man to whom God has given riches and possessions, and the power to enjoy them and to accept his appointed lot and to rejoice in his toil—this is the gift of God [to him].

(Ecclesiastes 5:18-19, The Amplified Bible, emphasis added)

Lastly, it is important to note that the Bible indicates very clearly that one’s stored up “labor” from his or her working years should not simply be just enough to supply their own needs during their “golden” years of old age. God clearly wants us to also pass on an inheritance to subsequent generations that they can use as a foundation to build even greater wealth:

A good man leaves an inheritance for his children’s children…

(Proverbs 13:22a, NIV, emphasis added)

So true money, in biblical terms, must be capable of even transporting the “fruit of our labors” through multiple generations of time.

Such a characteristic certainly exceeds the capabilities of “perishable wealth” such as oil, grain, and cattle, but could apply to some degree to “durable wealth” such as lands, buildings, equipment. Nevertheless, there have been many ancient civilizations whose buildings and equipment have long since perished, thereby leaving nothing useful for future generations (though the land still remained). However, even within the ruins of such ancient cities, many a treasure trove of gold and silver has been unearthed hundredsand even thousandsof years after their original owners died.

Further, these same unearthed gold and silver treasures can buy as many comparable goods and services thousands of years later as they could originally when they were first acquired by their original owners, and then buried in the ground!

Thus, our final Organic Economic™ principle for this important chapter:

The Value Superiority of Bullion: Since the earliest periods of human history, precious metals have proven to be the most durable and time-immune “storehouses of value” upon the earth (i.e. the “crystallized labors from times past”). Bullion historically maintains a stable market value compared to other goods and commodities, and has done so since the most ancient markets recorded transactions upon tablets of clay.

Is It an Investment or Real Money?

One of the most ignorant statements (okay…idiotic would be a better term) made today by some regarding gold or silver is, “Why would I want to invest in gold or silver? It does not pay any interest!” Oh, really? Let’s now examine that idea within the light of all that we have studied so far, and see if it can hold water.

The people who make such statements have the wrong framework of reference. They look at paper-only currencies as “money,” even though those currencies really do not have the key characteristics of true money that we have already examined. Thus, such people think of gold and silver within the framework of “investments” which is NOT historically the right context at all.

So first of all, I rarely discuss gold or silver as an “investment” because I view these metals simply as true money. And because it is true money, it can certainly “earn interest” whenever it is properly used as money, because it can be loaned and invested just like any other “money” can be. Thus, I typically do not discuss bullion as an investment in and of itself, as I think it more important to emphasize its true money natureand thus, its ability to “store value” to preserve wealth over time.

Nevertheless, I will briefly address the “investment” aspect here. In reality, both gold and silver ARE currently great investments because their exchange rate value against modern currencies has been artificially suppressed by government interventions—for the last two decades in particular. Governments know that real money (i.e. gold and silver) is superior competition to their paper-currencies, and so they try to interfere with the bullion markets through multiple methods, in order to make their “paper” look good. However, it is in reality intrinsically worthless.

So the bottom line is this: Both gold and silver are grossly “undervalued” when “priced” against paper currencies today. Thus, they represent an incredible investment opportunity for those who FIRST verify this fact by their own research, and then act upon that information by exchanging all the “paper” money they can for real money—i.e. gold and silver.

With the above facts in mind, let us now examine more closely how the true money nature of gold and silver makes “paper” money look ridiculous. We will also see more clearly how those who disparage gold and silver as “investment bubbles” today are either extremely ignorant...or simply dishonest, and really have a hidden agenda in mind.

A Nice but Modest “Return”

“Money” of any kind obviously represents the fruit of our labors, because we trade our labors to obtain it. Gold and silver, however, are themselves fruits of the labors of someone else. So they have intrinsic value and are rightly considered true money. That is why gold and silver have been used to store value (or labor) for thousands of years.

And the stability within bullion-based monetary systems created a situation where “price inflation” was almost unheard of for thousands of yearsexcept during times of natural disaster or war, of course.

Gold "Liberty" Coins

Gold "Liberty" Coins (Click to enlarge)

To illustrate this with a more modern example: Consider that from about the year 1810 A.D. (when the U.S. dollar was backed by silver) to 1910 (when it was backed by gold) the U.S. price index fell by about 40%.

So what cost $1 in 1810 could have sold for about 60 cents in 1910. This savings was due mainly to the combination of the soundness of the monetary system, and the constant improvements of manufacturing and production efficiency. So it is not that gold and silver’s value rose, but rather that the prices of other things in relation to gold and silver fell. The improved efficiency that new technologies and production methods brought to the productive segments of the economy (manufacturing, farming, etc.) provided most of this “discount.” Gold and silver just held their value. But those that held gold and silver found that they could buy more later as relative prices dropped.

So let’s discuss this fact with an illustration: Let us say that a man named “George” worked a job in a factory back in 1810, and then stored his labors in the form of gold or silver through his wages. Let us say that he then buried it on the family farm, and it was not discovered by his descendents for a hundred years. Then in 1910, his great-grandchildren tried to spend that real money. Can you guess what happened? They discovered that the gold and/or silver still had retained its full purchasing power available to buy the things that they wanted or neededand even 40% more than what Grandpa George could have bought in his day.

Of course, in the minds of some people this means that Grandpa George’s gold and/or silver “earned only 40% in 100 years” as it was being stored for a century. Annualized, that might be considered similar to earning about 0.4% per year upon his original “investment.” So some might suggest that such an amount is “too small a return” for George’s family. But is it?

A VERY Negative “Return”

U.S. Dollar

George’s descendants would realize about a 40% gain in purchase power ability for those 1810 gold and/or silver coins one hundred years later in 1910. However, the next century would see United States “money” greatly devalue by 2010, giving “paper money” a net loss of 99%!

That means, what cost $1 in 1910 cost about $100 in 2010. Ouch!

And that true loss in the value of the U.S. dollar also affects the TRUE values of everything measured by those same U.S. dollars.

How do you think this effects the stock markets, real estate prices, and other “investments,” when their relative “prices” rise against a falling dollar? While “nominal prices” rise due to price inflation, the true values of those assets are MUCH smaller than the alleged “appreciation” that people think they are earning on their “investments.” In many cases, the price of an asset or investment could rise while the true value is falling.

For example, the Dow Jones Industrial Average index (Dow) rose in terms of U.S. dollars until it “peaked” in October of 2007:


The Dow Jones Insustrial Average from 1900-2009

Click to Enlarge


However, when measured by real money—gold—the Dow index actually “peaked” in value back in 1999 and has since declined by 82%! :


ChartOfTheDay.com chart - The DOW priced in gold

Click to Enlarge


And the above chart indicates that this slide in the true value of the Dow is even ACCELERATING now.

So what about the values of other things? As I already noted above, real values can easily decline while currency-based prices are rising. Please take note that, when measured in declining U.S. dollars, median home prices in the United States peaked about the same time as the Dow did, around late 2007:


Median Home Prices within the United States of America from 1969-2010

Click to Enlarge


However, when we once again look at median home prices in terms of real money—gold—we can see that the real values of home peaked in 2001, and have since declined in true value by about 75%! :


ChartOfTheDay.com chart - Median home prices measured by gold

Click to Enlarge


Thus, the Dow was actually declining in TRUE value while the dollar-based stock prices of that index where still rising. True home values were collapsing while their prices in dollars were still skyrocketing. So how “good” can U.S. dollar-based investments really be when their price is measured in a depreciating currency?

So we can now identify another self-evident Organic Economics™ principle:

Only True Money Can be a True Measure: For true values to be properly measured, the “money” used as a metric (i.e measurement standard) must be stable in its relative value to other goods and services over time. ONLY true monies with intrinsic value can be TRUE measures of other values.

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Consequently, when values are measured using today’s inferior “paper” and “digital” currencies, this causes very distorted perceptions of value. This is because the metric by which things are priced is itself intrinsically worthless, and also unstable relative to other goods and services over time. Thus, currencies are a VERY poor measure of true values.

Inflation: Truth Versus Hype

Let me note briefly that many of the charts available on the Internet try to offer “inflation adjusted” values to more accurately convey trends. This is commendable.

However, most of them use the government’s own flawed CPI statistics, which seriously understate true inflation. For example, the CPI figures typically reported by the media do NOT account for rises in commodity prices, such as energy costs, fuel costs, and food costs. So as a measure of “cost-of-living increases” such data is ridiculously (and deceptively) far below the reality people experience at the checkout counters when shopping.

For more honest and accurate U.S. economic and inflation statistics, I recommend ShadowStats.com. Below is their current chart on inflation (automatically updated). Please take note how their “SGI Alternative CPI” charting figures (which are based upon the 1980 methodology, to more accurately convey cost-of-living increases) vary quite a bit from even the most broad “official” measurements currently available from the U.S. Bureau of Labor Statistics (BLS):

ShadowStats.com Annual Consumer Inflation chart

(Click to view their website page for more about this topic)

So the best measure of true value is the 5,000-year old money, gold. Silver has historically been a good measure too, but the price manipulation by the governments and central banks have been more pronounced in that metal than even with its yellow counterpart. Thus, I think gold is a more stable measure to use at present, but that will eventually change. At that point in time, either one could be used as the metric of true value.

Another thing to note from the inflation data above: With true price inflation being much higher than reportedand the devaluation of the U.S. dollar being much worse than even thatit should be quite apparent by now that the American people are being lied to by their government as their wealth is being plundered by the central bank.

Again, this applies to people of ALL nations of the world as well, because your currencies are supposedly “backed” by the U.S. dollar. Moreover, your central banks are debasing your own currencies at a similar rate to that of the U.S. currency. (And I will discuss these points even further within the text below.)

Amazing Stores of Value

So in the light of all that we discussed above, let us return to the question we mentioned further above, “Why would I want to invest in gold or silver? It does not pay any interest!” Does that statement “hold water” as they say? Are gold and silver a good “investments”?

Obviously, with the present commodity markets of gold and silver being under-priced through government and central bank interventions, gold and silver are both excellent investments. Even with that manipulation of the markets, gold has still managed to go up by about 460% in value against the U.S. dollar from 2000 to 2010, and it has even risen by about $300 per troy ounce in 2010 alone. Does that seem like a bad “return” to you? (How does that compare with the performance of your own stock portfolio and mutual funds, or even the current market price of your home?)

However, the most important thing to remember is that gold and silver are amazing stores of valueregardless of what the markets are doing! Daily fluctuations in the gold and silver “prices” can never change that fact.

A Sample of World Currencies

REALITY CHECK: The real "substance" of today's currencies is, on average, about 98% DIGITAL. This means that most modern currencies are not even typically printed upon paper or minted into coins. They are mostly intangible accounting entries made within central bank records. Thus, today's currencies can be "created" AT WILL and WITHOUT LIMIT with a few key strokes on a computer...up to INFINITY. So what do you think is the intrinsic value of such alleged virtual "money"?

Gold and silver will NEVER be truly “worthless” as they are intrinsically precious by God’s Own design. There have been short periods of time in history (as we will explore in a later chapter) where gold and silver seemed worthless due to the fact that there was nothing to buy in the markets because of a famine or war-time siege. However, these were only temporary circumstances, and the metals soon regained their original luster as mediums of exchange once the markets once again had products to buy. Thus, these metals are safe havens of value in which to store wealth for the future.

On the other hand, today’s paper and digital currencies are already worthless…and more and more people are starting to figure that out daily. It is only a matter of time before these currencies collapse entirely as people abandon them in the face of hyperinflation, and these currencies then return to their true intrinsic value of zero. As we have already seen demonstrated above within this chapter, paper and digital currencies are terrible ways to store “value” and wealth over time because they are intrinsically worthless.

That is why the true values of stocks, homes, and other assets, are actually still plummeting because of the ongoing debasement of the world’s currenciesincluding the U.S. dollar.

To underscore the above truths even further, let’s quickly review the Organic Economic™ principles which define TRUE monies, and see if you can now identify the difference between gold and silver money and its inferior “paper” competitors:

Labor Storage: True money serves as an excellent “storehouse” of past human labors, because it is itself a product of labor.

Laboring for True Money: For thousands of years, human beings would not accept anything but “labor-filled” goods, services, and commodities in trade for the “fruit” of their own labors. Thus, true monies have always been commodities of high-labor content (to store their own labors in a tangible form) and of high-marketability (to ensure broad acceptance within the marketplace).

Labor Transport: Another key benefit that arises out of true money’s Labor Storage nature is that it can effectively and conveniently transport the “fruit” of labor across distances.

The Value Superiority of Bullion: Since the earliest periods of human history, precious metals have proven to be the most durable and time-immune “storehouses of value” upon the earth (i.e. the “crystallized labors from times past”). Bullion historically maintains a stable market value compared to other goods and commodities, and has done so since the most ancient markets recorded transactions upon tablets of clay.

Only True Money Can be a True Measure: For true values to be properly measured, the “money” used as a metric must be stable in its relative value to other goods and services over time. ONLY true monies with intrinsic value can be TRUE measures of other values.

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Consequently, when measuring values using today’s inferior “paper” and “digital” currencies, this causes very distorted perceptions of value. This is because the metric by which things are priced is itself intrinsically worthless, and so, unstable relative to other goods and services over time. Thus, currencies are a VERY poor measure of true values.

I hope that you can now tell that “paper” is a very poor “monetary medium” through which to transfer one’s labors through time—and the modern “digital” versions of the “paper” are even worse.

Nowadays, the U.S. dollar is becoming increasingly unacceptable in various markets of the world, proving also that “paper” has its problems transferring labor across distances as well.

And why is this the case? Simple. Though the “paper” dollar used to be a legal claim on gold, today it is merely a fraudulent debt instrument with a promise to pay…nothing. Let’s discuss that next.

The Biggest Default

The sad history about how the USA illegally abandoned precious metals within its monetary system should be touched on here so that the full impact of this chapter of Organic Economics™ can be realized. (Note: It was illegal because only gold and silver are recognized by the U.S. Constitution as money.) Since the U.S. dollar is currently the “international reserve currency,” this story effects everyone reading this website, regardless of what country in which you happen to reside. Your own country’s currency is intrinsically “worthless”and declining rapidly in valuebecause it is “backed” by your country’s reserves of U.S dollars, which are also now intrinsically worthless.

Originally, all money used within the United States and other countries was “labor filled” coinage that possessed intrinsic valueprimarily gold, silver, and copper alloys. “Paper” money only existed in the form of “bank notes.” These were usually only very large denominations, and they were all required by law to be redeemable upon demand for real money, typically gold or silver coins. So the actual money of the systems was their gold and silver coins. Within the USA, the “bank notes” could be issued by independent banks, and there was no central bank with exclusive authority to issue such redeemable “paper” notes. Over time, these paper bank notes began to circulate as currency since they were more convenient and lighter than the equivalent large number of gold or silver coins; and they represented the real money itself (though the paper had no value apart from that bullion backing).

Of course, the U.S. and other countries did not attempt to abandon real bullion money outright, as it would not have gone over well with the general public. So they did this in stages. This process started to really take shape in 1913 when the U.S. Congress authorized the Federal Reserve Bank (or FED for short) to be formed. This new “central bank” entity is really a private banking cabal, and has never been an actual part of the Federal government, any more than the Federal Express shipping company is today. The FED was also given exclusive authority to issue “bank notes,” and so the gold-redeemable “Federal Reserve Note” currency began to circulate instead of the private bank notesthough gold and silver coins were still the main “backbone” of the money supply. People could still go to their local bank and redeem “Federal Reserve Notes” for gold coinage.

Most countries of the world abandoned true gold standards in 1914 with the outbreak of World War One. Once hostilities ended, only some of these countries partially reinstated such bullion-based systems. (The United States was one of these countries, of course.) I say “partially” because the international Real Bill market was not reinstated along with these systems, due to punitive international trade barriers against the losers of the war. Thus, this partial version of a gold standard system proved to be somewhat deflationary (i.e. resulted in reduced economic output) because the “lubricant” of the Real Bills market was now missing, and businesses no longer had that source of international commercial credit to keep trade flowing smoothly. But the facade of a gold standard continued somewhat longer…

Then the Great Depression hit. It began with the U.S. stock market crash of 1929, but then worsened and continued due to the poor economic policies of the U.S. government. So in 1933, President Franklin D. Roosevelt illegally confiscated (in exchange for paper dollars) ALL the personal gold held by U.S. citizens via Executive Order #6102, and declared it “illegal” for them to own gold in any form. Congress “whitewashed” that unconstitutional act a few months later by passing legislation making Roosevelt’s crime “legal” retroactively. (This was all clearly unconstitutional, and thus itself illegal to do; and all this was subsequently reversed by Congress in 1974 when they allowed people to once again own Constitutional money.)

Roosevelt “paid” the citizens $20.67 per troy ounce for their goldi.e. in exchange for allegedly gold-backed U.S. dollarsbecause that was then the current market exchange rate of gold to dollars. However, Roosevelt’s “friends” at the Federal Reserve had been secretly printing lots of money to fund his “New Deal” social agenda. So after he had all the gold he figured he could get (i.e. all that was not hidden away by wiser owners) he then “revalued” the price of the U.S. dollar against gold at $35 per troy ounce to make up for all that extra paper floating around.

Thus, the president of the United States effectively stole about 41% of the money from the U.S population, because they found themselves left with 41% less purchasing power after he had completed his dirty fraud.

Of course, despite trampling the Constitutional rights of its citizens, the U.S. government still allowed other countries to redeem their U.S. dollars for gold bullion upon demand. Again, the facade of a gold standard continued somewhat longer…

Then World War Two broke out. Towards the end of the war in 1944, the United States semi-forced the other almost victorious nations of the war to sign the “Bretton Woods Agreement” just before the war ended. This new “version” of the gold standard fixed the U.S. dollar to gold…but also fixed the price of gold to a certain number of dollars. Thus, it was a circular fraud, and not a true gold backing of the currency.

However, as a part of this “deal” the other countries agreed to not reinstate their own true gold and silver standards now that the war was over. Instead, they were to fill their national reserves with U.S. dollars because it was “as good as gold” (or so the propaganda said). This meant that all the currencies of the world would now be “U.S. dollar-backed” instead of directly redeemable in real bullion money, and this made the dollar the “international reserve currency” of the world. So instead of directly backing their currencies with gold or silver, these other countries backed theirs with U.S. dollars, which was supposedly backed by gold. But there still remained a provision therein for other countries to  demand that the U.S. exchange gold for dollars, if they were so inclined. So the facade of a gold standard continued somewhat longer again…

However, from 1944 forward, the Federal Reserve Bank would sometimes get a little “excited” and print too many dollars again when the government needed extra funds. Thus, they debased the true value of the currency when they did by increasing its supply beyond the amount of gold bullion in storage to back it. This went largely unnoticed, however, until the late 1960s. But then the U.S. was involved in an undeclaredand thus, unconstitutionalwar that was officially named the “Vietnam Conflict.” The U.S. needed to fund their illegal war, and so the government leaned upon the FED to supply them with ALL the dollars they wanted. So the printing presses began to “roll out the dough” way beyond the amount of gold bullion in storage to support the currency. However, this behavior was noticed this time.

A few other countriesand in particular, France—figured out that the U.S. government had started to run somewhat of a Ponzi Scheme with their “international reserve” currency. So these countries began to demand payments in gold from the USA instead of accepting the paper dollars. This started to empty the U.S. gold reserves quickly, and so in 1971 President “Tricky Dick” Richard Nixon announced he was “temporarily” closing the so-called “gold window” and would no longer redeem dollars for gold from any other country. He blamed this “necessary” action on unnamed “currency speculators” (which, essentially, were really these other countries calling their financial bluff).

This “temporary” presidential order is still in place, and will be “celebrating” its fortieth year this coming Summer of 2011.

Denominations of the United States Currency

Denominations of the United States Currency. Note the "Federal Reserve Note" printed across the top of each "bill." (Click to enlarge)

Technically, the U.S. dollar is actually still “backed” by gold—but only in theory. That is why every denomination of the currency has “Federal Reserve Note” printed across the top of the face of each “bill.” It is actually a debt instrument which promises to pay…well…nothing. By law, they are really obligated to pay gold upon demand. However, the U.S. government has conveniently removed that requirement from the Federal Reserve through Nixon’s unconstitutional presidential order. So in reality, they have no intention to redeem dollars for bullion.

This single fact makes the U.S. government the largest defaulter on debt in world history.

So what is the effect of all of this on the “value storage” capability of the currency of the United States of America? By systematically reducing the “gold backing” of the U.S. dollar, the government subjected the currency to devaluation (i.e. each unit was worth less and less over time). This results in “price inflation” because it takes more and more dollars to buy the same goods and services.

To put some real numbers upon this phenomena: The U.S. dollar lost about 80% of its purchasing power in only about 71 years from 1900 until President Nixon ceased the dollar’s  international convertibility to gold in 1971. From then until 2009, the U.S. dollar lost another 81% in its purchasing power, for a grand total debasement of purchasing value of about 97% in about 109 years (from 1900-2009).

Worse yet, the U.S. money supply has been skyrocketing even more since the 2009 figures, thus, reducing the value of each unit even more. Rising commodity prices are even now indicating that price inflation is acceleratingand will likely soon achieve hyper-inflationary levels.

So that is why I could confidently state earlier within this chapter that the U.S. dollar has lost about 99% of its purchasing power ability since 1910 when it was still truly backed by real gold.

Summary:

  • True moneye.g. gold, silver, and copper alloyshas intrinsic value, because it is itself a commodity that requires labor to locate, mine, and then to fabricate for use.
  • Thus, true money “stores labor” in that people trade their labors to obtain the money, only to then trade that money again for the “fruits” of other people’s labors (i.e. goods and services).
  • This fact also allows “labor” or “value” to be transported over distances—and even through time to later generations.
  • Over time, gold- and silver-backed money would buy similar quantitiesand at times could often buy more—of the same comparable goods, services, and commodities. This was because of the nature of the true money which backed the currency, and improvements in manufacturing and production efficiency (e.g. through technological advancements).
  • Since detaching from true money, however, paper-only currencies are nothing more than mere debt instruments (i.e. with a negative intrinsic value), and have lost on average about 99% of their purchasing-power ability.
  • Modern currencies are losing more and more value daily, as governments continue to create more money without restraint.
  • Paper-only currencies maintain the “appearance” of value through legal tender laws (that force people to accept them in payment for goods and services), and through government interventions into the gold and silver markets to suppress their exchange rate values against their paper competitors.
  • Gold and silver are currently VERY “cheap” when priced in terms of paper-currencies because of all the above facts, and thus, currently an amazing investment opportunity.
  • The REAL value of gold and silver, however, is that they store value over time—and thus, preserve the wealth of those who own them.

So what should you be doing with your “paper” currencies?  I trust the answer to that question is somewhat clear now. However, feel free to read many of the links provided within this chapter to further educated yourself concerning these matters. Then, please consider quality vendors through which to “exchange” your paper money for real money. Any that I specifically suggest will be displayed within the right most column of this website.

To progress in our Organic Economics™ study further, however, our next few chapters will depart briefly away from the direct discussion of money itself, and dive back into business and commerce more broadly. We will start off in chapter 12 by exploring An Ancient Fiscal Development that permitted trade efficiency and business profitability to increase dramatically. This will lay a foundation for chapter 13, wherein we will examine the full effect of this development upon ancient trade and commerce. Then after that, in chapter 14 we will introduce the topic of banking within ancient Sumer, and how that applies to today’s situation.

With the above three chapters completed, we will then return to discuss money once again in chapter 15. At that point, we will be able to take the very things that we just learned within this chapter even deeper.

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For more information about Rev. Rich Vermillion, please view the brief bio at the bottom of TheWisdomOfGold.com’s Website Introduction page, or visit his public LinkedIn profile page at: http://www.linkedin.com/in/richvermillion

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