One wonders why mainstream financial media, such as the FinancialTimes, The Wall Street Journal, Barron’s, when mentioning the “dollar,” puts a modifier before the word as if the dollar has different genres.
For example, sometimes you will see the phrase “1969 dollars” to distinguish them from, say, “2010 dollars.” The difference is supposed to be the change in buying power at different years.
So, if you have savings, insurance, a pension, annuities, or any other form of future payment, precisely in what “dollars” will they be paid? Creditors [those to whom money is promised] implicitly assume it will be in current “dollars,” irrespective of a loss in buying power when the dollars will be paid.
Every country, including our own, maybe not Cuba or North Korea, has it as official policy to depreciate the buying power of money promised for future payment. The jargon is called “inflation targeting.”
Why should it be acceptable to you to be paid your pensions or other forms of savings with depreciated “dollars?”
In the 1970s, those who belonged to unions were able to get a partial adjustment for the loss of buying power for future payments called a “Cost of Living Adjustment,” aka a COLA. Recently, some union contracts are resurrecting COLA’s, e.g., Deere & Company. There’s a lot more to say about this atrocity. I will get to it elsewhere.
For now, it should be clear that there is something wrong.
Another red flag that something is amiss is that other prefixes are used when describing dollars, especially by economists. Sometimes the dollar is called a “fiat dollar,” and money generically is referred to as “fiat money.” That means something entirely different.
In this context, the word “fiat” means ‘arbitrary,’ i.e., by decree. What part of our principal governance law, the Constitution, allows Congress to issue arbitrary money?
Don’t knock yourself out researching this. There is no such power.
Paper money is always fiat. In practice, this means that the monetary authority has declared something that has no meaning at all to be “dollars.”
A very clever comedian, Michael Connell, has a 4-minute clip lampooning this.
After you finish laughing, reflect that this is a serious matter.
Another significant red flag is that dollars are not found in nature. The dollar is a legal construct that has a legal meaning.
Consider, the word dollar appears in the Seventh Amendment to the Constitution:
“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.”
The Constitution is the highest law in the land. The meaning of “dollar” as used in the Constitution must prevail over any other in a legal proceeding.
Any laws that include “dollars” must use the same meaning. If the word “dollar” could have a different meaning, the Seventh Amendment would differ from its meaning in the Constitution. That would be nonsense.
How come none of this is taught in any school at any level anywhere in the world? (If you know of such a school, please let me know.)
The takeaway is that nowhere in the world is real money used in commerce. In another section, I will explain how this came to be and why it continues. [Spoiler: fiat money significantly increases wealth transfer to the financial sector. The Constitution has been usurped, and influential lawmakers have been compromised with euphemistically called “campaign contributions,” aka legal bribes.]
How can you know for sure what real money is?
Real money has three characteristics:
- Real money has no counterparty risk. Counter-party risk means that another party to a transaction may not fulfill its obligation, or for some other reason, a debt may default. Suppose you are paid with a check. There is a risk that the check may not be honored, such as insufficient funds. With money substitutes, there is the risk that monetary authorities will over issue, as they always have. There is a risk that paper money’s buying power will approach its cost of production: Zero. Savings and promises of future payment will depreciate and become worthless.
- Real money has a measurable ‘unit of dimension.’ About the year 1700, Warden of the English Mint, Sir Isaac Newton’s warning against irredeemable paper money lacking a ‘unit of dimension,’ precluded the use of paper money in England for almost 230 years. A unit of dimension is something measurable in the real world, such as distance, time, weight, volume, electrical charge. If something lacks a unit of dimension, there is nothing to connect it to the real world.
- Real money has a definition as a quantity of something that has a ‘unit of dimension.’ You can measure it. For example, the Coinage Act of 1792 defines the U.S. dollar as having 371.25 grains of pure silver.
What U.S. monetary authorities call “dollars” has no basis in fact nor in law. It is just like play money, except it is all gussied up with signatures and seals.
I understand that this seems like an outlandish claim. You can check a story from official sources that should drive this home to you.
President Franklin Roosevelt was inaugurated on Saturday, March 4th, 1933. The following Monday, March 6th, 1933, he unilaterally declared a “Bank Holiday,” closing all the banks that had not already closed. People were left short of cash for day-to-day purchases. What to do?
William Woodin was F.D.R.’s newly appointed Secretary of the Treasury. He was asked if the government should issue scrip, i.e., coupons, to hold people over until the banks reopened. His response says it all:
“Where would we be if we had I.O.U.’s scrip and certificates floating all around the country?” Instead, he decided to “issue currency against the sound assets of the banks. [As opposed to issuing currency against gold.] The Federal Reserve Act lets us print all we’ll need. And it won’t frighten the people. It won’t look like stage money. It’ll be money that looks like real money.” [Emphasis added] → Source, an official publication: ‘Closed for the Holiday: The Bank Holiday of 1933’, p20 – Federal Reserve Bank of Boston.
Stage money is the “money” that stage actors use when performing. That’s the stuff that today we call “dollars.”
Did anyone vote for this?
On March 12th, 1933, F.D.R. gave one of his famous “Fireside Chats,” during which he explained to the nation why he closed the banks and what they could expect. During his disingenuous explanation about not allowing gold to circulate as money, he declared about the dollar: “This currency is not fiat currency.” [F.D.R.’s Fireside chats are all online, so you can quickly check this out: for example, https://millercenter.org/the-presidency/presidential-speeches/march-12-1933-fireside-chat-1-banking-crisis]
F.D.R. was a superb wordsmith. He knew how the speak in terms that ordinary people understood. Today, many think that “fiat” refers to a junky little Italian car. But in 1933, no one would have accepted fiat money. In this instance, F.D.R. was attempting to put people at ease.
F.D.R. didn’t invent prevarication, but he perfected it. Douglas MacArthur said of F.D.R.: “ . . . a man who would never tell the truth when a lie would serve him just as well.” → Source: The Most Dangerous Man In America: The Making of Douglas MacArthur, By Mark Perry; page 328.
There’s more to this story that I will get to elsewhere. The critical takeaway is that F.D.R. did this by himself and misled the people. Later, Congress passed legislation legitimizing gold confiscation. That, of course, did not make it in conformity with the Constitution.
It is noteworthy that the Supreme Court never accepted a case challenging the constitutionality of F.D.R.’s seizure of monetary gold owned by U.S. citizens anywhere in the world.