Let's Put an End to the Money Racket (Part V)
The Third Dilemma Overcome by the Nefarious Practice of Statutory Counterfeit
Last time we noted that it was difficult to add new money to the existent money supply, for the simple reason that few market agents were willing to cover the cost of adding it. At the time there were no banks to facilitate a lively exchange of coin across time and accommodate the ever-increasing market demand for new coin in the absence of a market to facilitate its production. What is more, the various provincial governments were keen on issuing bills of credit that diluted the real money supply and chased the good (real) money overseas while we at home were left holding ever more worthless paper. Perhaps, you have heard of Gresham’s Law?
Despite the British government’s best attempt to prevent the dilution in value of America’s money supply by twice banning the issue of bills of credit in the American colonies, it did not do so in the best interest of us, Americans, who were the subjects of the British Crown. For, the Crown’s goal was to substitute our bills of credit with the statutory counterfeit of the Bank of England and subsequently do to us what it was already doing to its subjects on the other side of the Atlantic — namely, diverting real money (gold and silver specie) away from the common folk and into the hands of the British state. The purpose of this diversion was, of course, to fund the British state and its overseas wars that expanded the global reach of the British Crown. I hope this sounds familiar, because it is what our politicians, bureaucrats, bankers, and their corporate friends are doing in Washington, D.C. today, as We, the People, foolishly shout “USA, USA, USA” and sacrifice our nation’s prosperity and democracy while our nation’s leaders court the leaders of other nations in their bid to form a top-down, one-world government that has the appearance of democracy, but underneath is little more than a neo-feudal state with a new ruling class and a new mechanism of enforcing its will — namely, statutory counterfeit and its all too natural outcome. Alas, real money does not grow on trees and debt is more easily generated when what you can lend money into existence in the form of counterfeit.
Indeed, the glory of the American state and the greatness of the American nation and its people are not the same, but can easily become blurred when we can no longer recognize the difference between self-defense and self-imprisonment. Debt-enslavement is real!
Now, let us return to, and finish up with the third of our nation’s early three monetary dilemmas.
Dilemma (cont.)
What happens when the value of real money keeps rising?
On the one hand, we can purchase more goods and services with the same number of units of money. This is, of course, a good thing — especially for the poorest and least bright among us, the same for whom the Christian faith demands that we care, and the same whom the Democrat Party (today’s party of wealth) claims that it serves through endless entitlements and continued impoverishment of our nation through the socialization of our otherwise voluntary, free markets and the destruction of the individual incentive to get ahead.
On the other hand, because real money is now more valuable, we are unable to purchase smaller valued items unless we purchase them in bulk. This can be very awkward and inhibits market activity. By way of example, having to buy foodstuffs in bulk that quickly spoil is likely to lead to much waste, or alternatively in today’s society, to the purchase of even more processed foods with ever more preservatives and addictive chemicals whose digestion, or lack thereof, leads to the many bodily illnesses associated with our malnourished, so-called “second brain”.
The inability to engage in smaller transactions — be it the sale of small labor services, the purchase of small grocery items, or even the education of our children about the nature of voluntary free markets — retards market activity and our entry into the market place. With the passage of time the size of our purchases necessarily increases, and the problem only worsens.
Precious metals are surely precious because they conserve both their energy and luster longer than any known element on the Periodic Table. They are also precious, because they are exceedingly rare and therefore difficult to find and extract.1 Accordingly, the rate of growth of their production — extraction and refinement — lags far behind the total production of other goods and services that continues to increase with each new technological advancement and new discovery of important resources. In the absence of paper — or in the 21st century, digital currency — the only way to adjust for the ever-growing value of each metal coin was to melt a portion of what was already in existence and recreate it as smaller fractions of the existent coin. Because consumers could purchase more of what they wanted and producers could sell more of what they produced, there was surely a market for smaller denominated coin. Paying a little bit more for smaller coin would surely be worth the trade. There was a catch, however.
Because the value of real money is the market value of the precious metal that is contained inside, and because by the late 18th century the practice of monetary debasement was well-known, the appearance of new coin — even the same coin, but now in smaller denominations — was generally held with the greatest of suspicion — especially among the money changers who traded in coin and bullion obtained from, and sold into a wide variety of international markets. In local communities at home, however, the foul practice of debasement was easily discovered by any competent metal smith. Accordingly, it only took one honest metal smith in a local community to blow the whistle. Then too, some whistle blowers are heeded; others are not.
A worse impediment was the British Crown that frowned upon the creation of American silver coin. In addition, there were very few silver mines in the American colonies, and the first gold mining activity did not occur until after our nation’s founding.
There was still another available alternative, and it was the alternative that was eventually chosen; it was creation of copper coin. Because the market worth of the metal was so much less than silver or gold, however, it would not become a popular form of money until the invention of the steam engine and the development of stamping plants that could produce the coin en masse at a cost per unit significantly less than the value of the metal in each coin. Already by the time of Isaac Newton (1643-1727) such machines and plants existed — well, at least, in London. Copper coin became a popular choice in the American colonies because it was not prized by the British state, and there was no attempt to substitute it with banknotes from the Bank of England. This said, it suffered from the same problem that plagued the existence of gold and silver coin — namely, the problem of bimetalism.
In order to make copper, silver, and gold coin easily substitutable in trade governments around the world — well, at least, where the activity of buying and selling with a medium-of-exchange was practiced — established fixed rates of exchange among the various coins minted by, and in circulation in each country. For example, one paper pound note issued by the Bank of England was set at 20 silver shillings, and each schilling was deemed equal to 12 silver pennies. By 1797 the silver penny had been replaced by the copper penny. In France, there was the livre, the sol (more commonly called a sou), and the denier. Twenty sol made a livre, and 12 denier made a sol. When the Louis d’or (a French gold coin) was first introduced in 1640 under the reign of Louis XIII it was deemed by the French government to be worth 10 French livres. By 1726 it was valued at 24 livres.
So long as the various denominations of the same coin, say the French livre, sol, and denier were made of the same metal, and so long as the denomination of each coin represented an accurate fraction of the metal content of the others, the problem of bimetalism did not arise. It was only when coins of different denomination using different metals were traded at a fixed rate that the problem arose. This is because the market forces that determine the supply and demand for each metal were different, and because the metals’ relative market price fluctuated across time and influenced the cost of producing each type of coin. In effect, silver and gold coin and bullion were only special uses — albeit one of the most, if not the most important use — of the underlying metal. In conclusion, when the price of one metal went down the coin made from that metal became more valuable relative to the coin made from the other metal. As a result, the coin whose metal price went down would be used to buy up the coin whose relative price remained unchanged. As a consequence, this latter coin would disappear from the market place and only the coin with the overpriced metal would remain.
Because of bimetalism gold and silver became global competitors for coin dominance, and gold eventually won out. This, however, is an episode of The Story of Real Money about which we need not be concerned at the moment. Important is that on August 15, 1971 (8:41 minutes) President Richard Milhous Nixon took America off the world gold standard and exacerbated what was already a highly corrupt monetary system based on statutory counterfeit. Although he claimed that the change would be temporary, it has persisted until this day and has subsequently brought about enormous economic havoc and calls for the Great Reset — a series of false promises used to disguise still another impending failure of statutory counterfeit and a general take-over of the world economy by those who have ruled the world since the inception of phony money in 1694 in London, England.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, …”
Thomas Jefferson, et. al. 1776. Declaration of Independence. Independence Hall, Philadelphia, Pennsylvania.
It is this notion that is at stake, and it is this notion with which we will conclude the third of the three difficulties with which are founding fathers were confronted when they wrongly, but pragmatically, adopted statutory counterfeit as the solution to our nation’s three most fundamental monetary dilemmas.
Roddy A. Stegemann, First Hill, Seattle 98104
Author of Mount Cambitas - The Story of Real Money and “A Call for the Restoration of Monetary Order” (Parts I and II).
Roddy A. Stegemann. “A Call for the Restoration of Monetary Order”. Section II - Our Falling Out with the Natural Order. Monograph presented at the 99th Annual Meeting of the Western Economic Association International (WEAI) in Seattle, Washington. June-July 2024.