In my experience very few people understand money. Judging by my bank account you’d have to say I’m one of them… but I’m not talking about how to hang on to it. I’m talking about what exactly IS money. They think it’s the Federal Reserve Notes (or their electronic equivalent) in their purse, pocket or bank account. I’m here to tell you that ain’t money!
I read – and it makes sense to me – that money serves these three functions.
- A means of exchange.
- A store of value.
- A way to measure the relative value of things.
I’ll contend that those “notes” in your pocket only serve purpose number one, and they fail miserably for 2 & 3. The reason you can’t store value, or measure the value of things with dollars is INFLATION! I’ll give you a couple of examples and you’ll soon see what I’m talking about.
I bought my first house in 1967 for $11,000.00. It was an average two bedroom bungalow in Wichita Kansas. Let’s suppose that on the same day I bought that house I’d put $11,000.00 worth of gold and 11,000 cash dollars in a cigar box and buried it. Now let’s suppose I dug up that cigar box yesterday. Which one would still buy that same house today – the gold or the dollars? The dollars probably wouldn’t be worth enough to replace the kitchen cabinets. But the relationship between gold and houses would not have changed all that much.
By the way, in 1967 those dollars were called Silver Certificates and were still redeemable for REAL money… steada just another Federal Reserve Note. Back then you could go to the bank and ask the teller for a real dollar and she’d hand you a coin made out of silver. Hand her a twenty and you’d get twenty of them. Hand a teller a twenty nowadays and she’ll ask you if you want fives or tens.
What happened to the “value” that was stored in that cigar box? Nothing happened to the value of the real money. The counterfeit money lost about 90% of its value, and it’s not hard to understand how if you know anything about the boogers that created it, controlling the value of it, namely the Federal Reserve Bank. Inflation is not like gravity. People have come to believe that there is something immutable in the laws of finance that say prices on the stuff they buy has to go up from year to year, like the laws of nature. But in nature the weights and measures don’t change.
Suppose I whipped out a tape measure and slapped it down on your dining room table and said “Your table is 48 inches long”. You’d nod your head and say “Okie doke.” But what if I came back a year later and re-measured that same table and announced that it had grown and now measured 50 inches long. You’d probably tell me there was something wrong with my tape measure… that it wasn’t the same one I’d used the year before. Why? Because any fool knows that tables don’t get bigger. They don’t grow.
But you’ll believe that $11,000.00 house I bought in 1967 is now worth $158,000.00. It’s still the same house, and it’s not located in a particularly hot piece of property, like some sunny beach, or mountain view. It’s an older house, and 43 years closer to falling apart. Probably would have fallen apart by now except for the annual upkeep and new paint necessary to keep it livable.
The point is this… functions number 2 and 3 can not be served by anything that is constantly shrinking in it’s value relative to the goods and services of an economy.
In 1913 our illustrious representatives in Washington gave the franchise to create money out of thin air and loan it to the U.S. Treasury at interests to some private bankers. They turned over a perfectly good dollar, then redeemable in gold and silver, and today that dollar is worth less than three cents.
The bastards, try as they might to control the value of gold for the past thirty years, still could not reach into that cigar box and tamper with the value of the gold. It didn’t lose it’s value. That 11 grand would have bought 314 ounces of gold, which at today’s price of just over $1,000 per ounce means you could probably buy two or three of those Wichita bungalows with the gold.
Bankers have pulled the paper money switcheroo many times throughout history, and every time… every single solitary time… they’ve inflated the value of the money to worthlessness. And every time there has been a return to the only thing that has ever been portable enough, rare enough, and unchanging enough to serve all three functions of money – gold and silver.
Climb aboard a time machine and take a one ounce gold coin with you back in time… say 2,000 years to ancient Rome. 
It wouldn’t matter that the Romans couldn’t understand
the words U.S. Eagle or Krugerrand on the face of your coin. They’d know it was gold and they’d be able to weigh it, and they’d give you plenty for it. And I have to think that if you turned the knob on that time machine toward the future and went 2,000 years in the other direction you’d find the same thing was true. Your money would have maintained it’s purchasing power.
Take Federal Reserve Notes with you instead and I think you’d go hungry. And I don’t think you’d have to go that far into the future for those notes to be worthless pieces of paper. Set that dial for 2015 and you’ll be lucky if a pocket full of twenties will buy you a coke.
