What It Is and What It Isn't
Money Part VII - Problems
Douglas V. Gnazzo
May 8, 2006
Before proceeding to a discussion
of the problems with today's monetary system of paper fiat debt-money,
more commonly known as Federal Reserve Notes, we first want to
reiterate the five most important attributes or functions of
1. Medium of exchange
2. Measure of value
3. Standard of value
4. Store of value
5. Legally accepted means of
payment of debt
A sound monetary system is
one in which the money-unit performs all of the above
1. The money-unit most
be usable as a medium-of-exchange for everyday transactions.
2. The money-unit must
be a measure-of-value - that by which market participants
compare or measure the value of all other goods by in the present.
3. The money-unit must
be a standard-of-value - that by which all other goods
are compared to not only in the present but in the future as
well. Market participants must know the money they use now will
be as good in the future as it is today.
4. The money-unit must
be a store-of-value. This function follows from the money
unit being a standard of value. Because it is a reliable standard
of value, money is the perfect vehicle to save or store purchasing
power needed in the future.
5. The money-unit must
be accepted by all participants in the marketplace, including
the State, however, the State should not be issue the money
unit. It is imperative that the State accepts the money unit
as payment for taxes, etc. to the state, without having anything
to do with its issuance.
Problems With Money
The main problems with the
present day U.S. Federal Reserve Notes or dollar bills are:
Legal tender status for Federal Reserve Notes should
not exist, unless approved by We The People by a constitutional
The State approved monopolization
of the credit and money supply by the Federal Reserve should
not be allowed without the approval of We The People.
The lack of a non-political
free market unit-of-account without forced legal tender
laws using the power of the State for enforcement.
and the means-of-payment are presently two different things.
The former is a measure, like
an inch or a pound; the latter is either a commodity or a credit
instrument. They should be the same entity.
The use of fractional reserve
lending should either be abolished or approved of by the
people through a constitutional amendment, including full
disclosure to the public on exactly how it works, and a choice
if the people want to use it or not.
Honest Money of silver and
gold weight is not to have anything to do with fractional reserve
We offer a somewhat different
definition of the money-unit compared to most conventional
monetary theory of the establishment, i.e. the State. Others
know of the definition that we are about to set forth; unfortunately,
they are voices in the wilderness, seldom heard.
The money-unit is that
instrument/commodity that the free market by consensus agrees
to use as money: money that fulfills all five (5) of the functions
we have previously listed.
To reiterate, so there is no
question or confusion on the subject:
1. Medium of Exchange
2. Measure of Value
3. Standard of Value
4. Store of Value
5. Legally Accepted Means of Debt Payment
Only the money-unit that can
fulfill this multi-complex role is worthy of the distinction
and honor as the money-unit. Honest and Sound Money should
fulfill all five functions or major aspects of money simultaneously.
Defective Federal Reserve Notes
Today's Federal Reserve Note
is clearly not a store of value, as it has lost 95% of its purchasing
power since 1913, the year the Federal Reserve took control of
our money supply.
It is not a standard of value
as it continually loses purchasing power through the debasement
and devaluation of the currency. This is why it does not function
as a store of value.
Presently it functions as a
measure of value and a medium of exchange, as well as the legally
accepted means of payment of debt.
However, this too can change
at any moment, as all that keeps the system going is faith -
confidence that the money will continue to be accepted.
When the flicker of faith begins
to wane - the flame will be snuffed out in an instant. Paper
fiat currencies have been know to hyperinflate in a few weeks
time and self-destruct in the process.
Regarding the last function
concerning debt payment: we are of the opinion that the Federal
Reserve Note is a debt instrument itself, and therefore cannot
truly pay off debt.
It merely serves as the means
to transfer debt from one account to another and to discharge
debt by offset as well. Double-entry bookkeeping is not the blessing
most believe; it is but a harbinger of that which has yet to
Besides, the five (5) original
functions of money, to be Honest and Sound Money the money-unit
most also perform the two following roles as well:
The unit-of-account is a unit
of measurement of market value. Goods for sale in a market are
priced using a unit-of-account. Value is measured by the
seller and communicated to the buyer as a price denominated in
Accepted units-of-account can
evolve from the natural dynamics of a free market or they can
be forced upon the people through legal tender laws.
Obviously a unit-of-account
that is forced upon the public by legal tender laws is inferior
to a unit-of-account that the public freely chooses by common
consensus based on free market principles of supply and demand,
marginal utility, and objective exchange valuation.
The use of gold and silver
occured according to natural free market principles. Paper fiat
debt-money only occurs because of forced legal tender laws where
the judicial, military and police power of the State stand ready
to enforce the Kings prerogative.
When the value of a good is
accepted by common consensus, to measure or compare the value
of other goods; or when its value is used to denominate the payment
of debts, then the commodity is said to be functioning as a unit-of-account.
Contracts of credit or debt
are also denominated in a unit-of-account. The agreed
value of the debt is measured, and the method of settling the
debt is defined.
Once again - if legal tender
laws are making the determination as to what the accepted unit-of-account
is then whatever choice the State makes is inherently inferior
to the choice made by a consensus of free market dynamics.
Freedom vs Force
Freedom always works better
than forced obediance. One should lead by respect not by fear.
We are supposed to live in the country that is the home of the
free and the brave, not the enslaved and the dominated, no matter
how clandestinely it occurs.
A debt instrument
or an IOU should not be used as a unit-of-account,
as its value is determined
by comparison to an external reference value: an actual unit-of-account
that may be used for settlement;
or worse yet: the
unit-of-account is merely expressed by a name for which there
no actual monetary definition other than the name.
An example would be the U.S.
Dollar Bill, as when former Chairman Alan Greenspan was asked
what the definition of money was he had no specific reply. Why
didn't he reply - what is a Federal Reserve Note if not money?
The U.S. Code states that Federal
Reserve Notes are redeemable in lawful money. If they are redeemable
in lawful money, then apparently they are not lawful money, otherwise
why would they need to be redeemed in lawful money - if they
already were such?
Nowhere in the U.S. Code is
there a definition of what is meant by lawful money. Seems like
such an important value shoud be well defined and clearly understood
- doesn't it?
The Constitution has a clear
definition of money: the dollar (not dollar bill - dollar), and
furthermore the Constitution states that nothing but gold
and silver coin are to be legal tender.
The original Coinage Act of
1792 clearly defines a dollar as being a weight of silver - 371.25
grains of pure silver, which weight constitutes the existing
Hence, in a free market, the
various names that units-of-account may have are simply
Definitions of units-of-weight
- honest weights and measures.
The unit-of-weight is simply
what it says: a unit-of-weight of a specific finesse of silver
or gold per the Constitution and the Coinage Act of 1792.
No other names should
appear on the money-unit other than its unit-of-weight.
There is no need or use for
the name a dollar or 10 dollars or 20 dollars, or a yen or euro
or pound. Such names do nothing more than add confusion and complexity
to a most important distinction that should be as pure and simple
as is possible.
is the purest and simplest standard. The Constitution calls for
gold and silver coin, according to honest weights and measures.
The Coinage Act of 1792 defines the standard weight to be 371.25
grains of pure silver.
The Silver Dollar
Is Defined as the Constitutional Dollar
The Coinage Act of 1792 also
delineates a bimetallic currency of both silver and gold coin
according to weight.
However, it fixed the legal
exchange rate of the two metals. This only hinders the monetary
system as the legal rate is one thing, and the market price is
As we have said, all functions
should be the same, including the legal rate and the market rate.
Both should float according
to free market dynamics as determined on a daily basis. This
is the purest, simplest, and most honest way - hence it provides
the soundest monetary system.
Not only will this remove confusion
as to what money is, but it will also prevent those in control
of the money power from manipulating the money-unit. Hence, they
will lose control of the money power.
What can be simpler than to
call an ounce of gold an ounce of gold? What can be easier than
calling an ounce of silver an ounce of silver?
The market can determine daily
what the exchange rate of the two metals is according to free
market principles of supply and demand.
No one man, or group of men
can possibly know what the market knows. Besides, allowing an
elite group to control the money power is allowing intervention
in what is supposed to be a free market.
Such intervention prevents
a free market - it is the antithesis of a free market. It is
a fixed and contrived market.
The Money Power
Congress has the power to coin
money not the power to issue money. The coins of silver and gold
were in the possession of the people who brought the metals to
the mint for coining.
The government did not own
the silver and gold - the people owned the silver and gold. The
government simply coined the bullion, and affixed its stamp certifying
the weight and fineness of the metals content on the coin.
This is the critical difference
between the power to coin money, and the power to emit money.
If Congress has the power to
issue or create money, why would they need the power to borrow
money? Why borrow money when you can simply create or issue it?
Article 1, Section 8, Paragraph
2 of the Constitution
Congress shall have power
to borrow money on the credit of the United States.
Furthermore, paragraph 5 of
the same constitutional article states:
Congress shall have power
to coin money, regulate the value thereof and of foreign coin,
and fix the standard of weights and measures
The Constitution does not provide
Congress with the power to issue money, or to relegate that power
to a private corporation such as the Federal Reserve.
The Mint Act clearly states
that the government did not hold title to the silver and gold
minted - ownership resided with the people who bought the metal
to the mint expressly for minting. Once it was minted/coined,
it returned to its original and rightful owner.
The gold and silver
was private property - not State property.
Not until the formation of
the Bank of England in 1694-1696 was there recognition by the
State of private banking. The Bank of England was formed by a
group of private bankers and merchants who made a deal with the
The bankers agreed to lend
the crown, at an agreed interest rate, enough new money to restore
defaulted loans previously extended by some of the bankers. The
banking charter given to the bankers secured their right to stray
from hard money of gold and silver coin, to paper money decreed
to be legal tender.
Paper money known as "bills
of credit" became the rage. The same exact terminology is
in our monetary history as well.
However, the Constitution
prohibits the issuance of bills of credit.
Yet that is exactly what we
presently have: Federal Reserve Notes or bills of credit.
We have seen the main problems
and weaknesses of paper fiat debt-money. To reiterate they are:
Legal tender laws of forced
State approved monopolization
of the credit and money power
The lack of a non-political
free market unit-of-account
The unit-of-measure and the
means of payment are two different things
Fractional reserve lending
and lack of full disclosure
The use of names for money
as compared to Honest Weights and Measures
Honest & Sound Money
The unit-of-money is the same
as the unit-of-weight
The unit-of-weight is in accordance
with the Silver Standard of the Constitution
The unit-of-weight is the same
as the unit-of-measure
The unit-of-weight is the same
as the unit-of-value
The unit-of-weight is the same
as the unit-of-account
The economic and juristic definition
of money is the same unit-of-weight
All aspects of money are
to be the same: a unit-of-weight
No other names are on the
unit-of-weight - only its weight and finesse
A constitutional amendment
is passed to fix the existing problem of a fixed rate of exchange
between the bimetallic system of gold and silver coinage per
the Coinage Act of 1792.
Both the rates of exchange
of silver and gold must float freely according to free market
The above recommendations are
not a fix-all for our monetary system. They are, however, a good
starting point compared to what presently exists. There are far
greater minds and experts than me that could easily fine-tune
and provide a viable sound monetary system according to the Constitution
of the United States.
Nevertheless, if We The People
do not want it changed - and do not demand that our elected representatives
change it, then we will get what we deserve: a dishonest monetary
system that assures a future of debt servitude to our children
Is that what we really want?
No, I don't think so. However, the subject is complicated and
confusing - for good reason: to confuse the public as to what
is occurring by the use of paper fiat debt-money: a transference
of wealth from the have-nots to those that have.
Our wealth disappears by stealth
- a thief that comes in the darkness of night, from out of the
shadows hidden from sight. Darkness cannot stay in the Light.
Darkness is the absence of Light.
And so has it been
spoken - "and
night will be no more."
-Douglas V. Gnazzo
email: Douglas V, Gnazzo
is CEO of New England Renovation LLC, a historical restoration contractor
that specializes in restoring older buildings that are vintage historic
landmarks. He writes for numerous websites and his work appears
both here and abroad. Just recently he was honored by being
chosen as a Foundation Scholar for the Foundation for the
Advancement of Monetary Education (FAME).
In March 2006
Douglas V. Gnazzo started his own Honest Money Gold & Silver
Report website. Read the Open
Letter to Congress.
Douglas V. Gnazzo. All