The following is actually an outline for my next speech on the history of money. Internalizing this information will answer many questions surrounding the economic chaos you see all around you. And now, here’s the outline of the speech:
Speech 4 – Good Money, Bad Money
1. In our last speech, we drew up on the white board how the creation of more money stock automatically devalues the proportion of wealth correlated to each existing money unit. If you know anything about how the stock market works, you know that when companies issue additional shares of stock it lowers the value of shares already in circulation.
2. We asked the question “who could be in the position to do this and why would they do it?”
3. We now go back in time to the period where over the centuries, gold had been selected for use by society as a money stock. While gold is divisible, it’s not easily divisible by anyone other than a metal-smith. Imagine shopping in a bazaar and each vendor having a scale to weigh gold. Each transaction is a very timely proposition as just the right weight of gold must change hands.
4. To overcome this barrier to trade private banks and gold houses introduced the concept of coinage. Coins were minted in precise weights with the coin bearing a number that indicated the weight of the coin. The coins were also of a guaranteed purity. Citizens and vendors alike could toss out their scales and transaction times were greatly reduced as people could make change by visually looking at the numbers on the coins. Coins issued by multiple minters circulated simultaneously, side by side, with no problems, because the weights were plainly stated, were precise and the purity guaranteed.
5. One time-honored tradition among certain segments of all societies is to call into question the integrity of any private enterprise and suggest that government is the only entity that can be truly trusted by the people. Private minters, after all, could mint coins with weights lower than the stated face value, thus defrauding the public. In any case, governments around the world tossed their hat into and began minting coins that circulated side by side with private coins.
6. Of course we know from innumerable examples in history that governments were the very first and about the only minters to defraud the public. By making coins weighing JUST less than the stated weight, or by equaling the stated weight but having centers made of lead and merely coated in gold, governments were able to mint more coins than there was actual gold. And of course by keeping some of the coins themselves, governments now had money to pay for endeavors such as wars, roads and services that they did not have to “tax” as much for, thus endearing their public to them, seemingly by being able to pay for these goodies out of thin air.
7. Observant people are everywhere and it was realized that the government coins were not as fully valuable as the private coins, face value claims of weight notwithstanding. And slowly, people began keeping the private coins and only circulating the government coins. This is the basis of Gresham’s Law. Sir Thomas Gresham was a 16th century English economist who stated that “bad money drives out good money”.
8. Private coinage was driven out of circulation as a money stock, but still held on to by individuals as a store of value, a practice that continues to this very day, witness the Canadian Maple Leaf, etc. As the decades and centuries marched on, the numbers imprinted on the coins lost their original meaning to the citizenry. The numbers certainly no longer actually represented the weight of gold in grams, ounces or any other unit of measure. Coins were now minted that contained little or no gold at all but still had numbers on them that indicated some number of units. These units, dollars, pounds, lira, etc now became entities in their own right. However unlike gold, governments can create as many of these units as they want, with no limits upon them at all.
9. That brings us back to our close from last time and our analogy of the money supply to poker chips. Who’s in a position to create more poker chips (money) and why would they do it? The answer is government is in the position to do it because of Gresham’s Law. They have driven “good” money out of circulation and 99.999 percent of the people have no clue what a coin is supposed to represent. They think that a “dollar” is something that has intrinsic value. It does not. The “why” is because they want to curry good favor with citizenry to stay in power by showering them with governmental goodies. There are two ways to do this: Tax them at the required levels with income tax rates of 50, 70 or 90 percent and cause a revolution, or do it with the hidden tax of inflation and the the continued creation of “bad money”. The people’s wealth is stolen just the same, but they feel much better about it because they still have the same number of “dollars”… whatever that means.
10. Ladies and gentlemen, you now KNOW the FACTS of history. They are recorded facts and they are indisputable. YOU can continue to vote for politicians who seem to promise everything to everyone, or you can demand more from those who would be your elected officials. Those of you in this room now possess the burden of truth. You can turn away from it or you can demand REAL change, not fake change. Future generations are now counting on you.