1. The word “gold” comes from the Old English word “geolu,” meaning yellow.

2. There is more steel created per hour than there has been gold dug up throughout history.

3. Around 161,000 tons of gold have been mined by humans.

4. Gold can be found beneath the earth on all seven continents.

5. It is believed that around 80% of earth’s gold is still buried underground.

6. There is an estimated total of 10 billion tons of gold in the world’s oceans. That is 25 tons of gold for every cubic mile of seawater.

7. The world’s first gold vending machine was unveiled in May 2010. Located in an ultra-luxury hotel in Abu Dhabi, the vending machine itself is covered in 24-carat gold.

8. At the time of writing, the price of gold was $1,220.80 per ounce.

9. Most western economies’ currencies were on the gold standard until 1961.

10. Switzerland was the last country whose currency was tied to gold. 40% of a Swiss Franc was backed by gold until Switzerland joined the IMF in 1999.

11. The gold held at Fort Knox is accounted for by the United States as an asset valued at $44.22 per ounce.

12. As of December 31, 1941 Fort Knox held 649.6 million ounces of gold.

13. Today, Fort Knox holds about 147.3 million ounces.

14. The size of a standard gold bar is 7″ by 3 and 5/8″ by 1 and 3/4″

15. Alchemists believe they can change ordinary materials, such as lead, into gold.

16. A carat was originally a unit of mass based on the carob seed used by ancient merchants.

17. The most expensive gold coin in the world is the 1933 Double Eagle, which was sold at Sotheby’s in New York in 2002 for $7.59 million.

18. Elvis Presley owned three cars manufactured by Stutz Motor Company, in which every part that is normally chrome was converted to gold.

19. Former Tyco International CEO Dennis Kozlowski bought a gold-threaded shower curtain worth $6,000.

20. A noble metal, gold is prone neither to rust nor tarnish and does not form an oxide film on its surface when coming into contact with air.

21. There are 92 naturally occurring elements found in the earth’s crust. Gold ranks 58th in rarity.

22. The chemical symbol for gold is Au, which is derived from the Latin word “aurum,” which means “shining dawn.”

23. Absolutely pure gold is so soft that it can be molded with the hands.

24. The melting point of gold is 2,063 degrees Fahrenheit.

25. Gold is a great conductor of electricity.

26. Gold is the most malleable and ductile pure metal known to man.

27. An ounce of gold can be beaten into a sheet covering 100 square feet.

28. In 1869, two Australians unearthed the world’s largest nugget of gold, the “Welcome Stranger,” which measured 10 by 25 inches before it was melted down.

29. The largest nugget still in existence is the “Hand of Faith,” found in 1980 in Australia. It is currently on display at the Golden Nugget Casino in Las Vegas.

30. A gold nugget found in the earth can be three to four times as valuable as the gold it contains because of its rareness.

31. The heaviest modern gold bullion coin is the Australian Kangaroo, weighing in at 32.15 ounces.

32. Pure gold does not cause skin irritations.

33. Some sufferers of rheumatoid arthritis receive injections of liquid gold to relieve pain.

34. Olympic gold medals were pure gold until 1912.

35. An ounce of gold can be drawn into a wire 60 miles long.

36. Two thirds of the world’s gold comes from South Africa.  37. India is the world’s largest consumer of gold today.

38. South Asian jewelry is generally more pure than western jewelry, comprised of 22 carat gold rather than 14 carat.

39. Gold is the state mineral of California and Alaska.

40. 90% of the world’s gold mining has been done since the discovery of gold at Sutter’s Mill in California in 1848.

41. During the California gold rush, some speculators paid more for an ounce of water than they received for an ounce of gold.

42. South Dakota and Nevada produce more gold than any other states.

43. Scientists believe that gold can be found on Mars, Mercury, and Venus.

44. The visors of astronauts’ helmets are coated in a very thin, transparent layer of gold (.000002 inches) that reduces glare and heat from sunlight.

45. The Aztec word for gold, “teocuitatl,” was translated by Europeans as meaning “excrement of the gods.”

46. According to the legend of El Dorado (the gilded one), an Andean chief who was covered in gold dust would make offerings of gold into a mountain lake.

47. Evidence suggests that around 5,000 B.C., gold and copper became the first metals to be discovered by man.

48. King Croesus of Lydia created the first pure gold coins in 540 B.C.

49. When Franklin Roosevelt raised the price of gold from $20.67 to $35 in 1934, the dollar immediately lost 40% of its value.

50. Henry VIII, Diocletian and Nero were infamous gold debasers, mixing other metals into gold coins and decreasing their value.

The below pictures were from a presentation given at yesterday’s “Towne” Hall on May 24.  I’ve added a few comments with documentation links.  The quote above from the Declaration easily applies to the 22.5 million bureaucrats, America’s second largest job sector, who make nearly twice the average wage of the private sector.

While America is not Greece – or Iceland – there are glaring similarities.

While the Republocrats are not King George… they are far worse.

For Liberty and the Constitution,

Jake Towne

USDA link here.  Note the strong rise in number of SNAP food stamp recipients during the past year.  One would expect to see this number dropping or even flat-lining – along with employment rising – if a recovery were underway.

BLS link here.  Note that while the “newspaper” unemployment rate is still 10%, the U-6 figure – which more accurately describes total unemployment is 17% – a depression statistic.  I’ve described the common sense solutions to end rampant unemployment almost overnight in the campaign’s Jobs plank.

Since the BLS drops off workers from its U-6 figure, the real unemployment rate is most likely slightly greater than 17%.  Shadowstats estimates the rate at about 22%.

The current national debt – which is closely tied to the USTreasury market is now over $13 trillion.  Current government plans include massive deficit spending through 2013, and the government’s optimistic projections of a return to “normalcy” even then should be severely doubted.  Source of budget data.  However, due to the cash-based accounting method government uses, this hides the undeniable fact that the real national debt is much larger when GAAP (Generally Acceptable Accounting Principles) are used to identify future taxation sources and future debts such as Social Security and Medicare (see below).

The above is taken from the Treasury Department’s latest report from April 2010 where government’s inlays – social security and retirement taxes, income taxes (both personal and corporate), and excise taxes can be seen.  The average monthly level is about $170 billion per month.

From the same report, the level of government spending, which averages about $300 billion per month.  (Only the government can run that type of accounting, due to its money-printing!)  While Social Security and Medicare are a major expense, the level of “National Defense” spending appears deceptively low as it is just the DoD budget.  As I wrote about in “Guns or Health Care?” plenty of “Other Non-Defense” spending are in fact related to the military – Homeland Security, the nuclear arsenal under the Dept. of Energy, Veteran’s Affairs, the Treasury’s military retirement program, etc.

As seen in the official USTreasury report on page 178/254, the total unfunded liabilities for Medicare and Social Security is a jaw-dropping $107 trillion over the future of these programs.  While I predict the Democrats may bear the brunt of the blame for the collapse of Medicare, one must not forget that it was the Republican’s massive expansion of Part D’s prescription drug plan that worsened the fiscal situation.  One interesting possible interpretation of the recent health care takeover plan is it may simply be a stop-gap solution to temporarily increase taxes over the next few years.  (On Social Security, I will be delivering a presentation in more detail next Friday.)

The above is built from the Federal Reserve H.4.1 data here.  The red line is the total (reported) balance sheet of the FED, which has more than doubled since the time of the Banker Bailout.  While the original TARP bailout (not shown) accounted for much of the initial sharp increase, most of the debt has been replaced by $1.12 trillion of mortgage-backed securities from Freddie Mac and Fannie Mae (the purple line).   This graph shows the nationalization and propping of America’s entire residential housing industry. The yellow and green lines show the cumulative totals of USTreasury and USAgency debt held by the FED.  While the Federal Reserve has admitted it will take losses on the MBS debt, the question remains as to how much and when.

The purchasing power of the dollar has lost well over 94% since FDR took America off the classical gold standard in 1933 through monetary inflation.  The monetary inflation is caused by the FED.  They debase the dollar by creating more and more irredeemable paper dollars.  Graph provided by Bloomberg Financial, 2009.

The above chart shows the “real interest rate” from 1970 to 2009, formula below.  It is an approximation for the dollar’s purchasing power versus time.  While in 1980 it reached nearly +10% (savings rate of ~19% and inflation of ~10%), in 1990 this rate went negative and continued dropping.  The chart shows the capital and savings of America being ruthlessly destroyed by the FED and the government.  Source.

Real Rate of Interest = (Interest Rate earned by a bank savings account) minus (Inflation Rate)

The rising price of gold over the past decade demonstrates the destruction of the world’s paper currencies.  In the past several weeks, gold reached all-time record highs in dollars, yen, euros, Swiss francs, and British pounds.  As described in this article, the gold price is likely suppressed by governments in order to make their own currencies look good as I wrote about in “The Summers Gold Price Suppression Scheme.”  Gold trades over $20 billion USD per trading day – or over $20 trillion annually – a figure larger than the $15 trillion GDP figure used for the United States.

To cap off the situation with the dollar, the latest quarterly banking profile from the FDIC indicates the deposit insurance fund (DIF) is bankrupt.  While consumers at failed banks still receive “insured” funds, the losses are presumably filled in with dollars from the FED, as reported last here.  The current FDIC “watch list” rose to 775 banks, or almost 10% of all FDIC-insured banks in the US per p. 3/26.

The crux of the Over-the-Counter derivatives problem is its enormous size.  However the $600 trillion figure shown is the derivatives’ contracts notional value – a true market value cannot be assessed.  The primary issue with OTC derivatives is that they trade off of exchanges, so their contents are opaque to the rest of the marketplace.  Note that exchange-traded derivatives (EXD) are much smaller.

BIS data here.  Note the sharp drop following the 2008 financial crisis.  More details on derivatives can be learned in “What the Heck are Derivatives?” and “Bring Light to Dark Derivatives!”

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

Inflation in American history, even considering the unprecedented actions of the Fed since 2008, pales in comparison to just about every country in the globe. In the 20th century, nearly every government in the world devalued their currency at a faster rate than America.

Before the Federal Reserve, under the gold standard, America suffered from deflation for most of its first 140 years (interrupted only when the government went off the gold standard to pay for wars.)

Considering this history, if inflation was a good thing, wouldn’t America be economically backward, handicapped by its strict, unforgiving monetary policy in comparison to the rest of the world, which has been markedly pro-inflation over the last 230 years?

Well, shucks, I guess we just got lucky.

Obviously, inflation isn’t the panacea for economic growth. In Milton Friedman and Anna Schwartz’s book A Monetary History of the United States, they correctly point out that America’s money supply shrunk consistently from 1870-1913, and yet, during this same period American industry was revolutionized, the standard of living for every American rose at a faster pace than any other time in world history, and real wages rose. They rose because labor became more productive. If your nominal wage falls 1% and prices fall 2%, guess what? You just became 1% richer. If your nominal wage rises while prices fall, that’s even better.

Someone recently wisecracked that if I do indeed hold a job, would I really want to see my nominal wage fall? If prices fell further than my wage, why wouldn’t I? And that’s exactly what happened in America for its first 140 years or so of existence. Boy, those poor American workers must have been looking around their world in envy of those lucky ones living in inflationary regimes.

What about the scientific sounding term ‘price stability?’ Fed apologists on this site like to reference the Fed’s goal of maintaining ‘price stability,’ whatever that is. Prices change because tastes change. They change because production costs change. Prices change every instant. Look up a stock price. Now look it up again. Well, whaddya know? Its price changed.

So what is ‘price stability?’ Is it a price control? We have 4,000 years of evidence that price controls do not work. Are we trying to maintain constant prices for an entire complex market economy now? To the Fed apologist, that is somehow a smarter idea.

Not to mention the Fed’s idea of price stability has brought you $1100/oz. gold.

The world champion athletes at the Winter Olympics receive gold, silver, and bronze medals that contain roughly the same amounts of metal as the last Summer Olympics.

• A gold medal contains 550 grams of silver and is layered with just 6 grams of gold.
• A silver medal has 509 grams of silver and about 41 grams of copper.
• The bronze medals likely contain about 450 grams of copper and 50 grams of mostly tin and zinc.

At current market prices, a gold medal is exchangeable for about $494, a silver for about $260, and a bronze for just $3. If the gold medal was solid gold with the same mass, it would be exchangeable for almost $20,000.

While the Vancouver athletes are receiving the same amount of gold and silver as the Beijing Summer Olympics, world central banks – like the Federal Reserve – have been devaluing their currencies steadily for the past century or so to pay for the wild growth of government, non-stop warfare that have killed well over 170 million civilians, and the redistribution of wealth from those who worked for it to special interest groups. Sound money has been considered such a serious threat to the primacy of the state that virtually all dictators – Hitler, Mussolini, Stalin, and Mao top the list – have banned it so government spending cannot be checked.

FDR, during the midst of the Great Depression caused by the printing presses of the FED, outlawed all gold coins in the United States from 1933 until 1975. Americans still used silver in their coins up until 1970 when the silver became more valuable than its face value and the coins all disappeared from circulation. A 1964 half dollar can now be exchanged for nearly $6.

Unbeknown to most of the American public, the world’s gold market has over $20 TRILLION in annual turnover, a sum much larger than the $15 trillion figure bandied about for US GDP, which is the theoretical sum of all the goods and services exchanged by American firms and individuals.

Unnoticed to most of the American public, while the S&P 500 has actually fallen in dollar terms over the past decade, the price of gold has steadily risen each and every year by an average of 17%. Unfortunately, a rising price of gold does not indicate an asset bubble – like housing – in my opinion. It is the whistling before the kettle blows its lid. It is the silencing of the canary chirping in the coal mine from noxious fumes.  So, back to the question, what is an Olympic gold medal worth?

While one cannot deny the sentimental value* attributed by some athletes to winning a gold medal at these Winter Olympics in Vancouver, Voltaire’s comment will remain as true in the coming years as when he first said it. All one must do is study the ruin of France under John Law, the debasing of the currency of imperial Rome, George Washington’s “worthless-as-a-Continental” script money failure after the Revolutionary War, post-WWI’s Weimar Germany’s hyperinflation – among many other European countries, the 1990 Argentine hyperinflation, and the Zimbabwe fiasco that is finally subsiding.

The gold and silver medals are money. Governments should take a lesson from the last couple Olympics and not devalue their currencies so carelessly.

History doesn’t repeat, but it does rhyme, and it’s best not be trampled when it decides to stampede.

[* Nor, in truth, deny the subjective value of anything.]

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

I would like to add just a bit more history on coinage.  The Romans in ancient times needed more money to grow the size of their government but there was only so much gold and silver.  They started cutting off the corners of their coins then melting the corners into new coins thereby increasing the number of coins in circulation.  Of course people did not like this so small ridges were added to the edge of the coins.  Our higher denomination coins (dimes, quarters, etc.) still carry these imprinted ridges called “reeding”.  Reeding was imprinted onto the coins to indicate that the coin had not been clipped.

Not only did the Romans clip the coins, but that also added base metals to the coins.  These metals diluted the value of the coin, and also produced more coins.  This is why we have the term “debasing” today.  Of course this debasing is simply another form of inflation.

So you can see that civilization has been seeking monetary ways to grow government for a long time!

“… There is nothing new under the sun” (Ecclesiastes 1:9-14)

While it is (comparatively) well-known that the US dollar, while a currency, is a solely an instrument of credit issued by the Federal Reserve. All holders of dollars – including myself and most readers of this article – are in debt to the Federal Reserve. Now, this debt is really phantom debt, but the key really is printed on each dollar, more properly known as a Federal Reserve Note: “This note is legal tender for all debts, public and private.” (1)

The total federal debt issued was $11.933 trillion dollars at the end of fiscal year 2009 in September per the Treasury Department, an increase of $1.9 trillion from 2008. (page 37/123) This debt will continue to increase every year until the monetary system collapses due (just in part) to the compounding “miracle” of interest rates. Federal debt is bought at auction by primary dealers (Goldman Sachs, JP Morgan Chase, etc.) and “resold” to the FED, which then inflates the money supply by creating new dollars, or “injecting liquidity.” The FED can also “inject liquidity” by purchasing assets, such as toxic mortgage debt or even company stock like AIG or GM. Individual community banks, whether Citibank, Bank of America, or small local banks and credit unions, can also create new dollars with the fractional reserve system, which is can be viewed graphically here. However, a proof I wrote demonstrates that fractional reserve banking broke down years ago, and can be more aptly named as the “no-reserve lending” system.

Investors Eric Sprott and David Franklin have gone one step further than I in examining the Treasury situation. They note that since the largest foreign buyers of Treasuries (China) has stopped buying — which I warned of in May 2009 in “The Gold War – China and the US Treasury Market.” Sprott and Franklin wonder who purchased over $500 billion in federal debt needed to sustain the system – the FED’s widely-publicized “quantitative easing” or injections of new dollars are not large enough. They suggest that the “Household Sector” in the FED’s Z1 reports – widely-assumed to be solely American households – really includes an extension of the FED or Treasury and this is how the scheme is being maintained both in a monetary and psychological sense. I have been unable to find errors in Sprott and Franklin’s work and sources, but I encourage you to try and leave any comments below. The document is viewable below or downloadable from here and here.

Also of concern is Zerohedge’s claim that ~40% of the newly issued $1.9 trillion FY2009 Treasury debt must all be repurchased next year – along with the to-be-issued 2010 Treasury debt necessary to maintain the scheme, mostly to pay for the reckless deficit spending of the delusional Congress. Furthermore, they estimate the USD denominated fixed income market will need to find 11X more demand in 2010.

Will 2010 be the year the Ponzi scheme collapses? I do not know. But keep in mind the truth – the value of the dollar is completely subjective. Same with an egg or barrel of oil. Even the value of an ounce of gold is completely subjective. If you understand this truth, and study the world’s most critical market (yes, it’s gold) 2010 will be prosperous.

(1) Legal tender laws, protected by the force (or fiat) of government, are important in sustaining the modern fiat monetary and taxation systems, as I noted in this speech.

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

Money is an invention of mankind. Our society refers to the irredeemable scraps of linen and ink as “money,” but in truth the dollar is no such thing. It is merely a currency, a medium of exchange, created by fiat - by government decree and force. The dollar is a phantom I.O.U. note. It is a Ponzi scheme and the central banking system issues new dollar currency whenever it wishes.

Dollars are toxic waste in the literal and fiscal sense. Literally, each dollar bill contains arsenic, cadmium, mercury, thallium, and cyanide and generates dumpster upon dumpster of hazardous waste every day.  Fiscally, the dollar has lost 98.3% of its value as of January 1, 2010 since the creation of the central bank known as the Federal Reserve in 1913. (Note 1) Many Americans are unaware that the electrons and scraps of linen we trade around as currency are mere shadows of sound money.

To see the shadows in our money, we have only to look at it. Look at this old quarter. The one I have is a little worn but it still has a silvery glisten to it and rings when you drop it. Now look at the rim of any current quarter – it is a cheap copper sandwich with a thin plating of nickel on top to make it appear like silver. It makes an annoying tinny sound when you drop it. The quarter was exchangeable in 1916 for about 0.012 troy ounces of gold, or over $13 modern-day dollars. Today it is still exchangeable for over $3 just for its silver content. The modern quarter? The “melt” value of its copper and nickel is worth less than 5 cents.

Golden shadows? Look at a new $1 Sacajawea or presidential series coin. It’s copper with a manganese brass cladding to give it a nice, fake golden shine. The melt value of the metal is about 5 cents. Desperate to introduce them into circulation, the United States Mint accepts credit cards and ships direct for free (well, at taxpayer cost) to your home. [The Mint is trying to replace $1 bills, which costs around 5 cents each to print as they wear out very easily over several years, after which it is shredded and treated as toxic waste.]

When originally introduced as a super-cheap placeholder coin for silver and gold redemptions in 1866, the nickel was made of 3.75 grams of copper and 1.25 grams of nickel. The dollar’s debasement is so horrendous that nickel’s melt value is now higher than its face value of 5 cents.

Not all that long ago, a single penny actually had purchasing power, unlike today. The melt value of pre-1982 pure copper penny is 2.2 cents.  The modern penny, debased with a zinc core covered with a thin copper cladding, has a melt value of 0.6 cents. The cost of minting a penny puts its cost at over a cent.

Money gradually evolved from societies from barter (or direct exchange) economies to economies based on indirect exchange. Under indirect exchange, Joey sells his chickens’ eggs for money and then either buys, say, a wrench from Bob or saves the money for future use. If one looks at this with an economist’s eye, Joey exchanged his commodity (eggs) for another commodity (money) and then either saved the commodity or exchanged it yet again for another commodity (Bob’s wrench). Hence money is actually a commodity just like corn, copper, or even an Ipod. Sound money is the hallmark of prosperous societies. Fraudulent money impoverishes and enslaves societies and commonly rips them apart in blood-soaked wars.

For money to be sound, it must have the following characteristics. Money must be durable and not easily destroyed. Money must be portable for convenience. Money must be easily divisible into smaller units. Money must be recognizable and uniform. Money must be reproducible. Money must be scarce, and it must also have a relatively stable purchasing power.

Fiat currencies – like the dollar and all other national currencies – can never truly fulfill the scarcity and purchasing power requirements. For example, let’s use our own currency again. In 1964, all dimes, quarters and halves were 90% silver by mass. Four silver dimes in 1964 would buy a good loaf of bread. In 2010, the dimes would certainly not be enough at a bakery, but exchanging at a jeweler or coin shop for its worth in silver would yield $4.85 today – quite sufficient to make the exchange.

For nine straight years from 2001 to 2009, the gold has climbed in price against the dollar with an average annual gain of 17%. Silver gains have also been 17%, but with far more volatility. Most importantly, gold is strengthening against all other national currencies which indicates the entire fiat monetary system is falling apart.

Central banks suppress the price of gold to make their own fiat paper currencies look stronger. While this may seem at first to be a wild-eyed claim, there is plenty of historical precedence and modern-day evidence collected by GATA. Per facts collected from Federal Reserve’s very own archives, the United States government schemed with other central banks to secretly manipulate the gold price from the creation of the London Gold Pool in 1961 until its utter collapse in 1968. Sources for the modern-day suppression of the gold price can be reviewed in my article “The Summers Gold Price Suppression Scheme.”

If you live in Pennsylvania’s 15th congressional district, it is now easy to understand why there are so many full-page newspaper ads asking to buy your gold and silver, and few willing to sell metal. Not only is gold and silver money, but it is the only lawful form of money authorized by the Constitution of the United States, as I reviewed in the below talk.

In his ground-breaking Principles of Economics, Carl Menger noted the Germanic word “Geld” was applied to any goods that assumed the role of money in the marketplace. This word was derived from the verb “gelten” which meant to compensate or pay. (Page 260/328) As society evolved from ‘cattle standards’ and ‘buckskin standards’ to ‘copper standards,’ the ultimate form of “Geld” became – and remains – gold.

Unknown to most Americans, the annual turnover at London gold market alone exceeds $20 trillion dollars – a sum that is far larger then the figures used for US GDP.  As the insane Ponzi scheme of fiat dollars designed by crackpot Keynesian economists spirals into oblivion, dollar holders chase “gelten” shadows as central bankers’ schemes to support the reckless welfare and warfare spending of Congress becomes apparent to all.

Note 1: Under the Gold Standard Act of 1900, the dollar was roughly convertible to 0.048 troy ounces of gold.  The NMA calculates the dollar value of a troy ounce of gold to be $18.92 in 1913.  The London gold fix to finish 2009 was $1104.

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

Picture a new village, untouched by current monetary laws. People begin exchanging goods through the process of bartering. This makes it difficult to know what you can buy, because the milkman will only need so many of the pouches that you manufacture. Because bartering can be inefficient, unpredictable, and unreliable, the people decide to represent their goods with something of value. They find copper, silver, and gold nearby, all unique, relatively limited (therefore they hold more value than, say, granite), and quite durable. Thus, they can represent their goods with these valuable metals (and to make it more convenient, paper guarantees to those metals).

Money does not get its value through “force” as some believe. When the people in the village were looking for a more effective way to exchange goods, they were not trying to represent force. They were aiming to represent value through metals that were limited enough to have value, had durability, and could not easily be counterfeit (or inflated).  Currency is never originally brought about by force or through government.

Historically government has gotten involved in currency for one reason: greed. Kings would debase the metals that the market freely used and valued. Kings would inflate and devalue the currency that was once stable when the market was in control. Government could not debase metals, clip coins, and print unsound paper money and expect people to voluntarily accept it, thus force was necessary to make it happen. Legal tender laws forced devalued government money on the people and markets.

It is difficult for government to grow when people demand the money to be backed by hard goods (such as metals). It is difficult for government to expand its presence when the money supply is stable and in the hands of the people. History clearly shows us that when government wants to expand its state or military presence beyond its usual bounds, it cannot do so without control over the nation’s money supply. Without the control of money, government would have to take every cent it needed directly from the people and businesses, an approach that would become very unpopular in a very short amount of time.

This is why governments have always tried to take control and monopolize money. If people are forced to use government money and cannot create a competing currency, they must use the money the government gives them. Government can then indirectly “tax” the people through inflation and devaluation of the currency. This allows government to grow its boundaries and influence without directly feeling the repercussions of a people who see their property forcefully go out the door to the government in the form of taxes. Monetary inflation is a very indirect and gradual process for government to take money from the people. And it can only work if people are forced to accept the debased and often worthless money. As the money supply grows without solid commodity backing, prices begin to rise, impacting poorer citizens the most.

This brings us to the U.S. Some have argued that the Constitution allows the government to pass legal tender laws and control many aspects of monetary policy. However, on close inspection, this power has been greatly abused and misinterpreted. The Constitution states:

Article I, Section 8: The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

Article I, Section 10: No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt.

Congress has the power to coin money, regulate its value, but nowhere does it have the authority to force people to accept that money. Congress can create and regulate its money, but it cannot mandate that people use it through legal tender laws. The states are prohibited from coining money and are required to make only “gold and silver Coin a Tender in Payment of Debt.”

Neither the powers delegated to Congress nor the states give them the authority to shove a currency onto the people. “Legal tender” means tender in the payment of debt. The states are given the duty to be sure that only gold and silver can be legal tender. For legal and juristic purposes, only gold and silver are acceptable in the payments of debt. But this does not give the state the power to dictate the forms of other monetary commodities or economic exchanges that the people and market might come up with. In other words, the state controls the legal use of money in the payment of debt, but neither the state nor Congress has authority over the economic exchanges of money in the marketplace.

The Founders did not give the federal government the ability to monopolize currency and force it on the people. There is no power in the Constitution given to the government to restrict currency production and choice of the people and marketplace. In fact, many competing and private currencies functioned efficiently for a good part of the 1800s. Today, however, we accept legal tender laws as a legitimate role of Congress, when in reality they do nothing but unconstitutionally force a worthless currency on the people.

Consider the basic principles of modern legal tender laws. No government force or mandates would be necessary to encourage people to use a widespread, valuable, and sustainable currency. Legal tender laws and government coercion over money are always used to force a currency that would otherwise be worthless onto the people and marketplace. Imagine if the legal tender laws enacted in the 1960s, forcing people to accept Federal Reserve Notes, were repealed today. Who in their right minds would continue using a currency whose value consistently decreases, is in the control of seven central bankers, and in reality is worth nothing more than the paper on which it is printed?

People will often reply that repealing legal tender laws would lead to the creation of hundreds of private currencies and economic chaos. But remember something. Especially in today’s digital, national, and even global economy, a currency would have to be simple, recognizable, valuable, and widespread to have a chance of surviving in the market. People will naturally encourage and use the currency that holds the most value and brings the greatest amount of ease to transactions. If that is the currency produced by Congress, so be it.

Monetary freedom simply gives people the option of throwing off the restrictive chains of a centrally manipulated, inflated, and drastically devalued currency, the symptoms of a government out of control. Competition in money would force government to stay in line, live within its means (both domestically and overseas), and maintain high levels of sensibility and responsibility. History has visibly painted the picture that without control over money, government’s long-term abilities are only as able as those that the people directly delegate to it. Freedom of money plays a major role in ensuring freedom and representation in government.

“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” — F.A. Hayek

“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” — George Washington

“All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation.” — John Adams

“Whoever controls the volume of money in any country is absolute master of all industry and commerce.” — James A. Garfield

“We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.” — Daniel Webster

To grasp banking we must first learn and understand fractional reserve banking.

The fractional reserve banking system gives banks the chance to keep only a portion of their deposits in reserve, allowing them to loan or invest the rest. Today U.S. banks are required to keep only 10% of their deposits in reserve. So if you deposit $100 in the bank, legally the bank is only required to hold $10 of it in reserve. This provides cash for “day to day” privileges and allows the bank to invest in securities and loan out funds, among other things.

You may have heard how the “panics” in the 1800s were a failure of the free market. Many of the “panics” were caused from bank runs, meaning that the banks had overextended themselves and their promises and could not provide the money when customers decided to withdraw their holdings. In the 19th century banks kept gold (primarily) in their vaults and issued paper promises, so to speak, guaranteeing people their gold. Banks would print more of the paper money, loan it out or invest it, creating monetary inflation (because the new paper notes were not backed by more gold; rather they were diluting the value of the gold held in the bank’s vault).

In the Panic of 1819, both local banks and the national bank joined in the practice of spreading themselves too thin through fractional reserve lending. When people wanted to withdraw their funds and realized they couldn’t, it led to the bank runs and harsh economic conditions as the economy was forced to contract after the unsustainable monetary inflation.

The inflation caused by the banks led to higher prices domestically, an outflow of gold from the U.S. due to the suddenly more attractive prices from foreign producers, and banks were therefore forced to draw back on their commitments. The law in 1819, and for many years following, allowed banks to neglect their depositors’ holdings while still continuing their operations. If they overextended themselves, banks were given a special privilege and protection from government that allowed them to ignore their clients’ rightful and original property, and instead pursue the unsustainable and destructive road of monetary inflation and the creation of artificial credit.

I bring this up because people who support government and central economic intervention will often bring up the “financial panics” in the 1800s to show how disastrous a free market is. But the truth is that the government protections placed on banks helped cause a great majority of the panics. Because of the government protection, banks were able to take unnatural risks that never would have been possible in a free market. Government shielded banks when the fractional reserve process failed. In other words, the government protected the fractional reserve system in order to benefit banks, not the citizens.

Fast-forward to 1907. This was the time of the last “panic” before the Federal Reserve Act was signed into law, creating the central bank, in 1913. Once again this crisis came about because banks were unable to give customers their initial deposits. This caused a whole stream of withdrawals (or attempted withdrawals) by bank customers around the nation. Banks had placed the deposits into income-earning securities and did not have the necessary cash to meet customer demands.

After the Panic of 1907 and the umpteenth failure of fractional reserve lending, the attacks still were not aimed at the fractional reserve system. This system, when protected through law, gave banks the undoubted opportunity to inflate the money supply, overextend themselves in ways that would never be sustainable in a free market economy, and give little regard to the customers’ original property. Instead, economists began calling for a “lender of last resort” to bail out banks if they were caught overstretched in commitments. Many people don’t realize it, but the U.S. financial system has been in bailout mode for nearly a century since this event. In an otherwise relatively free market system, banking started as the largest sour grape of interventionism in the bunch.

What are the alternatives to fractional reserve lending, which has been criticized by free market, sound money supporters since its inception in the U.S.? Interestingly enough, the Romans sorted this out by making a clear legal distinction between “demand deposits” and “time deposits.”

Demand deposits are the deposits and withdrawals you and I make everyday. We expect to get the same amount of money that we initially deposited to the bank. Just as when you give $100 to a friend to hang on to for a week, you are not giving him the right to invest or spend it for his own personal gain at the risk of you completely losing that money.

Time deposits are essentially what we have today with Certificates of Deposit (CDs), where a depositor and a bank enter into an agreement of money guaranteed somewhere down the road (such as 1, 3, or 5 years). Time deposits represent fixed contracts where both parties know what they are getting into and what the terms and risks are.

Under a system similar to the Roman principles, banks would legally be required to hold 100% reserve rates with demand deposits. This guarantees that individual property is protected and not at risk of being permanently inflated or loaned away by the bank. With time deposits, however, the bank and the depositor agree on a certain time frame that the funds would be controlled by the bank, giving the bank the opportunity to invest or loan the money. If a depositor decided to withdraw his funds before the agreed-upon date he would be given a fee of some sort, just as we have with Certificates of Deposits today.

Understanding banking and monetary history in the U.S. is pivotal to understanding how booms, busts, and “panics” are initially created. Harsh economic times have more often than not, whether in the 19th, 20th, or 21st century, been created through government protections and privileges to certain industries, central manipulation of interest rates and credit, and unceasing government intervention in the economy.

People point to the failure of the fractional reserve system that occurred time and time again in the 1800s (through bank runs) and mistakenly shove the blame on the free market, and use it as an excuse to bring even more government intervention into the economy. History shows that when the free market is manipulated from outside forces the worst problems come about.

Today we are led to believe that a bailout-guaranteed, centrally manipulated, and government protected banking system is the most sustainable and sensible option. I have a very hard time believing this, just by looking through our own history. Government somehow fooled the majority into believing that it had absolutely nothing to do with causing “panics,” recessions, or any other rough economic situation you can think of.

It is long overdue that people cease buying into this ridiculous idea of an angelic government that knows the cure for every economic ill. Allowing the government and central bankers to freely mold and manipulate the economy is precisely what caused the many economic collapses over the decades and centuries. Freedom and the protection of private property represent the most solid and sustainable foundation for a prosperous economy.

I cannot pretend to understand everything about the Federal Reserve; far from it. One may wonder if such a complex system was purposefully put into place to confuse and discourage people from fully understanding the system. When Woodrow Wilson signed the Federal Reserve Act into law in 1913, the U.S. was still on a gold standard. The currency was backed by a physical commodity, rather than a plain faith-based system like we have today.

The Founding Fathers greatly understood the dangers of paper, or fiat, money systems. They dealt with it firsthand during the Revolutionary War with the Continental Dollar. The Continental Dollar was established by the Continental Congress in 1775, and it was nothing more than worthless paper and collapsed in a matter of years after runaway inflation. This was the primary reason why these words were put in Article 1, Section 10 of the Constitution of the United States:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; [...]

The gold standard was not put in the most important document of the U.S. by accident or coincidence. The gold standard was and still is necessary for the same reasons: it holds the powers-that-be back from the incredible power of wildly expanding the money supply (monetary inflation that leads to a worthless currency and a wiped out middle class), gold and silver have been accepted as currencies worldwide for thousands of years, whereas fiat money systems have been tried countless times throughout history and failed every time.

In short, after the Fed was created, the gold standard was attacked bit by bit through 1971. Franklin Roosevelt issued executive orders confiscating many forms of privately owned gold, greatly expanded the Federal Reserve’s scope and power over money and the economy, and devalued the relation of gold to the dollar from $21.67 to $35.00 per ounce. All of these acts were in the name of stopping the Great Depression, but they only led to handing more secrecy and sheer power to central planners.

The gold standard was phased out over the next 30 years, and the power given to the Federal Reserve continued at a consistent pace. Legal tender laws were enacted, making Federal Reserve Notes the only legal currency in the U.S. In 1971, the dollar became a complete fiat monetary currency and lost all ties with gold. This is the system that we have today.

What’s interesting is seeing what’s happened with the dollar through all of these changes. Let’s start with the 100 years before the creation of the Federal Reserve (these are inflation numbers as reported by the Historical Statistics of the United States and Statistical Abstracts of the United States):

Between 1813 and 1913, the purchasing power of $1.00 actually increased to $1.76.

From 1913 to 2007, the purchasing power of $1.00 decreased to $0.05.

Do you think that these facts are merely coincidence? Let’s break these statistics down a little more.

From 1913 to 1971, when we had the Federal Reserve and at least some connection to a gold standard, the purchasing power of $1.00 decreased to $0.25.

From 1971 to 2007, with a fiat monetary system under the Federal Reserve, the purchasing power of $1.00 decreased to $0.19.

This means the purchasing power of the dollar actually decreased more than twice as quickly under a fiat monetary system, than with the minimal gold standard the U.S. had between 1913 and 1971.  The Federal Reserve has managed to delay corrections by artificially lowering interest rates, but all of this comes at a price. How big? We can’t say. Tinkering with interest rates and credit cannot solve a crisis, and this will be a difficult lesson we’ll have to learn due to the incompetence of a select few who secretly control every aspect of money and credit in this nation.

For a much more indepth look of money in the U.S., I encourage you to take a look at this analysis. There is a lot more history of monetary policy that I didn’t have the chance to cover in this post, so do some exploring and research and see what you can find. This is an extremely important topic that has been ignored for too long and must be brought to the attention of the public.