Wikipedia’s definition of Money[i]
Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally, a standard of deferred payment.
Money originated as commodity money, but nearly all contemporary money systems are based on fiat money.
Wikipedia’s definition of money is correct in the first paragraph, but there is a major problem with the second paragraph. Money did not originate as commodity money. This is a commonplace but false assumption, which will be soon explained.
The Origin of Money[ii]
There are three major theories regarding the origin of money:-
1 Money was created for trading purposes;
2 Money was created for social purposes;
3 Money was created for religious purposes.
1 Money was created for trading purposes
Most economists assume that money developed for trading purposes, because it was more flexible than bartering. This meant that money was a valuable commodity in itself, such as cattle in ancient civilisations, later gold and silver by weight, and finally coinage – gold and silver coins.
This all seems reasonable enough until you realise that it is an attempt to justify the origin of metallic money, otherwise where do cattle fit into this metallic money idea? They don’t. Furthermore metallic money would assume a high level of development: It would assume recognition of private property as opposed to tribal property: It would assume recognition of contracts and a legal system to enforce them. Whereas cattle as money is much easier to accept, because it is easy to value for a primitive society, with no legal system to arbitrarily enforce a value.
2 Money was created for social purposes
The second theory is that money was created for social purposes, such as establishing the price of a bride or as blood-money for somebody killed or injured by another tribe.
3 Money was created for religious purposes
The third theory is that money was developed for religious purposes. Bernard Laum in his book Heiliges Geld (Holy Money) states that money’s origin was in the Eastern temples as the prescribed sacrifice to the gods and payment to the priests.
Gold would have been the easiest metal for ancient man to mine from rocks in river beds, with copper the next easiest and silver requiring the most developed technology to mine. This goes against all our instinctive ideas that gold is valuable because it is so difficult to obtain. Rather gold became valuable precisely because it was relatively easy to obtain, and looked nice. Gold and silver were presented to the temples in the East as dues to the priests and offerings for the gods, as well as other commodities such as barley and wheat. Over time the temples would have acquired a large proportion of the existing gold and silver. This theory is supported by the vast amounts of gold and silver seized by Alexander the Great from Eastern temples in 330 BC.[iii]
The monetisation of gold
Between 1500 BC and 1000 BC, the medium of exchange shifted from a cattle standard to a gold by weight standard.[iv] The temples played a major role in transforming gold into money.
Over the centuries gold and silver accumulated in the temples. Only so much was required for decorative purposes. The fact that the temples were accumulating so much gold would have been a major factor behind the decision to transform it into money, or monetise it.
The theory is that the priests must have decided to use up some of this surplus gold by monetising it: They could have for example determined that 130 grams of gold was worth 1 cow. Overtime the priests would have charged for their services, such as advice on when to plant crops, and would have come up with a standard charge for these services.
The theory that the priests determined the value of gold by arbitrary decision, contradicts the trading origin of money, which assumes that the value of gold was determined by the effort involved in mining it and shaping it into a standard unit of money.
Money is a creature of the law
Applying logic to these three theories one can understand how a cow was a standard unit of currency in ancient Ireland and Greece with one slave-girl worth 3-4 cows in both these two ancient civilisations.[v] It is easy to value a cow; how old the cow is; how many calves the cow is likely to have; how much milk the cow is likely to produce; the value of its hide and meat, its fertiliser, its pedigree…
But how do you value say 130 grains of gold, which seems to have been the standard weight of a gold monetary unit in ancient times? The priests had the authority among the general public; they had an abundant supply of gold; they determined the price for their services; and when they decided to monetise gold, they could determine its value in relation to the price of the standard unit of account of money then in existence, which was a cow.
The theory of the origin of money in modern civilisation that makes most sense is that money was created for religious purposes. Money was assigned a value by decree by the priests in the temples. Therefore money, in the form of gold or silver by weight, was the first fiat currency. It had a value both as a means of payment and also as a commodity.
Therefore gold by weight money is a creature of the law, and has nothing to do with the supply and demand of gold, the perceived difficulty of mining gold, and the trading theory of the origin of money.
The Value of Money
Does money obtain value because banks issue 97% of it in the form of credit? Does money obtain value because it is issued by banks as debt and must be repaid back along with interest? What gives money its value?
Money only has value because of all the citizens in the country working together in a supportive social and legal framework. Money only has value because it is accepted as a medium of exchange for the entire country, and is accepted by Government for the payment of taxes. If we can accept that this is what makes money valuable, then money should be regarded as a public resource, to be issued for the common good. If this is what makes money valuable, it should not be issued by private banks for their own benefit.
Characteristics of Money
Money has three characteristics according to the economists:-
1 Means of Payment;
2 Unit of Account;
3 Store of Value.
Money – The Definition
Of the three characteristics of money – Means of Payment is by far and away the most important. If money is accepted by the general population as an unconditional means of payment, then it is valuable to society. Money enables citizens to work together for the common good.
There are many possible definitions of money:-
1 Money is a creature of the law.
2 Money is not tangible wealth in itself but a power to obtain wealth.
3 Money is a token, worthless of itself but symbolising wealth.
4 Money is an abstract social power based in law.
5 Money is whatever Government accepts in taxes.
6 Money is a medium of exchange, which is legally enforced by Government.
7 Money is a medium of exchange that is accepted by the People.
8 Money only has value as a medium of exchange because it is accepted by the People and is legally enforced by Government acting on behalf of the People.
Stephen Zarlenga’s definition of money is:-
Money’s essence (apart from whatever is used to signify it) is an abstract social power embodied in law, as an unconditional means of payment.[vi]
My definition of money is:-
Money is an unconditional means of payment, a token for wealth, worthless of itself, but symbolising wealth because it is enshrined in law; and administered by Government as a public resource, for and on behalf of the People.
The store of value characteristic that commodity money has interferes with the most important characteristic of money as an unconditional means of payment.
In the US, there are a significant number of people who recognise the problem but their solution to monetise gold or silver would make the current bad situation with fractional reserve banking an awful lot worse. To them money is a commodity. This contradicts the historical case for money, which is that it is a creature of the law, and therefore should be a token for wealth, symbolising wealth, but not wealth itself.
Gold and silver coins may be hoarded by wealthy people, in the expectation that they will be worth more in the future. This would reduce the amount of money in circulation, interfering with the primary function of money, which is that it is a medium of exchange.
Observe well these rules: It is a very common mistake to say that money is a commodity… Bullion is valued by its weight …. money is valued by its stamp.[vii]
John Locke, English Physician and Philosopher (1632 – 1704)
Silver and gold…(are) of no permanent value…We must distinguish between money as it is bullion, which is merchandise, and as by being coined it is made a currency, for its value as merchandise, and its value as a currency are two different things…[viii]
Benjamin Franklin, Founding Father of the US, Polymath (1706 – 1790)
There is not enough silver or gold in the world to act as a properly functioning currency. If one defines money to be a commodity such as gold or silver, it would give those wealthy people that control most of the gold and silver world-wide even more wealth, and more control over the nation’s and the world’s destiny.
Fractional reserve banking could only have been created by the goldsmith-bankers, because of the existence of metal money. This gave rise to promissory notes, and eventually credit, and our current banking system. Given an understanding of the history of money, one should discard the idea of metal money as a solution to our monetary problems.
The Nature of Money
Money is a common resource, which should be should be created by Government for the benefit of the People.
Money exists not by nature but by law[ix]
Aristotle, Greek Philosopher (384 BC – 322 BC)
Clearly in the 4th century BC, almost 2,500 years ago, Aristotle understood the nature of money. Money is not a commodity that is to be mined like gold or silver. Money is not a commodity to be farmed like wheat or barley. Money is not an animal like a cow or a goat. The nature of money is that it is a legal invention. Money is a creature of the law. The Greek name for money is ‘nomisma’, which is derived from ‘nomos’ meaning law or binding custom. Aristotle defined money as an abstract legal power, publicly controlled for the common good.
The Fourth Branch of Government
Political scientists refer to three branches of government: the Executive; the Legislature; and the Judiciary.
Stephen Zarlenga in ‘The Lost Science of Money’ argues persuasively and cogently that there is a fourth branch of government, (whether we realise it or not), called The Money Power. The Money Power is the power to issue money in any given country. Martin Van Buren (8th US President, 1782 – 1862) coined this phrase, and it will remain capitalised in this book in honour of this truly great insight into the nature and ownership of the money-creation process.
This ability to create a country’s money supply should be the most important function of Government. Because private banks now create over 97% of the money supply, they are in control of the most important branch of Government – The Money Power – which has effectively usurped the system of checks and balances enshrined in these other three branches of Government in our Western democracies.
Stephen Zarlenga has made the greatest contribution to monetary reform in explicitly stating that The Money Power is by far the greatest of all the branches of Government. The fact that this is not so currently recognised, has led to a marked distortion and corruption of society.
The constitutional imperative to define Money
The Money Power is so important that it should be officially recognised in law. Once society gains control of the issue of money, it cannot let the bankers issue money ever again.
Interestingly the US constitution states in Article 1, Section 8, Clause 5 that congress has the power to “coin Money, regulate the Value thereof”.
One could interpret this as being the constitutional mandate for Congress to issue money and spend it into circulation. One could argue that Congress has the power to reclaim the right to issue the nation’s money from the privately owned Federal Reserve System.
However what Clause 5 in Article 1, Section 8 says in full is: –
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
One could interpret from this clause that only Congress has the authority to coin money, that is, to produce just the coins used in the United States. Coins are produced by the US Mint, a bureau of the US Treasury, and form about 1/1000 of the US money supply. Coins form the only part of the US money supply, which directly benefits the Government and People.
Given the importance of money to our society, I believe a clear definition should be inserted into every constitution, (or otherwise enshrined in law), defining money, and stating its supreme importance in the running of society.
Money – servant not master
The entire money supply should be created by Government for and on behalf of the People. Money should become Man’s servant rather than his master.
[ii] Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute, 2002), P 9-11.
[iii] Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute,2002), P 17.
[iv] Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute, 2002), P 19.
[v] Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute, 2002), P 11.
[vi] Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute, 2002), P 657.
[vii] Quote accessed in:- Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute 2002), P396.
[viii] Quote accessed in:- Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute, 2002), P 396.
[ix] Stephen Zarlenga, The Lost Science of Money, (American Monetary Institute, 2002), P 9.