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Biblical Money--Part 1

One of the appeals being made for a Constitutional Convention is that a new Constitution could mandate that the Federal Government provide for a balanced budget each year. This is the "bone" that Mr. Rockefeller is throwing to conservatives. The problem is that once such a Convention is called, there is no guarantee that any such provision will be made.

Even if it were to happen, unless you change the entire debt-money system on which the Fed is based, a balanced budget would simply throw the country into recession every time it is implemented. That is because all money in circulation is borrowed and spent into circulation, either by the government or by private individuals getting loans for cars, houses, or credit cards.

Since there is always interest on debt, more money is being paid back (and taken out of circulation) than was originally put into circulation through loans. Any first-grader can tell you that if you have to pay back more money than was originally created, it is impossible. The only way to keep this Ponzi scheme going is for more and more people to borrow more and more money. That way, more money goes into circulation than is taken out when people pay off their loans.

Either the private citizens have to borrow, or the government must make up the difference. But if the government is bound by the terms of a "balanced budget," it means that all the burden falls on the rest of us. If WE don't get further into debt, then the economy will go into recession for lack of money.

Right now, the government is finding it necessary to borrow trillions of dollars into circulation, because the people themselves are up to their ears in debt. They have hit their credit limit, and so they are unable to borrow more money to buy cars, houses, etc. There is a severe shortage of money because people are unable to borrow any more.

A balanced budget sounds good in theory, but it cannot work as long as our money itself is created out of nothing by private bankers and loaned into circulation at interest, with the expectation that it is to be paid back--and more.

What about the Gold Standard?

People say that money should be backed by gold (or silver), and they trace all of our monetary problems to the lack of any substantial backing of our money.

It used to be that individual banks issued money (bank notes), which were supposed to be backed by gold or silver in its vaults. In other words, money was like a bank check, which could be redeemed at the bank for the specified amount of gold or silver. I actually have two such notes in my possession, on which it is so stated. "This note is redeemable . . ."

Such bank notes were actually a BANK DEBT, owed to the people holding the notes. The bank was giving the people an IOU on the assets in its vault. The problem was that the bank normally issued more notes than it had gold or silver in its vaults. So if there was a bank run, the people at the end of the line were holding worthless IOU's that could not be redeemed.

There were attempts in the past to issue bank notes backed by grain, tobacco (in the south), and other commodities. As long as the money was backed by something of value, it was not a worthless IOU. But people just plain feel better emotionally about silver and gold, so that generally worked best.

Today, the banking system essentially functions not on a gold or silver standard, nor of grain or tobacco, but by "the faith and credit of the United States." Essentially, that means money is backed by ALL the goods and services of the country. You can trade a dollar for any of those goods and services offered in the community.

This would work well, if it were not for the fact that the money had been borrowed into circulation as a debt when it was first created. Money is now a debt obligation upon the people (public and private), rather than being a bank debt owed TO the people.

Therein lies the core problem--NOT whether or not the money is backed by metal, grain, or tobacco. The amount of money in circulation ought to be roughly equal to the value of all the goods and services in the country. That way, money actually retains its value, and the price of goods and services stays about the same under normal circumstances. No "inflation" or "deflation."

In a growing economy with a growing population, a nation needs a steadily increasing amount of money to represent the increasing number of goods being produced by the labor force. This can be accomplished by the government creating money and spending it into circulation--by paying the salaries of government employees and building projects such as road construction. If it should need more, taxes are the answer. Taxes should simply supplement government income when people demand more services.

But if the creation of money is limited arbitrarily by the amount of gold or silver in government vaults, then what would happen if we had too little or too much gold being mined? The amount of money in circulation has more to do with the real production of goods by the work force than by the amount of gold that is mined. 

It is said that the gold standard would serve to put a limit on the government's ability to create money. That is essentially true, but in a time of recession, where there is too little money in circulation, why should government be limited in its ability to create money to alleviate the recession? In practice, what would happen is that the government would simply allow the price of gold to rise, which would allow them to print more money to equal the new value of its gold reserves.

This would work fairly well, I think, but it also creates a speculative value for gold, which is unhealthy and unrealistic. When speculators take gold out of the government vaults, the economy then suffers, because an equal amount of money would be removed from circulation. Realistically, a gold standard is not the solution to runaway government spending, because the government would only have to manipulate the price of gold upward to justify creating more money.

For instance, if it has a billion ounces of gold in its vault, valued at $1000/oz., the gold standard would allow government to create a trillion dollars. But if government wants to spend more, all it would have to do is to revalue the gold at $2000/oz, and this would allow them to create another trillion dollars arbitrarily. In other words, a gold standard is not a true solution to runaway government spending as long as it had the ability to change the price of gold. A gold standard is no substitute for honesty in government.

So the bottom line is still the same. Elect honest government officials who hire honest economists who know how to monitor the precise value of the entire wealth of the nation. That is the only true monetary standard that works, providing we nationalize the Fed, cancel all debt in a great Jubilee, and replace all Fed Notes with honest money. The Fed's debt notes should be turned in for U.S. notes at an exchange rate that would bring the amount of money in circulation equal to the goods and services of the nation.

Gold and silver, then, would return to their true value. Gold primarily has aesthetic value; silver primarily has industrial value. Neither should have speculative value that exceeds its practical value.

In biblical times, they used gold and silver as money, but it was much later when nations began to actually issue "coinage" made of gold and silver. Gold and silver was measured by weight in chunks or was made into something like cups or pitchers or shields. It had value because of its eye appeal, over and beyond the high cost of mining. But the Bible basically operated on a BARLEY STANDARD.

More about this later.