Wednesday, October 27, 2010

What is Money? – Part IV

10/27/2010 Portland, Oregon – Pop in your mints…

Please follow these links to see previous episodes in this series:
What is Money? - Part I  
What is Money? – Part II
 
What is Money? – Part III

So we are back to the question, what is money?  Money, dear reader, is a concept that must first be defined.  It is a set of attributes.  Once these attributes are defined, we can begin searching for something that possesses these attributes and then call that “Money.”

For money, does this fit the bill?

What are the attributes that something must possess to be used as money?  To answer this question we will paraphrase a list compiled by Jason Hommel which includes the following attributes that something must possess to meet most people’s criteria of money.  Mr. Hommel expands upon these themes extensively in his writings, which again, I highly encourage you to read at http://silverstockreport.com.  For our purposes, we will content ourselves with a simple question which should make each attribute clearly understandable:

First, it should operate as a medium of exchange.  Will other people accept this item in trade for something else?  Second, it should operate as a unit of account.  Can the item be easily divided without destroying its value?  Third, it should be a reliable store of value.  Will the item purchase the same amount of goods in ten, twenty, or three thousand years from now as it will today?  And fourth, it should be anonymous.  Can the item be freely transferred amongst parties?

Part of our present financial mess is that money has such an obvious role in society that we assume that what is currently used as money actually IS money.  However, a review of the above attributes and a peek at the quotes related yesterday from Robert H. Hemphill and John Maynard Keynes starkly illustrate that this may not be the case.  Alas, since 1971 in the United States this has not been so.

So what is money?  After reviewing the attributes above and reviewing all of known human history, we can conclude that, in an overwhelming majority of cases, precious metals, namely Gold and Silver, are best suited to serve mankind in the role of money.  As a medium of exchange, they are universally recognized.  As a unit of account, they are divisible with destroying their content.  As a store of value, Gold and Silver are not easily pulled from the ground and coined for use (they cannot be “debauched”).  And as for providing anonymity, they can be freely transferred.

Bear in mind that there is no perfect item or element that can be used as money, nor is there a specific command from God to use Gold and Silver as money, rather Gold and Silver, in all of God’s creation, have been found to be best suited to physically embody this concept of money.  The US Dollar, Euro, and all other paper currencies are merely inventions of men and, in 100% of live experiments with their use as money, they have failed catastrophically.  We are currently nearly 40 years into the largest experiment with paper money that the world has ever known.  The disaster that awaits as this experiment ends the way all the other experiments have, dating back to alchemy, simply boggles the mind.

Fortunately, we can return to using Gold and Silver as money, which, apart from merely "fitting the bill" for humanity to use as money, their use by humanity as money has numerous positive side effects for the overall well-being of every single person on the planet.   The most notable and perhaps the basis for all of the other healthy side effects is the incentive to create and conserve capital.  This phenomenon, called Capital Formation, allows mankind to prosper in ways we both currently enjoy and cannot yet imagine.

Stay Fresh!

David Mint

Key Indicators for Wednesday, October 27, 2010

Copper Price per Lb: $3.82
Oil Price per Barrel:  $82.17
10 Yr US Treasury Bond:  2.64%
FED Target Rate :  0.19%
Gold Price per Oz:  $1,335
Unemployment Rate:  9.6%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  11,169
M1 Monetary Base:  $1,460,900,000,000
M2 Monetary Base:  $7,960,300,000,000