Thinking About Money
Sam Aurelius Milam III
During the 1980s, while I was studying with the Constitutional Patriots, a friend in that movement told me that many of the problems in our economy would be solved if we’d stop using paper for money. I replied that I didn’t care what we used for money, just so long as it worked.
He then proceeded to explain to me how paper doesn’t work very well as
money. I considered his reasons and then I recalled The Rules of
Money, as taught to me by my father, when I was young. During
about 19 years of so-called education in the government schools, including
classes in economics, I’d never encountered that information again.
Not surprisingly, I hadn’t thought about it again until my friend reminded
me of it. Then, I recalled Gresham’s Law, which was also
explained to me by my father when I was young. Gresham’s
Law states that bad money will tend to drive good money out of circulation.
Some time later, another friend, also working with the Constitutional Patriots, commented to me that, 100 years previously, a man with an ounce of gold
could afford to buy an entire suit of clothes. At the time of his
comment, he said, a man with an ounce of gold could still afford to buy
an entire suit of clothes. That, he continued, is why gold is money
and paper isn’t. After some consideration, I decided that I needed
to change my opinion about money. Since then, I’ve been more sympathetic
toward the idea of gold, silver, and so forth, as money. People sometimes object that there isn’t enough gold in the world to conduct all of the transactions that must be conducted. Consider the following little story that was told to me by my father, when I was young. A man went into a bar to borrow $100 from the bartender, who was a close friend. Just as the bartender handed him the cash, two
newcomers walked in the door. One of the newcomers saw the $100 in
the hand of the borrower and grabbed it, saying, “Hey! That’s the
$100 that you owe me! Now we’re even!” The second newcomer grabbed
the $100 from the first newcomer and said, “Yeah, and that’s the
$100 that you owe me! Now we’re even!” The
original borrower recognized the second newcomer as a man who owed him
$100, grabbed the $100 back, and said, “And that’s the $100
that you owe me! Now we’re all even!”
The original borrower then turned to the bartender, handed the cash back
to him and said, “I needed this to pay a debt but that’s done now so I don’t need it any more.” Thus, the same $100 paid $400 in debts as it circulated from hand to hand. The point is that the value of the gold in the
world doesn’t need to be anywhere near to the value of the transactions
that must be conducted. The same piece of gold can accommodate a total
value of transactions that is many times more than its own value, as it passes
from hand to hand. There’s another good reason why there’s a sufficient amount of gold in the world. That reason is The Law of Supply and Demand.
It wasn’t my father, but his mother, who explained that one to me.
I was a child at the time, not even in school yet. She explained it in terms of farmers and the value of their crops, but the idea is the same. The value of anything, if it’s allowed to do so, will automatically adjust itself according to the amount of it that’s available in comparison to the amount of it that’s needed. If that doesn’t happen in the
case of gold, then it isn’t because of a lack or a surplus of gold, but
because of an excess of regulation of its value. Lacking interference
by governments, the value of gold will adjust itself appropriately and
spontaneously. Of course, the value of gold can’t adjust itself if governments insist on arbitrarily defining its value. The main problem, then, is the practice of arbitrarily defining the monetary value of the coins.
Rather, the monetary value of coins should never be defined at all.
The coins should never show a declared value in dollars (for example).
They should, instead, show only a declaration of weight and content.
The monetary value, if it’s relevant at all, should be determined by the
availability of the metal used in the coins compared to the need for it.
That’s true not just for gold coins, but for any coins made of any metal
that’s used for money. Back while I was going through this learning
process, I had a United States coin that bore the statement, “1 OZ. FINE
SILVER - ONE DOLLAR”. At one point, a friend checked the price of silver
and discovered that, at that time,
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