To take up the alarming skepticism we have of the official U.S. economy — aka the “national economy” — it is best to have a better understanding of the American dollar.
No justification needed for the statement that there are not one hundred times as much paper in a one hundred dollar bill as in a one. And if you challenge the statement that neither bill is a claim upon, or title to, anything, you can easily verify for yourself that it isn’t.
The Federal Reserve Notes are designated in Title 12 of the U.S. Code an “obligation of the United States.” If you wish to learn of what that obligation consists, do as I did: send a Federal Reserve Note to the Secretary of the Treasury with a request that the obligation be honored. I did not make any specific request for gold, silver, United States notes, etc. I merely asked that the obligation be honored. The response of the Secretary was to return my bill with a terse note informing me that the government’s only obligation was to return my property. The dollar bill was enclosed.
And you already know that you can get nothing for a check when you cash it except Federal Reserve notes. In ages past, people realized that the pieces of paper which stood for the money were not the money, but only proxies, or claimchecks. It is, of course, still true today that the pieces of paper are not the money. Nothing is. But perhaps you still have the feeling that it doesn’t make any difference. Can’t we just do away with those clumsy heavy gold and silver coins?
Why it matters the money be real claimcheck
My answer is an emphatic no! And the reason we can’t do away with the metal is that unless money is some tangible, material thing, one who works to obtain it doesn’t know what he has. He can be cheated and not know the difference. Suppose you work as a craftsman producing furniture. Would a customer be likely to give you an order for a chair without stipulating what sort of chair he wanted? With arms or without? Upholstered or not? French provincial or Danish modern? Dark wood or light? The customer would, I am sure, stipulate exactly what he wanted. And if he ordered a Morris chair and you delivered a plastic kitchen chair, do you think he would be satisfied with your explanation, “A chair is a chair. What difference does it make?”
Now look at it from the other side. Your customer wants a chair. But you want something for making it. You already have enough chairs for your own use; you make them to trade for other things. Shouldn’t you know what you are working for? Don’t tell me you are working for “dollars.” There is no such thing as a dollar. Remember, the term “dollar” was a term of measurement of the gold and silver content of coins. And it was a very specific term. The silver coin weighing a dollar left the mint at 416 grains. When, through handling and wear, its weight fell below 409 grains, it was no longer a dollar, even though the word “dollar” was stamped upon it. It could no longer be used to pay a debt of one dollar, for the obvious reason that a person entitled to a full weight coin (a dollar’s worth!) wasn’t receiving what he bargained for when he accepted an underweight coin, whether it bore the word “dollar” or not.
Milk or ethanol-free gas; what’s a gallon
Isn’t that logical? When you purchase a gallon of gasoline, don’t you have a right to a full gallon? The government even takes it upon itself to check the pumps at the station to make sure that you get the gallon you pay for, and that the seller does not give up more than the gallon he is getting paid for. What could be fairer than that? The same government agency checks the scales at the butcher shop so that when you buy a pound of hamburger you can be sure you are getting a pound.
So what does the seller get? He gets “dollars!” Can you seriously contend that it doesn’t make any difference what that dollar is? And lest you think that I exaggerate in saying that the term is without meaning in our present monetary system, let me refer you to a letter received by a citizen from the IRS. The citizen had requested the service to supply the legal definition of the word “dollar,” inasmuch as the service requires citizens to make sworn statements (1040 forms) about “dollar” income, which statements must be “true, correct, and complete” to the best of the taxpayer’s knowledge and belief. The reply of the service was that there was no definition of dollar in the Internal Revenue Code. Isn’t that significant? Since returns at the time were not even required of people earning fewer than 750 “dollars,” the term would seem to be of paramount importance.
Perhaps you still feel that it makes no difference what a dollar is, as long as you can take the bill to the store and get a gallon of milk. (You would, of course, expect the gallon to be a full gallon, and the milk to be milk, not chalk water.) But what if you don’t want to spend your “dollar?” What if you want to save it? Will you still get the gallon of milk for your “dollar” five years from now? If you reply by saying that you don’t know what you would get for a silver coin five years from now, I would agree that neither of us can foretell the future. But if we ignore the crystal-clear lessons of the past we are fools.
And the lesson of the past is that paper “money” has steadily lost its purchasing power, while silver and gold have steadily maintained it. Even today, a silver dime (translated into Federal Reserve Notes) will buy a gallon of gas. That’s as much as it bought in 1939. When you trade your goods or services for a so-called obligation, and then learn that the issuer of the “obligation” can redeem his IOU to pay, say, twenty “dollars” by giving you two tens, why then, friend, you’ve been flim-flammed.
The point can easily be seen as regards life insurance. Suppose you took out a policy on your life in 1939, payable to your wife upon your death, for the sum of 10,000 dollars. That would mean that upon your death, she would receive 10,000 times 412.5 grains of silver coin. Had you died in 1939, she would have received that mountain of silver. Had she bought gasoline with her inheritance, she would have received about 100,000 gallons of the stuff. Should you die today, she would get about 10,000 gallons. If she wanted the silver coin, it is still available; but she wouldn’t get 10,000 of them, but closer to 1,000. Yet, her check from the insurance company would still be marked 10,000 “dollars.
Is your widow receiving what you had in mind when you took out the policy? Today, of course, you don’t know what you have in mind as regards payment to your heirs when you take out an insurance policy, unless you know what a dollar is. Do you? Does it make a difference?
Uneasiness in contracts
And what about contracts? Labor unions and management spend hours upon hours wrangling over the terms of contracts without once asking the really significant question, “What are we to receive (or pay) under this new contract?” The worker on the line knows exactly what his job is. If he doesn’t, he will find out fast. Isn’t he entitled to know just exactly what he will receive for his labors? How about the landlord who provides housing in return for “obligations?” For providing more than a promise of shelter perhaps he deserves more than a promise of payment — especially since the promise has no meaning and needn’t be kept.
We said earlier that money, unlike other commodities, performed no function. The gold and silver coins just “sat there” in bank vault or purse. They could easily be represented by paper proxies, and if those proxies themselves came to be mistaken for the money, so what? Well, we were wrong. The precious metal coins did indeed perform a function, similar to that performed by a weight in a balance being used by a druggist to measure out a precise dose of medicine. The weight just “sits there,” but nonetheless provides an important service, and one that cannot be performed by a paper proxy. Gold and silver coin money, even though it just “sits there,” performs a role essential in society: it acts as a measure of profit, loss, and productivity.
Receiving that to which you’re entitled
Ultimately, it’s a question of justice and logic. There is no justice if a man does not receive that to which he is entitled; and there is no logic if he cannot find out just what it is that he’s entitled to. And he cannot find out to what he is entitled if words have no meaning.
Does it matter what we use for money? Perhaps not, so long as we use something, and everybody knows what it is, and what amount of it is a “dollar.” But if you don’t know what money is, or what quantity of it constitutes a dollar, how do you know when you’ve received it, and whether it’s the real thing, and whether you’ve gotten the right amount? And isn’t that something you ought to know?
Dr. Paul Hein, a retired ophthalmologist who lives in Ballwin, Mo., has always had the keenest eye for the misdoings of our betters on a fundamental point of economics. That is, their printing of unbacked paper notes that pretend to be lawful, valuable dollars and which promise nothing except the ruin of the federal republic. Dr. Hein is the author of a favorite book about economics, All Work and No Pay; Life Saving Lessons in Modern Money, and was president of the Monetary Realist Society. He is married and father of four children.