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February 21, 2005

Evil Dictionaries and Money, Part 3

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The fairytale continues:

Big Tony and Vito had a good thing going. But they wanted more. As time went on they noticed something else: People not only exchanged the redeemable paper notes like they were money, they began treating it as if it were money.

Until now, money was defined by several of its distinguishing characteristics in that it functioned: 1) as a unit of account; 2) as a medium of exchange; 3) as a store of value; that is, it intrinsically held value so that if someone would not take it in exchange for something, it still held value and could be used as a commodity in some way; 4) as a standard of deferred payment.

Big Tony the banker and Vito the politician loved gold and silver. And they grew envious. All this gold and silver was sitting in Big Tony's bank, just sitting there doing nothing, while the people who owned it were out there exchanging paper notes as if they were the real thing. They had to erase from the definition of money #3: as a store of value.

So they got an idea: Why not make it official? Why not make the paper notes themselves money?

They knew that people might catch on if they did it all at once, so they decided to do it in stages. They knew that to cook a frog, you don't drop him in boiling water. He'll just jump out. But if you put him in lukewarm water and slowly turn up the heat, he won't jump out until it's too late. His ass is cooked!

The $100 notes now stated: This certifies that there is on deposit in Big Tony's Bank one hundred dollars in gold payable to the bearer on demand.

They knew, as stated, that if the note would pay to the bearer on demand One Hundred Dollars in Gold, that the note itself was not One Hundred Dollars in Gold.

The first step was to change the statement to: This certifies that there is on deposit in Big Tony's Bank one hundred dollars payable to the bearer on demand.

Of course, since the note said that it would pay to the bearer on demand One Hundred Dollars, it was not One Hundred Dollars, but at least it no longer talked about Gold.

And almost nobody caught on. Never mind that saying, This note will pay to the bearer on demand One Hundred Dollars made no sense. It was like saying, This note will pay to the bearer on demand One Hundred Gallons. A unit of measure is not the thing itself. If someone asked you, "Would you give me a gallon?" you would rightly ask, "A gallon of what? Gas? Milk? Paint?" A gallon by itself means nothing.

Same with dollar. It used to be if someone said they would give you a dollar, you would answer, "A dollar of what? A dollar of gold? A dollar of silver? A dollar of what?"

Of course there were a few cranks who talked about a government and banking conspiracy, but they were shrill and silly looking and spoke a language that most people didn't understand, so it was easy to paint them as nutcases (especially since some of them were nutcases, so all you had to do was point to them and paint everyone who talked that language with the same brush).

Big Tony and Vito knew that the next step would be a bit more awkward, so they decided to print up some extra money to found an Economics Think Tank to begin writing papers on how there was only a limited supply of gold and silver and that in order for the economy to grow the city would have to consider alternatives to the Gold Standard and the use of precious metals as money. There simply was not enough to go around.

Meanwhile, Vito wrote and had the legislature pass the Federal Reserve Act to create a banking system that appeared to be separate from the government and from banks. There were still some people complaining, but the newspapers didn't report on their concerns. The newspaper editors and journalists and columnists were always on Big Tony's and Vito's party list, and they were kept informed of the complexity of the economy and the need to "adapt to a new age of economics."

The Federal Reserve introduced its own Federal Reserve Notes that stated: This note is legal tender for all debts public and private and is redeemable at the Federal Reserve Bank in lawful money.

Once again, nobody but a few cranks and nutcases noticed the difference, or thought about the fact that if the notes were redeemeable in lawful money, the notes themselves were not in fact lawful money.

Meanwhile, there was an economic crisis, and Vito and his fellow politicans announced that to fix the economy, they had to go off the Gold Standard, withdraw gold from circulation, but people could still use silver and the Federal Reserve would redeem notes for silver.

The cranks and nutcases complained, but most people didn't understand the nature of coin, credit and circulation, so they just went along.

Big Tony and Vito waited a few years, supported more enlightened economists who wrote papers and books and developed new economic theories based on systems without gold and silver as a standard, and then took the next step.

They waited until a big-wig celebrity was killed and a foreign policy crisis dominated the news, before printing up new Federal Reserve Notes that said simply, This note is legal tender for all debts public and private. The face of the note read One Hundred Dollars. No mention of redeeming the note. No mention of gold or silver, or anything on deposit.

At the same time, they announced the need to begin withdrawing silver from the economy. Because there was just not enough to go around, you see.

So if a father turned around and presented the new Federal Reserve notes and said, "Oh, I just remembered, it's my daughter's birthday and I want to give her silver dollars," the bank teller replied, "I'm sorry sir, but the government has to withdraw silver from circulation due to the growing economy and there being so little silver to go around, but here, you can have these brand new dollar coins that are just as good, they contain a mixture of copper and nickel with a nickel finish that looks exactly like silver, well almost, and she'll be happy with these, and they even have the same little mill marks on the edge to make them look real, because you know that they never put these mill marks on copper and nickel coins, because nobody would bother to shave them for their content being that they are base metals and not as valuable as silver or gold."

Yeah. That's what they would say...or imply.

Meanwhile, the bankers and politicans got the gold and silver, and the people got their non-redeemable paper money with all kinds of dollar amounts printed on them.

And there were more wars, more parties, more mysterious inflationary forces, more ignorance about the nature of money, and more gold and silver jewelry showing up in the possession of politicians and bankers. And the old politicians and bankers died, and the new politicians and bankers took over, brought up in universities with all the new economic theories and international monetary policies, and down they forgot as up they grew about the true nature of money.

And the people lived happily ever after.

More to come in Evil Dictionaries and Money, Part 4.

***All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation. John Adams, letter to Thomas Jefferson

Posted by witnit at February 21, 2005 10:45 AM

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