Nature and Origin of Money, Coining of Money & Currency

I am somewhat surprised that so few on this forum understand the nature and origin of money, what coined money really is, and what currency is. This is fundamental information that so many have failed to take the time to understand and many erroneous statements are made because of this lack of fundamental knowledge. In this I'm going to address "money" in the United States specifically but will provide the background for it.

"Money" was "invented" to facilitate the barter system where individuals exchanged commodities for commodities or labor for commodities. It is a common commodity that those engaged in barter are willing to accept. Instead of having to match the identical commodity that an individual would be willing to trade their goods for the common commodity allowed for an intermediary step in the process. For example a person might want to sell eggs and another individual might want to purchase eggs but the seller wants to acquire lumber for the exchange of the eggs but the purchaser doesn't have lumber but instead has bricks. Without a common commodity the purchaser would have to find someone with lumber that needed bricks, then trade the bricks for lumber, and in turn could then make a transaction for the eggs with lumber. A very tedious process at best and unworkable in practice.

Instead it was fundamentally agreed that a common commodity would be used to trade for eggs, lumber and bricks and that commodity would have a free market exchange rate related to eggs, lumber and bricks. That common commodity became the "money" in the barter system. Of note this had nothing to do with government but instead was agreed to by those exchanging in the barter system. The individual was not forced to accept the common commodity but they did so voluntarily knowing that they could use that commodity to acquire what they wanted in exchange for either their labor or commodity that they would exchange in the free market.

While theoretically anything can be used as a common commodity (money) what is accepted has practical considerations. Generally speaking it needed to be something relatively rare, portable, limited and in high demand. By way of example in today's economy ping pong balls could be used but it would take truckloads of ping pong balls to exhange for a new Mercedes. They are impractical. Additionally ping pong balls can be rapidly produced and with an increase in supply the relative trading value of the ping pong balls would decrease as well.

Historically gold and silver have been the most used common commodity used in the barter system as they meet all of the important criteria. They are both rare, with gold being the rarest, they are in high demand as they have many commercial uses and a very small amount is required relative to other commodities making them very portable. By the time of the founding of America gold and silver were universally accepted in all "modern" nations at the time as money so I limit my discussion to them.

As gold and silver became the accepted common commodity (money) for trade problems arose. For one thing it was traded as bullion but the purity of the metal was questionable as was the fact that not all measurements of weight were common. Realizing this problem government intervened to produce gold and silver coins that were of a specific weight and metallic content and individuals accepted them in exchange for goods or labor. The gold and the silver were still the "money" and the actions of the government to coin this money merely provided society with a means of quickly establishing the weight and metallic content of the "money" being traded.

In short the government did not create the money, which was gold and silver bullion, but merely made coins out of the money so that specific weights and metallic content were certified for use in the market place. In the US Constitution, in Article I Section 8, it delegates the following role and responsibility to the federal government and Congress.

http://caselaw.lp.findlaw.com/data/constitution/article01/

This is not an authorization for the US govenment to "create money" but is limited to authorizing it to "coin Money" from gold and silver bullion. It is impossible for the US government to create either gold or silver but it can (and does) take gold and silver bullion and make coins out of it. It does this to facilitate commerce by producing coins that are identical to each other.

It also delegates the role and responsibility to "regulate the value thereof" which is to assign a denomination value to the coins. Once again this is to facilitate commerce so that "prices" in gold or silver can be assigned to both commodities and labor.

Finally it delegates the role and responsibility to Congress to "fix the Standard of Weights and Measures" which, while more inclusive than just addressing gold and silver provides that an ounce of gold or silver equals an ounce of gold or silver regardless of where in the country it's measured.

In establishing that all gold and silver coins produced by the US Mint are usable in the US the Congress designated them as "Legal Tender" that would be good for all debts both public and private. A gold or silver US Minted coin has mandated acceptance in commerce in the United States. That does not prohibit the use of gold or silver bullion from being accepted as "money" in the United States but such transactions are voluntary on the part of the individual and historically gold and silver bullion has been used as money in the United States because it is the actual money while the coins are just the standardize form of the money being produced by the US government.

Now we need to address "currency" which also entered into the US economy from it's inception and specifically "legal tender" currency. The law specifically states that coins and currency are both legal tender:

http://www.law.cornell.edu/uscode/html/uscode31/usc_sec_31_00005103----000-.html

What is significant in the law is that it clearly establishes that "coins" and "currency" are two completely different things. Coins are money (silver and gold bullion that has been converted into coins) and currency. Currency is "paper" and, as specifically expressed in the law it is a (promissory) note but is currency actually Constitutional.

There was much debate in the United States about Constitutionality of "legal tender" currency for over 100 years and it was finally resolved by the US Supreme Court in its decision of Julliard v Greenman which is the foundation for TITLE 31 > SUBTITLE IV > CHAPTER 51 > SUBCHAPTER I > § 5103.

http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=110&invol=421

While I would encourage people to read this decision it fundamentally comes down to the following.

Legal tender currency is a promissory note issued or backed by the US government that promises payment in gold or silver coins at some point in the future. Legal tender currency is Constitutional based upon the authority of the US government to borrow money, not to coin money, and is justifiable when a national emergency exists where all other avenues of borrowing have been exhausted but the emergency is of such importance to the very existance of the nation that there are no other alternatives. In short the US government is borrowing against future revenues of coined money that it would recieve through taxation.

The term "note" itself, or more accurately promissory note, is a contract of debt to the holder of the note and the issuing entity has a contractual obligation to redeem the note with that which it promises. A Federal Reserve note is not money but instead is a promise of payment in money at some future point in time. The "money" remains the gold and silver bullion which can be coined to legal tender coins by the US Mint. At some point it time the Federal Reserve notes must be redeemable in the gold and silver coins that it promises based upon the denomination on the Federal Reserve note.

If a Federal Reserve note cannot be redeemed in that which it promises then it is no longer a note but instead is literally a worthless piece of paper and is unconstitutional based upon the Supreme Court decision in Julliard v Greenman. Only if it's note that is redeemable in that which it promises are Federal Reserve notes Constitutional.

In short, gold and silver is money, US Minted coins such as American Gold and Silver Eagle coins, are legal tender money, and Federal Reserve notes are legal tender currency that promise payment in legal tender money (US minted gold and silver coins).

This is fundamental information that everyone should be aware of when discussing "money" in the United States.

 

Unfortunately our fiat currency system is a mess in it's current state. Paper isn't money, but merely the promise of money that banks can charge us for using, but was created out of debt that we all collectively owe. As Shiva said, only coins are money because they are made of precious medals that have real-world value.

When currency collapsed with the Continental Bills of Credit, we reverted to Trade and Barter for a short time. Trade and Barter remains the foundation for market economics and fiat currency has as many cons as pros. For instance, it constantly loses value, but wages are taxes are finite. Eventually, something has to give with endless debt spending.

If the currency ever collapses, we'll go back to our roots.

 

neither is any metal until it's declared such, by fiat

 

No, you don't get it, do you?

People find value in precious medals themselves. You can make things out of them.

At one point people used salt (I guess salt-rocks) as money. At the time, salt was how they preserved food.

Money should have value to the people who use it, not debt based on debt.

 

oh i get it, your understanding of monetary science hasn't progressed past the 19th century

and if people want metal or salt, all they have to do is buy it, problem solved

 

Barter and Trade is the basis for any market. No need to be snarky.

Buying and selling is based on Barter and Trade.

If you take time to read the US Constitution you would know only gold coins are money, paper or Bills of Credit is debt. You are defending a system of trading debt around. But debt is just a promise to pay something "real," while gold or salt is actually a "real" thing.

Too bad you can't see past your own narrow-views to comprehend that.

 

Gold is trading or hit over $1,600 dollars, you see the problem?

 

your partisan views are what's narrow

i've read the constitution countless times, i studied it at university and i have continued that study on my own, for decades

barter, for the most part, is an archaic, inefficient practice

 

What "partisan views" are you a mind reader or do you just made ignorant assumptions?

Ask for your money back, because the lack of comprehension is obvious.

Barter and Trade is the bases for ANY market. If and when the USD ever fails, no one is going to trade paper. Not sure why you make this "personal" or assume this is some ideological confrontation.

This is a debate about basic common sense.

 

what a joke

i had a scholarship, the lack of comprehension belongs to you

it's a debate about facts, something you seem to be ignorant of

 

You are, I agree.

That's sad.

What "facts" have you presented? None. Just personal insults, which have been reported.

Bills of Credit is debt, Tender is a promise of payment.

US Law regards minted Coins to be money, the Law and the Constitution are clear on that. The Continental Bills of Credit failed because the government deflated. The result was a return to a Trade and Barter system in early America.

So, it isn't "archaic." It's the basis for the market, period.

 

Bills of Credit represent the promise of money.

If you understood how our paper was created, you would know it's done through Treasury notes, which represent debt. The real money is what the Bills represent, not the Bills themselves. Just because the Bills can be used to pay debt and are regarded as legal forms of payment, does not make them true money. Real money is gold minted coin.

For more information read the OP sources.

 

the u.s. dollar is not a bill of credit or a promise to pay, it's legal tender

 

It's one both legal tender and a promissory note. Being legal tender doesn't make it money.

LEGAL TENDER CASES, 110 U.S. 421 (1884)

"There have been times within the memory of all of us when the legal-tender notes of the United States were not exchangeable for more than one-half of their nominal value. The possibility of such depreciation will always attend paper money. This inborn infirmity no mere legislative declaration can cure. If congress has the power to make the notes a legal tender and to pass as money or its equivalent, why should not a sufficient amount be issued to pay the bonds of the United States as they nature? Why pay interest on the millions of dollars of bonds now due when congress can in one day make the money to pay the principal? And why should there be any restraint upon unlimited appropriations by the government for all imaginary schemes of public improvement, if the printing-press can furnish the money that is needed for them?"

http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=110&invol=421

 

the supreme court disagrees with you

U.S. v. Wangrund, 533 F.2d 495; C.A.Cal. 1976

The statute establishing Federal Reserve Notes as legal tender for all debts, public and private, including taxes, is within the constitutional authority of Congress; thus the defendant could not overturn his conviction on two counts of wilful failure to make an income tax return on the theory that he did not receive money since checks he received as compensation for his services could be cashed only for Federal Reserve Notes which were not redeemable in specie. 26 USCA §61, §7203; USCA Const. art. 1, §8; Coinage Act of 1965, §102; 31 USCA §392

 

I never said it wasn't "legal tender" I said it was currency created by debt.

That doesn't make it money.

The OP covers that, if you would go back and read it.

 

oh please, u.s. dollars are money

no amount of looney propaganda can change that

 

The fact that it's debt-based currency is covered in the OP and in this 1884 case.

But money, as described in the Constitution, is minted (precious metal) Coins.

 

there has been some progress since the 18th century

 

Legal tender is established by fiat but money exists without any government statutory laws. Both gold/silver coins and Federal Reserve notes are legal tender by fiat but gold/silver coins are money as money has always been gold and silver in the United States regardless of whether it was legal tender. The fact that gold/silver coins are money is based upon the fact that they are made from gold/silver and not because they are legal tender.

Legal tender, established by fiat, is not the same as money which is the point being missed.

This can be exemplified historically.

When the United States was founded Spanish gold and silver coins were the common money used in the States and continued to be used throughout the United States until the mid-19th century even though they were not legal tender. They were accepted as money because they had a specific metallic weight in gold and silver which facilitated commerce which is the purpose of money. It was a common commodity used to facilitate commerce where the exchange of commodities for other commodities or labor was the goal which is what money is, a common commodity used in commerce. Spanish coins were money used in commerce but were not legal tender.

During the mid-19th in California as well as other States there were numerous "gold rushes" where relatively large amounts of gold were being produced. Gold dust and nuggets were commonly used in exchange and it was money but was not legal tender.

As I've noted gold and silver coins are both money (because they are made of gold and silver) and legal tender while currency is legal tender but not money as it merely promises payment in money. Legal tender is created by fiat but money is not. Money is common commodity accepted by commerce in exchange for other commodities or labor.

Of note Julliard v Greenman is the final court case in establishing the legal tender status of currency. In that decision it expressly established that legal tender is NOT based upon the authority of the federal government to coin money but instead it based solely upon the ability of the federal government to borrow. A Federal Reserve note is by both definition and law a promissory note that promises redemption in lawful money.

Lawful money is gold or silver coins that have been declared to be legal tender by fiat. They are money because they made from gold or silver and they are lawful money because it has been declared legal tender by fiat. A Canadian Gold Maple Leaf coin is money but it is not legal tender in the United States so it is not "lawful money" in the United States. A Federal Reserve Note is not redeemable in Canadian Gold Maple Leafs under Title 12 but it is, under the law, redeemable in American Gold Eagles which are lawful money (legal tender) in the United States.

http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000411----000-.html

The fact that the law specifically states that Federal Reserve notes shall be redeemed in lawful money clearly establishes that Federal Reserve notes are not lawful money. They are legal tender but not lawful money.

 

This decision dealt with income tax laws and not the nature of legal tender notes issued by the US government. The Constitutionality of legal tender notes was addressed by Julliard v Greenman and not by the U.S. v Wangrund.

 

So gold coins will exist as money with our without the federal government (as they always have been), paper money will not.

It's nice to hear the voice of reason now and again. Thanks.

 

We have not made progress.

The purchasing power of an ounce of gold has remained relative unchanged over time. Gold has had minor fluctuations over time but when we address fiat currency the fluctuations were severe and fiat currency has lost over 97% of it's value related to commodities in the last 90 years alone.

An ounce of gold today when used as a medium of exchange will still purchase about the same number of eggs or loaves of bread that it could in 1920. That reflects a stable economic system. Fiat currency reflects an unstable economic system.

 

do you not understand english? wangrund was convicted on 2 counts of failing to make an income tax return

not legally

ceaselessly repeating a myth doesn't make it true

 

This response makes absolutely no sense. Establishment by fiat means that something is established under the law. Legal tender is established under the law whereas money is no. Gold and silver were used as a common commodity in exchange regardless of whether there were any statutes establishing gold and silver coins as legal tender.

In 1920 a loaf of bread cost 12 cents and a dozen eggs sold for an average price of about 50 cents between 1920 and 1929 depending upon where the eggs were being purchase.

http://www.thepeoplehistory.com/20sfood.html

There have been major advances in the production of both eggs and bread since the 1920's reducing the cost of production and retail pricing should reflect that.

Today at the market a dozen "cage free" eggs which would equate to eggs sold in the 1920's sells for about $3.20 per dozen.

http://www.fb.org/index.php?action=newsroom.news&year=2011&file=nr0609.html

Current bread prices are between $2-$4 depending upon the brand and where you purchase it.

http://wiki.answers.com/Q/What_is_the_current_average_price_of_bread_in_the_US

In 1920 a $20 Double Eagle gold coin would purchase about 167 loaves of bread and today, based upon its gold content, it would purchase about 483 loaves. Some of this increase in purchasing power is reflective of the current high demand for gold and some of it is related to the much lower cost of production of wheat and the baking of bread. In the 1920's a $20 Federal Reserve note coudl also purchase 167 loaves but today it can only purchase about 7 loaves of bread.

In 1920 a $20 American Gold Eagle coin could purchase about 40 dozen eggs and today based upon the gold content it could purchase about 453 dozen eggs. This overwhelmingly relates to the difference between farmers producing eggs as a side business in the 1920's and the massive egg farms of today. In 1920 a $20 Federal Reserve note could also purchase 40 dozen eggs but today it will only purchase about 6 dozen eggs.

Basically what we see is the fact that with improved production capabilities related to agriculture and egg production the costs of the product is more as opposed to less when we address purchases with Federal Reserve notes but when we use gold coins not only are those advances passed on to the consumer the value of gold has also increased allowing an increased purchasing capability by the consumer.

Basically the worker/consumer is getting screwed by using Federal Reserve notes because the advances in technology which should result in lower prices are being consumed by the loss of purchasing power of Federal Reserve notes. We're ending up on the lossing end of the economy but, of note, the banks and the wealthy in society are making out like bandits because their wealth is in assets and not in dollars.