Monday, July 24, 2006

Money: Not the Root of All Evil

There is nothing intrinsically bad about people using money. A unit of money is simply that which everyone in the community accepts as having value. It is something that the vast majority of the community is willing to accept in trade for goods or services that they have produced--knowing that someone else will also accept it for the same. Money is the item which is most widely accepted as a form of exchange in commerce. I'm sure this point is arguable, but I see no way in which using a commonly accepted medium of exchange in commerce is in any way bad, wrong, evil, detrimental, etc.

So where then do we get the expression, "Money is the root of all evil"? The saying originated in the New Testament. "For the love of money is the root of all evil." Timothy, 6:10. It is my view that the current usage of that expression arose to describe the modern money system. But it is not the money at all which is the root of the problem. It is the greed, corruption, and dishonesty which is inherent in the money systems which we have come to accept globally.

Before we get to examining the corruption of our current monetary systems, let's step back for a moment and remember how those systems evolved... This is going to be a rather lengthy history, but without it, we really have no context where we can say "this is corrupt and dishonest." So bear with me. It's actually rather interesting.

The first form of commerce was the barter system. People who wished to do business together would find a suitable trade. The problem with this system is that the pieces don't always fit. Just because you have something I need doesn't mean that I have something that you need. Also, how am I supposed to know that what you are trading me is quality? About ten thousand years ago, people started to use livestock and grain as a common medium of exchange, because these were things that everyone needed, and they were things that required work to produce. Yes, grain and cattle do grow naturally, but to keep a herd of domestic cattle and/or to raise a crop of grain takes human work. Therefore, with livestock and/or grain as money--you can't create money without exerting an equal amount of labor.

As people evolved, their systems of money evolved as well. Throughout the course of history different cultures have used different items as money... And different institutions of banking arose. These were mainly businesses that provided storage and protection of individual's money for a fee. They did not issue loans.

As these different cultures started to interact and trade with each other, a universally accepted medium of exchange was sought. Precious metals--mainly gold and silver--began to be used as money about five thousand years ago. They are generally accepted by everyone to have value, and it requires a good amount of labor to extract and refine them into usable product. Around 2200 BC, Cappadocian rulers began to guarantee the quality of their silver ingots, which led to their wider acceptance as money. Around 600 BC, the Lydian state began producing round coins, and the Chinese and Greeks quickly picked up on this practice. Eventually, round base metal coins became a global standard.

As mentioned, the banks that arose to protect people's money did not loan out money... They simply stored it and protected it from theft--a pretty valuable service in days of yore when there was no such thing as a police force. These ancient banks would issue a paper receipt to a depositor--stating that x amount of gold had been deposited and could be withdrawn on demand. Eventually these paper receipts came to be traded amongst the people--to save them the trouble and danger of having to go to the bank, withdraw their gold, and make a physical exchange. This is a very important development--for it gave birth to our modern form of money, as obviously today we trade paper--not gold or silver.

These receipts given to depositors by the bank were a guarantee that this amount of gold actually existed in the bank and could be redeemed. This is called receipt currency. It is as good as gold. And it is an honest way to make trading large sums of money much easier. However, the bankers had become rich and powerful by charging fees to protect people's money. Eventually they were able to use this power to change the tried and tested rules (Hamurabi's code had laws about banking) of banking that had come to be accepted throughout all of humanity.

Bankers wanted the right to loan out the money that they held in deposit, and also to charge interest on it. The bankers had realized that people would never try to redeem all of their gold receipts at the same time. So they had these huge stores of gold that were just sitting there, doing nothing... Why not loan it out to other people and charge them interest? It seemed perfectly safe, as their records had shown that at any given point in time, only about 10% of the gold they possessed was ever physically out of the bank at one time. Much greater profits could be realized if the other 90% of the gold they held was working for them... So banks began to loan receipts to people for other people's gold--and charge the borrowers interest. In effect, banks began to issue multiple receipts for the same piece of gold, on the faith that people would, for the most part, leave their gold in the bank.

This system is called fractional reserve banking--and THIS, my friends and readers, is the root of all evil. It is inherently corrupt and dishonest. Banks were loaning your gold to someone else, and the banks--not you--were making a profit on it... The institutions that physically controlled the vast majority of wealth were able to create new paper receipts where no actual money existed. This made all of the money that did exist become worth less and less. Well, economies being a conglomerate of human activity, the laws of supply and demand tend to work pretty well... The supply of money had been inflated. Money was being produced without an equal exchange of labor. Prices everywhere were going up and up. People realized that the goods and services themselves had not gotten more valuable--but the money itself had become less valuable. And who now possessed the extra value that their paper money no longer did? The bankers did... This led to the people marching down to the bank in anger and demanding their physical gold, which led to many many banks falling into insolvency or simply refusing to produce the gold--as they realized they could not honor everyone's request.

One would think that once this scam was revealed, it faded into non-existence... But no. That's not the way it happened, as bankers had already amassed unimaginably vast sums of money. Instead of being phased out of existence, fractional reserve banking became endorsed by the state. It became law. By instituting what is known as a Central Bank, bankers were basically able to buy governments... Since the bank could issue loans on gold that it did not posses, the state could then create virtually any sum of money they needed. And since the state had the power to pass Legal Tender Laws which required their people to accept the central bank's paper currency, this dishonest banking system became law. And to make things worse, in 1933, the Roosevelt Administration confiscated everyone's personal stores of gold.

And it gets even more dishonest--when states decide that instead of issuing receipts for a physical amount of gold that people can theoretically redeem their paper money for at the bank--they will issue the receipts but not allow the money to be redeemed for gold. This is what is known as Fiat Currency, and it is the evil that fractional reserve banking created multiplied by many thousands of levels of evil. Not only do banks (and governments--via central banks) have the power to create more currency than they have physical gold to back up--but now they can create any amount of currency they want, and they don't have to posses one ounce of gold to back any of it up. Between 1933 and 1971, Americans were not allowed to own gold, and only foreign investors could trade their dollars for gold. The price of gold was fixed at $35 per ounce. Then in 1971 the Nixon Administration separated the dollar from gold completely. The dollar no longer needed any gold at all to "back" its value. Thus making it a true Fiat currency. And in the early 70s, more new money was introduced into the economy than ever before. Why did the people stand for this? Legal tender laws, remember? Also--by design, the average person is never taught anything about the realities of this system, so really, what do they know? There are "experts" in every newspaper telling them about the growing economy... It is growing--it's growing more diffuse. As more and more new money is introduced into the system, the money that is there becomes worth less and less. Consumers feel this in the form of inflation.

The current inflation rate is somewhere around 3%. This doesn't sound like all that much. But at 3% inflation, it takes about 23 years for the value of your money to be cut in half. Don't believe me? Pull out your trusty calculator. Type in "100", then multiply that by 1.03 (this is the same as adding 3%). Do this 23 times. By adding 3% 23 times, You now have 197. What does this mean in relationship to money? Well, at 3% inflation, the money supply doubles every 23 years. Which means, more or less, that your money is worth half as much. Of course it's not quite that simple, but a quick look at the Consumer Price Index shows this to pretty much be the case.

So to sum things up... First, there was money. And it was good... Then banks came around to protect people's money--and that was good too. People had less to worry about, and a new industry came about to provide jobs and wealth for more and more people. Where things start to go wrong is with the introduction of Fractional Reserve banking. This is where bankers issue more than one paper receipt for each physical piece of gold in their stores. And then, the evil multiplies exponentially with Fiat Currencies, when banks and governments collaborate to separate paper money from gold, to enforce this new money on the people, and to create whatever amount they want--mostly to fund wars.

Fractional Reserve banking and Fiat Currencies are inherently dishonest and corrupt systems, and they--not money itself--are the root of a great deal of the world's evil. As long as these systems are allowed to exist, there will never truly be peace, justice, or freedom. I anxiously await the day when the world proves me wrong...


Blogger herestomwiththeweather said...

Found your blog through D!&G. You are right on with your title. It's an example of how original meaning is lost when an original statement is shortened in the process of collective use. The original says it is "the love of money" not "money." There's a big difference between the two, as you expressed.

The monopoly of money and the word "community" have similarly blinded us from ancient gift economies. If you trace the roots of the word community, you'll find that it is derived from together and gift.

11:52 PM  

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