Topic: Debate
Proof That Paper Money Is Not A Commodity I discovered some unexpectedly strong proof that paper (fiat) money is not a commodity after all. My source? The opposition!by Walt Thiessen
(libertarian)
Wednesday, November 19, 2008
Previously in our debate, I was raked over the coals by my opponent and even gently chided by some readers over my claim that paper money is not, in fact, a commodity like gold, silver, oil, copper, corn, and pork bellies are. I was confident about the argument I made and decided not to worry too much about the criticisms.
Since then, I was doing some research on the Fed, but for a reason unrelated to our debate. I found a publication that made me laugh out loud. It was a publication by the Federal Reserve Bank of Chicago which discussed the Fed and how the money supply is created and managed via Fed operations. To my delight, the Fed's publication verified my claim about paper money not being a commodity!
The publication is called "Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion." First published in 1961, the publication was issued and revised over approximately a 40 year period by the Federal Reserve Bank of Chicago. Apparently, it ceased publication a few years back. On page 3 it says:
"In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. (my emphasis) Coins do have some intrinsic value as metal, but generally far less than their face value.
"What, then, makes these instruments — checks, paper money, and coins — acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so."
Even though I was already sure of my evaluation, I can't tell you how thrilled I was to find this smoking gun. Can there be better evidence of my claim than a written confession by the Fed themselves? No, there can't.
This should lead readers to pause and think. If the only thing that gives fiat money any value is the confidence that people have in it, what reason do we have to believe that such confidence is misplaced and that the value might be lost? The answer is obvious. We have every reason to believe it, as evidenced by the current financial crisis, which is all about a loss of public confidence in the banking system.
The views expressed in this
article are those of Walt Thiessen only and do not represent
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Nicely done. Most of these criminals tend to incriminate themselves sooner or later because it is hard to remember what lies were told. I like to focus on telling the truth, that way I don't have to remember what lies I told and to whom.
Excellent find Walt! I was just reading that the study of economics was originally considered to be a "moral" field and evolved into a study based in science and specifically mathematics. Perhaps the Fed still has a strong belief in the "religion" of it all!
I see your reference is dated 1961. Back then, the one dollar was supposed to be 1/35th troy oz. of gold, ideally. It's a lot less today.
When the dollar index futures contract was created in 1973, it pit the dollar against a basket of 10 currencies. The Chicago Mercantile Exchange's International Monetary Market began treating the dollar as a commodity in 1972, buying and selling in other countries' fiat currencies.
When you throw in interest rate (treasuries, euordollars, etc.) and stock index futures, the real question becomes, "What's a commodity?" It's all in a computer somewhere.
Posted By: Walt Thiessen
Date: 2008-11-20 03:05:12
So you're saying, Bob N, that even though the Federal Bank of Chicago announced in 1961 that paper money is not a commodity, and even though they continued to say so via republication for around 40 years, the Chicago Mercantile Exchange started to treat the dollar as if it were a commodity in 1972. That's very interesting, because it demonstrates just how powerful the corrupting influence of government is when it forces people to accept paper money as if it had real value. Even market makers who know better end up creating markets that help perpetuate the legalized fraud.
Posted By: Jake, the champion of the constitution
Date: 2008-11-20 03:41:11
Good stuff Walt. WE ARE GOING TO END THE FED. It's just a matter of time. Those who say it can never happen will eventually be passed over by everyone. Just a matter of time.
Plus, even the ex-FED'ers are starting to give up on fiat.
Posted By: Jahfre Fire Eater
Date: 2008-11-21 08:25:50
Hi Walt,
It looks to me like this is a case where you let your opponents define the context of your assertion. In the English language it is difficult to defend an assertion unless you first establish and then staunchly defend the context for your assertion.
For an arbitrage trader, currency can certainly be a commodity. They don't care what the currency symbolizes or how it is defined, the only consideration is buy low, sell high; just like trading any other commodity.
For most of us currency is simply a catalyst for market transactions. It allows commodities to be allocated to their highest value usage but before, during and after the transaction, the currency itself remains unchanged. The actual value of the catalyst is irrelevant. The transaction rests on the perceived value agreed to by the parties to the transaction. That agreed, perceived value determines how much catalyst is needed to complete the transaction.
Only in the context of arbitrage does the currency itself represent both ends of a transaction. In most day-to-day transactions, goods and services flow in one direction and currency in the other for every transaction. Those who end up with the currency are not usually going to consume the currency, as in wall papering their office with it, or shredding it for confetti. Instead, they intend to use it as a catalyst for a future transaction where they end up with a good or service and the catalyst moves into the hands of another.
Anyway, my point is that in day-to-day common usage of fiat money agree with you, it is not a commodity for the simple reason that few holders of currency will make the choice to consume it rather than to use it as a catalyst in a future transaction. For gold, sliver, walnuts, oil and any other commodity you can imagine, there exists a reasonable possibility of some of it being consumed rather than traded.
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