What Money is and how it works

When someone understands exactly what money is and how it works they will also understand how great of a disadvantage the average person is in.  It is also impossible to ignore just how big of a smokescreen our money is today. 

Everything that we do and the property we own has a value.  The work that someone does in a day has a value that can be traded for something else.  The value of one item will equal a certain value of another. 

History shows that many items that we commonly use have held close to the value of another item.  This consistency of value can easily be traced for centuries. 

The most common way we trade one thing of value for another is known as money.  Instead of working for food, our employer pays us in dollars that can be traded for food or other items we need. 

Our economy is based upon what is known as a fiat monetary system.  Fiat money is an object a government declares as legal currency.  The object we use is a Federal Reserve note of various denominations. 

The real danger of a system such as this is that the value of the currency is easily manipulated.  It is shown throughout history in various parts of the world that governments cannot avoid manipulating the value of their money.   History also shows that any government which starts manipulating the value of its currency has ended up in economic ruin. 

Our nation’s founders knew this danger and wanted to stop it before it even started.  Article I of the Constitution clearly states that government isn’t to “make any Thing but gold and silver Coin a Tender in Payment of Debts….” 

The reason they wrote this within the Constitution was because they knew that a currency that can be manipulated can be used to steal from the people. 

An article entitled Fiat and the Founding Fathers gives more insight into the views of those who laid the foundations of our country.

In 1831, Albert Gallatin, who had served Jefferson and Madison as Secretary of the Treasury (18011814) declared that “it necessarily follows that nothing but gold and silver coin can be made legal tender,” and Daniel Webster in a speech in the Senate, in 1836, proclaimed, “Most unquestionably there is no legal tender, and there can be no legal tender in this country but gold and silver…”

Our currency was the most stable throughout the world until in 1971 the government went against the Constitution and shifted from the gold standard into the easily manipulated fiat monetary system we have today.

For centuries, gold has held a fairly consistent value when compared to other items we use such as food and energy.  Looking at some of those values shows us some interesting facts.  The first item we will consider is food, particularly bread because there is much archeological evidence surrounding it. 

In 562 B.C., during the reign of the Babylonian king Nebuchadnezzar, an ounce of gold could purchase 350 loaves of bread. Given current prices of gold, that works out to about $4 a loaf. You can get a cheaper loaf of bread – but the bread that many of us buy at a local bakery is that price. Also, the size of a loaf of bread then was about a kilo.

As this clearly shows, there is very little fluctuation in the price difference between bread and gold for over 2,500 years.  This trend continues to this day. 

If we now look at the value of gold compared to our wages we will see the results of a manipulated currency system.  Workers today are much more productive than in any time in history but the facts clearly show that our labor isn’t being rewarded with an increase in wages.

In 1970, the year prior to the shift from the gold standard, the average price of gold was $36 per ounce and the average household income was around $7,651.  Someone in 1970 with that income could by approximately 212.5 ounces of gold.    

In the era of Emperor Augustus (27 B.C. to 14 A.D.), a Roman centurion was paid 15,000 sestertii. Given that one gold aureus equaled 1,000 sestertii and given there was eight grams of gold in an aureus, the pay comes to 38.58 ounces of gold. At current prices, this is about $54,000 per year.

The centurion who commanded 80 legionaries is roughly equivalent to a U.S. Army captain. The current wage for a captain is $46,000 – which is fairly close.

This implies that gold is a good store of value. Essentially, gold is a good inflation hedge – but our examples are over the very, very, very long term, more than 2,000 years.

If we remember the consistency in value of gold when compared to food or energy we clearly see that we are being robbed of the value of our labor.  Stay tuned for another part to our story in an upcoming article.