The Story of Money

Dr. Paul Hein

The story of money is, to some extent, a story of man's quest for ease and convenience. Direct bartering of one good for another, more highly prized, was so inconvenient that it was doomed to failure from its onset. A giant leap forward was made when a universally accepted bartering agent was adopted, and referred to as "money." Indeed, this situation persisted for thousands of years, and only relatively recently has come under systematic, worldwide, attack.

Using bank notes was a significant convenience over the use of the money which they represented by proxy, and the use of checks to transfer bank balances was safer than either. In the process, however, something was lost: the money itself.

Bank notes were issued as claim checks for money on deposit; but how could such genuine bank notes be distinguished from those issued fraudulently by the bank, as a loan, with nothing at the bank justifying their issuance? The question could be settled rather drastically by a run on the bank, leaving the slower runners with fistfuls of bank notes, but no money left at the bank for their redemption. A nasty business, and one which cast doubts upon the utility and convenience of bank notes used in lieu of money.

The bankers' solution to this problem lay, not in eliminating bad bank notes, but in eliminating good ones. The bad ones, after all, were the more profitable. They were loaned into circulation, like good ones, but their number was not limited to the amount of money available for redemption. Thus, they could earn the banker interest on funds which did not exist. These facts were not broadcast to the banking public, however, since their trust and belief were essential to the operation of the system--and still are. Rather, the convenience of the bank notes, and the solution by the bankers of the occasional run on the bank, by adopting a universal nationwide currency, were stressed.

Checks were another step forward in mankind's quest for easy, convenient, banking. No bulky coins, no pocketful of bank notes to tempt a thief; only a slim booklet of checks. Write the amount (of what?) on the proper line, the name of the payee, and sign it. Presto! The debt was settled. Not paid, but settled. (How can you pay a bill by giving the creditor a note to your bank, which will be honored only by the tendering of the bank's IOU?) As the concept of money faded into the background, so did that of payment. Today, when you receive a check, you consider yourself paid. Indeed, for tax purposes, you swear to it. That's like swearing that a gift-certificate is the gift itself. No, it's worse than that: at least the gift certificate can be exchanged for something from the company which issued it.

Take the check to the bank upon which it is written, however, and what will you receive? Money? No, you'll get bank notes which are not redeemable in anything, and are, obviously, not money in themselves. Even if paper were money, as the expression "paper money" suggests, there's no more paper in "big" bills than little ones. We've sacrificed quite a lot for convenience! We have divorced money from reality.

Some checks are bad: they were written on an account which did not contain sufficient credit. Credit is a creation of the banking system. If the numbers on a check are simply written there by the issuer, the check may be bad unless the issuer's account at the bank contains a number at least at large, written by the banker. Only numbers originally written by bankers are modern "money." Those written by the rest of us are doodles, or, if we attempt to obtain goods or services with them, an example of check kiting, a crime. What distinguishes a good check from a bad is, therefore, partly a matter of geography. If the numbers first came into existence at a bank, they are good, and can be transferred from account to account by check, with the bank making sure that unauthorized--i.e., non-banker created--numbers do not sneak into the system.

In addition, there might be a matter of law involved, although it isn't clear by what law bankers can create what is regarded as "money" in our society. There is a law, of course, justifying the issue of fraudulent bank notes by bankers, called a "legal tender" law. This means that you can pass these devices without fear of the punishment you would incur from passing bank notes you had printed yourself, even if they were equally as bad (good?) as the bank's. Of course, the fact that it is allowable to tender a non-redeemable note doesn't mean that one is obligated to accept it, although if nothing else is offered, or can be offered, it amounts to that.

Even checks, however, have become cumbersome. How often have you stood in the checkout line, while the customer ahead of you fumbled for his checkbook to write out a check for a $3.00 purchase. And checks can be lost in the mail, mis-written, or mis-read. The writing can become smudged and illegible. More convenience is required.

Enter the credit card. Using it, you still have to write checks, but now you can do it at home, and only a single check will pay many merchants, which have already been paid by the bank simply by having their accounts credited for the amount of the purchase. How much did it "cost" the bank to do this? Well, since they pay their help by simply adding the amount of the paycheck to their accounts, and since they pay the merchant by the same mechanism, it's hard to calculate the cost, but a good guess would be nothing. After all, modern money isn't any thing, and banks alone can create it, to lend to us, or, in their own case, to spend directly. Five percent of the money created annually is created by banks directly for their own use.

But why write checks at all, even in the comfort of your own home? The ultimate in ease and convenience is the debit-card, which resembles a credit card, but which electronically transfers the amount of the payment from your account to the merchant's, with a single swipe of the card through his machine. Schazzam! You haven't even left the store yet, and the bill is "paid!" What could be more convenient!

In truth, I enjoy this convenience with most of the purchases I make, but I never use electronic gimmicky to accomplish it. How? Cash! Throw a few of those chits on the counter, and your bill is settled just as quickly as in the case of the debit-card user, although the clerk may be somewhat flustered by the experience; and if the purchase is a large one, your privacy may be violated by having a record of the transaction forwarded to the feds, who can only manage the economy to their liking with information. (As the economy deteriorates, more and more information is needed, of course. It's naive, however, to assume that debit-card transactions are not also reported.) But I seldom make such large purchases with cash. The risk of carrying cash, while real, is not too great, since so few people do it today that potential thieves would rather steal credit cards, or debit-cards. And my bank doesn't even know that I have spent some of its credit, or where, or how much. And what I purchase becomes mine privately. A heady experience!

A controlled economy means a controlled people. The control is exercised via credit usage, but cash minimizes the control possible, and maximizes individual privacy.

The drive for ever-greater convenience in attempting to pay debts jeopardizes our economic and political security, as what passes for "money" becomes increasingly beyond our control. If you live from day to day by using a debit-card, what if the machine registers "tilt" the next time to try to use it? If the State should come to regard you as an enemy, it wouldn't need to send its goons out to work you over; it could just pull the plug on your credit or debit-cards. You could starve in the midst of plenty. The idea is no more fantastic than the idea of such cards would have appeared to our ancestors.

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