Part II: Seceding From The Monetary System

To secede personally from the monetary system, every one of us must stop thinking of money, and start thinking of wealth.

About 650 B.C. a new technology arose in Lydia, in Asia Minor. It was destined to change the entire world. It was called “coinage.” Until coinage, every transaction paid in copper or silver or gold required different sized ingots to be weighed out, after they had first been tested for purity. Using metallic money was slow, and risky. Direct barter was more efficient, but it limited trade.

The object of economic activity was not piling up money, but building wealth. Wealth might be slaves or land or goats or sheep or cattle or ships, but whatever it was, it was real and could produce more real wealth.

Then Came Coinage

Then along came coinage, and the object shifted away from building wealth to piling up money. Although the money itself was metal, coinage took wealth to another level of abstraction. Coinage was not wealth itself, but an abstraction of wealth.

This abstraction nearly did the Greeks in. They were quick to adopt every new technology, and so they quickly adopted coinage. Within about 50 years, by 594 BC, the money abstraction had so pervaded the Athenian economy that the commonwealth’s life was threatened. Spurred by easy credit, farmers had pledged their lands and even their wives and children to borrow. They quickly lost farms and wives and children, and many were even sold into slavery themselves. To save Athens, in 594 Solon instituted the “shaking off of burdens”, cancelled much of the debt, freed those enslaved by debt, and forbade using selves, wives, and children as collateral. Athens was saved.

What had happened? The Greeks had been so enamoured by money, the abstraction, that they forgot wealth, the reality. Along with wealth, they forgot even greater obligations owed to the commonwealth, to their forefathers, and most of all, to their wives and children and to themselves. They were enslaved by an abstraction.

Same Story, Different Time & Place

Today we find ourselves in a similar situation, where greed for abstract money has blinded our society to real wealth, and to all other values.

So the first step you must take to secede from the monetary system is to stop thinking of ‘wealth” as abstractions like financial assets, stocks, bonds, dollars, and start thinking about wealth as “productive assets” like businesses and farms that can produce and keep on producing without constantly feeding them more and more expensive inputs.

The next step necessary to monetary freedom is that you must make that movement as a community in the local economy. You cannot merely save yourself by running off and hoarding silver and gold, because every economy is a network of individuals and transactions. All by yourself you can’t have an economy, only have a hermitage. We must rebuild our own local economies first, or we can’t rebuild anything else.

Your motivation here must be love, not mere sentiment or affection, but the determination to do justice by every man. Part of loving your neighbour is helping him succeed, and helping to create and keep an environment where you can prosper together.

Finally, our first rule must be, whatever replaces the present monetary system must work. It must make us more prosperous, not less. We can’t just impose something on ourselves and others for blind ideological reasons. Rather, if we are going to change anything, it must be a change for the better.

Using Gold and Silver As Money

There are numerous “community currency” ideas, old and new. They may be good or bad, workable or not, but I won’t speak to any of those because they are all variations of the symbolic money theory. On the other hand, gold and silver money has worked for 4,500 years of recorded history.

Classical economics demands that money serves three functions: store of value, standard of value, and medium of exchange. Presently, silver and gold perform the first function very well, but politics keeps them from performing the other two. Both the standard of value function and the medium of exchange function are critical to monetary freedom.

Numeraire

A money serves all these functions when it is our numeraire. The numeraire is simply the money we think in terms of, our common denominator. If you live in France, you think in francs – well, you used to. Now I suppose you think in Euros. If you live in England you think in pounds, and in the US you think in dollars.

We must replace the dollar as our numeraire with silver and gold. Let them become our standard of value and they’ll soon become our medium of exchange.

Standard of Value

A standard of value means, what is something worth in terms of that measure? We must think in terms of ounces, and not of “dollars.”

Imagine a piece of property, 58.5 acres, asking $155,000. Allowing $75,000 for barn and house, that’s $80,000 or $1,367.50 an acre. In 1999 the same acre cost $750, so the price has nearly doubled.

But in dollars, not in silver. What if, at the end of May, 1999, you had converted your dollars into silver? Silver then cost $4.973/oz. At the same time, comparable land where I live was $750 an acre, or 150.8 ounces of silver per acre. At the end May 2006 silver was at $13.013, so the land that costs $1,367.50 an acre today only costs 105.09 ounces of silver. In other words, the price of land where I live, although it has nearly doubled in dollar terms, has fallen over 30% in silver terms.

Land’s price has not risen in gold terms, either. At the end May 1999 gold stood at $270.40 an ounce, while land was $750 an acre, so an acre of land cost about 2-3/4 ounce of gold (2.774 oz exactly). At the end May 2006 gold traded at $657.50, so the land that costs $1,367.50 an acre today only costs 2.08 ounces of gold an acre. In other words, the price of land where I live, although it has nearly doubled in dollar terms, has fallen over 25% in gold. (to 74.9%).

These examples easily explain silver & gold’s recent superiority as a “store of value.” If you had been planning to buy land and counting on dollars to store your value, you would have lost about half your value while you were waiting. With silver and gold, your money would have gained over 25% in value.

Metals v. Stocks

The metals’ standard of value function offers even more information about true value when we compare it to stocks. In nominal dollar terms stocks don’t appear to have done too badly in the last 7 years. In fact, they stand just about exactly at the same place they stood in August 1999.

But what happens when you value stocks against silver and gold? You can see that they have dropped 58% against silver and 60.5% against gold. It doesn’t matter how much the White House’s Plunge Protection Team has managed to manipulate stocks in dollars, valuing them in silver and gold reveals how terribly stock values have dropped since 1999.

This demonstrates the numeraire function of money. We have to learn to value things not in paper dollars, whose value jumps up and down so often that trying to nail down a value in dollars is like trying to shoot skeet off the back of a bass boat in a thunderstorm. Rather, we have to learn to value things in terms of silver and gold, which will yield either a steady, or a steadily declining price.

I can calmly forecast that because presently both silver and gold are in a “primary uptrend” or bull market that will last another five to ten years at least.

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