The Truth About Money

Or, At Least Harmless Lies About Money

People are pretty funny about money. I guess that's understandable, given that in the modern world, we all need money to survive. But, that's not the kind of "funny" I'm talking about. I'm talking about the kind of "funny" that walks around in cammos and carries assault rifles. Basically, there's a long-standing debate over whether the money we use is "worth" anything. I quote the word "worth," because it's questionable that anything is worth anything else, but that's beside the point.

The point is that when these people aren't out traipsing around in the woods, wishing for the end of civilization, they're likely to insist that our currency is worthless. "Fine," I say, "give all of yours to me." Funny, they never do.

All of this calls for an exploration of what money is, what it represents, and what it's "worth." But first, let's dispel an assumption: Currency in the US is not backed by gold, or much of anything else. For that matter, currency in most countries are not backed by much, although some currency is backed by other currency. And, while we're at it, just about all contemporary US coinage is minted out of metals which most people consider to be worth a lot less than the value of the coin itself.

So, what makes a dollar worth a dollar? What's a dollar worth? If we were to ask the Android Sisters, they'd tell us that the only difference between a one dollar bill and a scrap of paper is that the dollar bill has been "blessed by the treasury wizards." True enough, but that doesn't really address the more fundamental issue of who the treasury wizards are, and who blessed them with the authority to go around blessing bits of paper into valuable commodities.

Ok, let's back up and deal with a little history.

In the beginning, wealth was defined as possessions that were useful. If someone had a bunch of edible animals, a nice building to live in, a pile of turnips, or perhaps some children to work or trade, that someone was considered wealthy. This isn't any stretch: something that can be used or consumed in such a way to continue life has obvious value. Something that produces things that can be used or consumed (like a hen laying eggs, or a child working the fields) also has value.

And naturally, since there aren't enough things to go around, and people can't have everything they want to have, we see that there will be some transactions going on to barter what wealth one person has for what wealth some other person has. Thus, we see trades such as "I will offer you a week of the sweat of my brow, and in return, you'll give me a small pile of rutabaga" (setting aside for a moment the question as to why anyone would want a small pile of rutabaga, but it does seem preferable to a large pile of rutabaga). Or, "I will give you this small virgin farm animal if you construct for me a pair of shoes."

We will note already that those who have neither wealth (in terms of tangible property) or the ability to produce wealth (in terms of employable skills) are already at a disadvantage. This is why communism was invented. Communism does in fact deal entirely in terms of wealth and money, but it likes to pretend that people need neither and have just enough of both.

But, back to this system of barter: it was just fine as long as someone had something that someone else wanted and vice versa. On the other hand, the commodities traded were often bulky, or not quite what the person had in mind. Consider, for example, trying to stuff a goat in your pocket, so that you could go purchase a typewriter. (For that matter, imagine buying a typewriter - it gets harder by the day.) Not only did this system of exchange require very large and smelly pockets, but it also required the guy selling typewriters to have a fondness for feta cheese. Obviously, feta intolerant typewriter makers would be at a distinct economic disadvantage.

So, rather than resigning themselves to lifetimes of pointlessly elaborate barter transactions, early humans decided to create a shorthand representation for goats, typewriters, rutabagas, and days worth of sweat of brow. What they eventually settled on were shiny rocks.

Of course, not just any rock would do. If that were the case, anyone could become rich just by foraging through all the empty beer cans and Twinkie wrappers to find himself as much wealth as his little arms could carry. No, these had to be extra shiny rocks, and extra heavy rocks. Obviously people weren't ready to convert to a modern currency right away; they still wanted the reassuring tug of having heavy livestock in their pants, or at least some reasonable substitute.

Naturally, people were very particular about which shiny rocks were worth something, and which were just rocks that were shiny. For instance, no one that I know of ever tried to base an economy on the exchange of bits of uranium or tungsten. No, most people preferred Gold to any other shiny rock, although many contrarians advocated the exchange of silver, probably because they hadn't invented communism yet.

Of course we know that gold does have some intrinsic value: it is absolutely necessary for the construction of domes on capital buildings, it is useful in teeth, is great for the manufacture of electronics, and is useful for adorning faces that would otherwise look more like a cross between a goat and rutabaga. Then again, when it was first agreed upon as being representative of wealth, electronics were a rather abstract concept, teeth generally outlived their owners, and domes were still made of dull, non-shiny rocks. Of course, there were always faces in need of adornment.

Slowly, probably so slowly that no one ever noticed, the entire concept of wealth was turned on its ear. It was as if early man, waiting around for his daily ration of manna, was handed down a universal truth from on high that told him that pretty rocks are real wealth. Where those shiny rocks started out being a representation of wealth, or potential wealth, people slowly came to define wealth in terms of the rocks instead. Before, one would trade wealth (labor, housing, goats, typewriters or rutabaga) for some rocks, so that one could later trade the rocks in for some other form of wealth. After this change, cashing out one's rocks was seen as disposing of wealth.

This created strange disparities: someone with a nice place to live and all the goat and rutabaga he'd ever want to eat would be considered poor if he had no rocks. Conversely, someone with nothing but rocks, hoarded at the expense of food or shelter, would be considered wealthy. People began confusing the symbol of wealth for wealth itself, and no one's come along to straighten us back out ever since.

I got plenty of nuthin'
and nuthin's plenty for me!

As confused as it may be, this monetary system worked just fine for all those centuries in which most people could survive without shiny rocks by growing their own damned rutabagas on their lord's land. And those who did amass large piles of shiny rocks could also afford large, well guarded places to keep their rocks, as well as servants to carry the rocks around. That was until some people started feeling that carrying these rocks around was a bit of a bore. Not only did it cause wear and tear on the pockets, but let's face it, a large bulge in one's pants that's too far to one side to be passed off as a generously full, yet misguided cod piece, is even more unsightly than a panty-line. And, maintaining a building full of rocks was also a bit of a pain.

So, those with shiny rocks blessed groups of economic eunuchs with the power to house their rocks in a central location. And, rather than having to make frequent visits to these banks of rocks, the eunuchs would bless bits of paper that represented huge misguided pants bulges. They produced bits of paper that said (in effect) "This note represents a pile of shiny rocks of a certain weight that is being held at our rock cache. This institution will happily honor redemption of this note by providing its bearer with an unsightly pants bulge of rocks." They also added all manner of artistic flourish and frills to those bits of paper, just to show that they were being produced by eunuchs of substance.

This provided an entirely new economic paradigm, and at a time that was long before people talked of things in terms of their being new paradigms. With this new system of exchange, people could carry lightweight, thin bits of paper that could represent virtually any amount of wealth, from the flaccidly poor to the grotesquely rich. This was seen as the best thing since leavened bread by virtually everyone except the chiropractors.

Of course, some miscreants posing as economic eunuchs would issue bits of paper with authentic looking artwork and frillery, and go out into the community, trading these bits of paper for goats and typewriters, and all other form of tangible wealth, as well as trading them for bits of paper that'd been issued by the legitimate eunuchs of the day. Here in the US, this was particularly popular - to the point that it was estimated that throughout the 19th century, roughly 1/3 of those bits of paper in circulation were backed by neither shiny rock nor true eunuchry, being instead falsified bits of bluster.

But, the most interesting thing happened: most of these bits would remain in circulation, for a time, with people treating them exactly as they did the other bits of blessed paper. Until someone could provide tangible evidence that a particular bit of paper was not properly blessed, people seemed to be able to use them as if they were.

"... in this week's issue of the New England Journal of Duh:
Researchers have discovered the
placebo effect of money!"

One of the things the eunuchs in command did to remedy this was to put the blessing of paper under governmental control. Thus, we enter the era of blessed paper created not by local eunuchs entrusted with the care and keeping of someone's pile of shiny rocks, but by those who are anointed as the official treasury wizards of the realm.

At the same time that the treasury wizards moved in, a bunch of spoil-sport larval communists commenced raising quite the ruckus, insisting that their own brand of shiny rocks should be given the same reverence as the time honored golden rocks. While they allowed that owing to their greater availability and lesser weight, their bits of silvery rock should be worth less, the world should nevertheless consider these new rocks to be every bit as legitimate as the older kind of rock.

Mainly, what these proto-commies weren't saying was that while they didn't generally know how to lay their hands on the gold colored rocks, they did know how to lay their hands on the silver colored rocks.

What the rest of the world didn't explain, and didn't have to explain, was why they weren't going to play along. After all, we had two relatively rare forms of rock, both of which had some intrinsic value (the new flavor of rock also being useful for electronics, photography, teeth, and adornment of turniplike faces), yet most of the eunuchs of the world insisted that one rock was "really worth something" and the other really wasn't.

What was really going on was that people were starting to come to see these bits of blessed paper as being wealth all on their own. Sure, people enjoyed unsightly pants bulges as before, but most people were willing to accept this newer form of wealth as being almost as legitimate. Mostly, people wanted the treasury wizards to print more blessed paper, so everyone could have more blessed paper in order to call themselves wealthy.

This is probably when the treasury wizards remembered the lessons they learned from all those faked bits of paper, that people still considered them wealth even though they were backed by nothing but bluster. So, the treasury wizards got to thinking: if people can be fooled into thinking that bluster represents wealth, why not cash in on it? After all, they were the treasury wizards, blessed by the government, and what greater source of bluster could there be than the government?

So, some of the first paper that the treasury wizards blessed was backed by nothing more than their blessing, which we all understand to be bluster by proxy. And for some reason, it worked. Of course, the wizards kept on blessing bits other of paper with other promises that they could be traded in for piles of rocks of certain colors. They also blessed bits of paper for the banking eunuchs in exchange for - get this - bits of national debt that the banks purchased and gave back to the government for safe keeping.

That's right. The government discovered a new form of wealth that they called a "Bond" but the rest of us would call an "I.O.U." People would exchange their piles of rocks, or their bits of blessed paper representing those piles of rocks, or bits of blessed paper representing national debt, and deposit them with their local financial eunuch. This financial eunuch would take these bits of rock and paper and lend them to the government, who in turn would give them other bits of paper that said that the government promised to pay them back some day (those government bonds). Then, the financial eunuchs would take these I.O.U.s and lend them to the government so that the treasury wizards would bless bits of paper with the financial eunuch's company name on them, so that those financial eunuchs could give their customers their own personalized bits of blessed paper whenever those customers would show up asking where their rocks were.

Getting confusing? You bet. Suppose someone wanted his pants bulge back. He'd go back to his neighborhood eunuch, and present this personalized blessed bit of paper. The eunuch would give this bit of blessed paper back to the treasury wizard who in turn would return one of those I.O.U.s to the eunuch. The eunuch would then present this I.O.U. back to the wizards and say "Pay up, deadbeat," whereupon he would no doubt collect another piece of blessed paper, exchangable for rocks. He could then present this piece of paper back to the treasury wizards, who would allocate the appropriate rock for the financial eunuch, who could in turn make good on his promise to his customer to make his rocks available whenever the customer so desired, so he could go get his damned rutabaga. By then, he was probably late for dinner, though.

It was probably at this point that the customer found himself trying to decide whether it'd just be easier to stuff a goat into his pocket and go look for some feta-loving typewriter maker. Or, maybe it'd just be easier to take everyone's word for it, and assume that the pile of rocks is there for the asking should anyone want to go to all the trouble. After all, those pants bulges were pretty unsightly.

So this is how our country came to have such a pastiche of currency at the beginning of the 20^th century. The federal eunuchs had given us currency that was backed in valuable gold rocks (Gold Certificates), worthless silver rocks (Silver Certificates), government bonds (that is, pieces of national debt) deposited with the government by your local bank (National Currency), national debt (United States Notes), and by nothing at all, but issued by a strange organization that no one seems to understand (Federal Reserve Notes). And, some other stuff that's even more silly.

And suddenly, people began speaking of those golden rocks in terms of how much money they were really worth, which once again turned the system on its ear. And then, the people in charge of the government decided it'd all be so much easier to outlaw owning those rocks, so we could all dispense with pants bulges all together. By the time it was legal to own rocks again, people had pretty much settled in to defining wealth in terms of bits of paper that could be redeemed in rutabagas, without bothering with that intermediate rock conversion.

And quietly, the government quit pretending that there were really pants bulges that support the system. They slowly changed their tune to say "These bits of paper are worth something because we say so." This gets us back to the Android Sisters' assertion that being blessed by the Treasury Wizards means everything, which is apparently true, but it still doesn't say who blessed those wizards, or why anyone should care.

Here's the secret I could have told you in the first paragraph: Money is worth something because the treasury wizards said so, and they can say so because everyone pretty much agrees that they can. What the money is worth is pretty much what everyone agrees it's worth. If everyone agrees that a dollar is worth three rutabaga, then that's what it's worth. And, here's the other secret: This is almost exactly the same mechanism that makes those rocks valuable. Everyone played along with this mechanism for setting the value of rocks, and now, everyone's playing along with this mechanism for setting the value of bits of paper.

The big thing that's changed since converting from rocks to paper (other than those pants bulges) is that in the old days, if an alchemist discovered some cheap way to convert tons of lead to gold, or if some miner found a few tons of new rocks, it'd have a serious effect on the gold-to-rutabaga exchange rate. Virtually anyone could destroy the currency of the land overnight just by finding or producing more rocks.

With blessed bits of paper, this ability to destroy the currency of the land pretty much lies solely with the government. Or, the people of the world could get together and decide that the currency of the land is worthless. Either way would work pretty good. That's why governments have to be so careful not to print too much of the stuff, lest everyone else think they're getting a bit uppity.

And if you don't believe any of this, just go ask the people who run all those southeast Asian countries.  Or, check the guy voted most likely to be invited to a Secret Service midnight bull session.