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Fiat Currencies today are ‘Mental Abstractions’ with no Value!

June 7, 2012

Mental Abstractions (like our dollar) need a definition in terms of something physical to work as Money!

Back in our Colonial days there was the Continental currency. This paper currency was portrayed as real money because people thought that the ‘words’ on the face of the note meant what they said. The words on the face stated that the note could be exchanged for either silver or gold or equivalent value to the face amount on the note. These words created the impression in the marketplace that the Continental Dollar was physical…not a ‘mental abstraction’. See this image of the Continental:

Notice that the ‘words’ on the face of this note implies that the holder could receive equivalent ‘value’ by exchanging the note for silver or gold (if desired). The problem with ‘words’, however, is that the Authority behind the words must be trusted to be creditable and honest. What happened with the Continental was that the ‘words’ printed on the face of the note could not be honored. Our Continental treasury did not have sufficient silver or gold to honor these ‘words. But as long as gullible people accepted the Continental these notes circulated as a ‘type’ of debased money.  As the marketplace discovered the scam behind these money units, however,  people rejected these fiat currency units as ‘worthless’…and the Continental collapsed in 1781 and ceased to circulate as legal tender money, thereafter.
As our founding Fathers reflected on this experience with the Continental, many learned that paper notes with ‘words’ printed on the face, can not be counted on as long-term ‘stores of value’ or ‘standards of value’. When Thomas Jefferson and Alexander Hamilton devised our American currency unit after our Constitution was ratified, they recognized that a ‘mental abstraction’ can not work as real money in the marketplace. They chose the ‘name’ dollar for our basic unit of account (a mental abstraction) but they then ‘defined’ this ‘name’ so that it was given substance and materiality. The definition that they chose was 371.25 grains of pure silver (comparable to the existing Spanish Silver Dollar which the people viewed as creditable and which had proven to be a thing of ‘value’ in the minds of the marketplace). This definition gave our currency its intrinsic  ‘value’ and its trading creditability (exchange value).
Thomas and Alexander then helped to create the Philadelphia Mint which would mint coins based on the definitions for each coin name:  dollar, half-dollar, quarter, dime, nickel, and penny. With each ‘name’ having a specific definition in terms of a given weight of silver or copper (and also via gold weight for larger denominations), the logic for money was devised for the greater marketplace. People could now ‘value’ all their goods via these money units and feel confident that the prices of goods would have some stability over time. In other words, money units had ‘meaning’ and ‘prices’ had long-term stability! See this image for this reality:

Later as paper notes were printed and circulated in the marketplace (to increase the ability of market participants to make transactions) these notes contained ‘words’ which created the mindset that these notes were equal to real physical silver and/or gold. See this image of our dollar with ‘words’ of meaning:
Today, however, our money units have devolved into mostly worthless ‘mental abstractions’ with no real meaning and with no relation to material reality. Some 4% of our money units still circulate as paper notes and coins but some 96% of all money transactions now represent virtual digits within our computer screens and electronic signals that debit and credit our virtual accounts at our commercial banks (all controlled via high-speed computers). These images reflect todays meaningless money units which should be called ‘mental abstractions’ or ‘units of consciousness’…as these units are created by fiat…OUT OF NOTHING.

Today, we have developed a global marketplace of on-line goods and services where transactions are denominated in ‘mental abstractions’. All our money transactions are done via ‘names’ and ‘numbers’ which appear as images on our computer screen. These images are called currency units (dollars, euros, pounds, yen, pesos, etc.) but they are really imaginary units with no substance and no material existence. Central bankers and commercial banks now create some 96% of our money units from their ‘consciousness’. All that is done is to ‘type’ in numbers into their System Open Market Accounts (SOMA) and credit a recipient with new money units…all created ‘out of nothing’…thin air! These new units need not represent ANY new production of goods…so this creates volatile ‘prices’ in the marketplace. International traders now trade some 4 trillion of currency symbols daily via their high frequency computers:
Each of the above symbols can also be described with a ‘name’ (euro, yen, dollar, pound, etc.). These ‘mental abstractions’ have become our money units…and are used to ‘value’ all goods and services globally. In conclusion, our money has evolved from real material items (paper, silver, gold, copper, etc.) to non-material ‘mental abstractions’ which we can also call ‘units of consciousness’. Can this type of money last going forward? Can Capitalism continue with non-material (subjective) money units? Can meaning be given to these units as they are debased and manipulated by our Central Banking Authorities?
What is now happening over in Europe should provide us with real evidence of the durability and continuation of these units as our money. My sense is that we may need NEW money or NONE in the very near future! Give this missive some thought at your leisure:
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