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What is a ‘DOLLAR’?

October 16, 2013

What does the ‘name’ dollar Denote? What has the ‘name’ denoted in the past? What is the difference between an ‘imaginary’ dollar unit and a ‘physical’ dollar unit? Let’s think about these questions for this missive. I will start with some history of our ‘dollar’. Prior to 1785, America did not have any official currency unit. Our Colonial Americans used various currencies (paper and metal coins) as their money and some of these units were more acceptable than others. During the war years, Benjamin Franklin created a paper note called the Continental. This paper note had words written on the note implying that the note was convertible into specific units of silver and or gold if the bearer desired.

After some 6 years of circulation, however, the Continental was rejected by the people as our Treasury did not have sufficient silver or gold coins to honor the words written on the note. This created a loss of confidence and the value of this Continental went to zero in a short time period. Not ‘worth’ a Continental was the metaphor which has continued since this experience with paper currency. Then wiser heads emerged (primarily Thomas Jefferson and Alexander Hamilton) and they decided that America needed an official currency for their new Nation. In 1785, they and others chose the ‘name’ Dollar for our official currency unit. But what is a ‘dollar’ with no definition in terms of a material object?

What emerged from 1785 to 1792 was some new logic which was mostly developed by Thomas Jefferson. What T.J. developed was the idea that our ‘dollar’ needed to be defined in terms of silver (similar to the Spanish Milled Dollar which our Colonial Americans seemed to prefer when trading and exchanging wealth in the marketplace). This logic was presented to our first Congress and the result was the Coinage Act of 1792. This act defined our ‘dollar’ (the name) as equal to 371.25 grains of silver (similar to that of the Spanish Milled Dollar). All our subsidiary currency units were also defined in terms of a weight of silver or copper (coins like the quarter, dime, nickel, etc.). The logic of T.J. was that using a ‘name’ like the dollar (which derives from one’s consciousness) is insufficient and impossible to use for real money.

The American Dollar emerged in the form of silver coins after 1792 and anyone could bring the element silver (also gold) to the newly established mint in Philadelphia for minting into official legal tender coins. Our Constitution then established our physical silver dollar (and also gold dollars) as official legal tender for all public debts and for payment of taxes. Later in 1792 (and after) the paper dollar emerged and this paper currency was representative of real money as it was convertible into units of silver and/or gold at the discretion of the bearer. Our Treasury department collected taxes in the form of silver and gold coins and accumulated silver and gold bullion to back up any paper notes issued. Also, the paper currency provided the needed flexibility for a growing marketplace.

What does the above logic suggest and imply? First of all, the word, Dollar, is merely a ‘name’ that derives from one’s consciousness, initially. This means that the ‘name’ Dollar does not exist independently (as a physical thing) without some definition. Also, a definition of the ‘name’ Dollar is very important if this unit is to exist in space/time. Thomas Jefferson was a good philosopher who understood that money needed to be material/physical if it was to measure ‘value’ within a marketplace. He also understood that the purpose of money is to measure the ‘value’ of items (goods) exchanged in a marketplace. Since the Colonial Americans perceived that silver and gold coins had some intrinsic ‘value’, this made our Dollar (defined in terms of a weight of silver) a logical currency unit. Our Constitution codified this relationship as Article I, Section 8 and 10.

Gradually over time our currency unit called the Dollar acquired new meanings and definitions. After silver became abundant in the marketplace due to new discoveries, our Congress decided to define our Dollar in terms of the less abundant element called gold. This continued until the administration of FDR when it was decided that gold contributed to the Great Depression after the Stock Market Crash of 1929. The advisors to FDR then recommended that our Dollar’s definition be changed in terms of gold and also that all ownership of gold by the public needed to change. FDR called in the public’s gold and mandated that Americans use only the paper Dollar as their currency unit. This paper note was given the ‘name’ Federal Reserve Note.

The administration of FDR, however, was unable to convince foreign counterparties (like Britain, France, etc.) that an undefined currency unit (a paper note) could serve as a valid tool for international valuation purposes (balance of trade issues). This resulted in a new Dollar for international purposes which was defined in terms of gold (13.71 grains of gold or $35 for one ounce of gold). This new Dollar for international trade and exchange lasted from 1946 to 1971 and then countries like Britain and France (mostly during the late 50’s and all of the 60’s) decided that converting surplus trade dollars into our gold was wise since Americans were inflating their economy beyond a reasonable level. The agreement called the Bretton Woods Agreement allowed this convertibility so that a valid and logical balance of trade could be assumed.

From 1934 to 1946, America had accumulated some 700 million ounces of gold which they stored at Fort Knox, Kentucky. What happened, however, is that this hoard of gold dwindled to some 272 million ounces by August 15, 1971. With an unstable international situation and with countries like France losing confidence in our Dollar administration policies, it became necessary for our then President, Richard M. Nixon to close the gold window and disallow any more of our gold from being transferred to foreign counterparties. This decision of Richard Nixon (with advice from his Treasury Secretary and others) resulted in a defacto devaluation of our Dollar from a unit convertible into gold into a unit of mostly nothing physical. The ‘name’ Dollar emerged as our currency unit along with the symbol $ and the number 1.00.

In 1973, a new Dollar regime emerged called the Floating Currency Regime. This regime created our index Dollar and this gradually evolved into today’s digital Dollar. The important lesson in this history is that our Dollar started out in 1785 as merely an official ‘name’ which we called Dollar and then this ‘name’ evolved into our Silver Dollar (when it was defined). The physical nature of our Dollar gradually disappeared over the years as paper was dropped (today only 4% of all dollars are paper) and the digital Dollar emerged (today some 96% of all dollars in circulation are digital units). So let’s summarize what has happened to our Dollar over the years and bring our understanding up to current events.

The ‘name’ Dollar was just a unit of consciousness in 1785 when Thomas Jefferson and others chose this ‘name’ as our official currency unit. Our Congress then defined this ‘name’ in terms of silver and our official American Dollar emerged as a Silver Coin with 371.25 grains of silver within the coin. The physical ‘nature’ of our Dollar continued until after the closing of the Gold Window in 1971 by Richard M. Nixon. Then the index Dollar emerged. This Dollar was mostly a non-physical unit created from the consciousness of monetary experts who thought that ‘numbers’ and the logic of ‘numbers’ could work as our currency units (as long as these non-physical units were mandated as legal tender within the global marketplace). Force and Law made these index currencies viable for a time period.

Today, our Dollar has evolved into a digital Dollar within the computer screen. This Dollar is not only non-physical, it is also a virtual Dollar which circulates within what we call Cyberspace. Cyberspace is really an extension of our metaphysical Consciousness and we accept this digital Dollar as it is currently working to a degree in the marketplace. The problem with nonphysical money, however, is that these units do not EXIST within space/time and these units are not perceived as having any intrinsic VALUE. The historical purpose of money units is to MEASURE ‘value’ of goods and other assets which emerge from our planet as units of WEALTH. Money needs to be physical if it is to ‘measure’ VALUE and work as a viable medium of exchange and store of value for the longer term.

Read my prior missives to understand why non-physical money units (also called currency units) can not work in the longer term as money. The core reason is that non-physical units are SUBJECTIVE and IMAGINARY in their ‘nature’. Today we have mostly the Bernanke Dollar which he and his FOMC committee creates from their consciousness and then ‘types’ into the computer screen. This type of money distorts all prices in the marketplace and allows for computer manipulations of prices. This then distorts the relationship between Supply and Demand and creates ‘prices’ which are meaningless, manipulated, and without any stability over time. All the QE operations of our Central Bank and the centralized manipulations of interest rates by our FOMC committee leads to additional distortions, manipulations, supply/demand dislocations, and a loss of confidence by the public in the administration of these policies.

Finally, we need to understand two words that apply to today’s marketplace. These two words are EXIST and IMAGINARY. The word ‘exist’ applies to all matter/energy within our physical universe. The word ‘imaginary’ applies to all that derives from our metaphysical Consciousness. We all live within TWO realms of reality and economics can not work without an understanding of these TWO realms of reality. Read some of my prior missives to understand Dualism and the concept of TWO realms of reality. Our current monetary system should be viewed as a Non-System in my opinion. The System is now on steroids and opium administered by our Central Bank policies. Expect a crash of our Stock and Bond markets in the near future. Enjoy and keep thinking about a New System going forward. I am:

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