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Teachers: a ‘currency’ is not Money! Let’s think!

August 14, 2014

The two most influential schools of business and economics in the world (since 1913) are the Wharton Business School, in Pennsylvania and M.I.T. in Massachusetts. Check out their websites for details and then make your own assessment. Some of the notables who have attended and/or graduated from these institutions of higher learning are: Warren Buffett, Donald Trump, Ben Bernanke, Benjamin Netanyahu, Mario Draghi, Larry Summers, and Paul Krugman (to name just a few). The influence of these institutions on finance and economics extends to all corners of our planet and to most business organizations operating today. Think of JP Morgan Chase, Black Rock, PayPal, Visa, Deutsch Bank, Morgan Stanley, Raytheon, and our current Federal Reserve System. The mindset of most Keynesians and their models for finance/economics starts with these two institutions (mostly). Naturally, the London School of Economics has also played a huge role within global economic thinking. What these schools (among others) now need to focus upon is more than econometrics and computer driven derivative instruments and models. Teachers now need to understand the difference between a ‘currency’ and ‘money’. But will they listen to alternative views on these issues? Will these professionals (the elite within business and academia) have a desire to update their thinking going forward on issues of finance and economics? Do first principles play a role in understanding what is happening today in our markets? Personally, I think so!

If we think about the history of ‘money’ we can discern that this word/name has been used to refer to physical items/commodities which were perceived to contain ‘value’ by marketplace participants. The first item of ‘value’ was probably a food item(s). Later the market chose items like cowry shells, wampum, tobacco, copper, silver, and gold as proxies for the concept we call ‘value’. All these items and many others were perceived to contain ‘value in exchange’ when persons, groups, and nations desired fairness and price stability in the greater marketplace. Accounting and bookkeeping systems emerged later…as items of ‘value’ were selected for marketplace transactions. Then to extend and improve ‘calculations’ of value within the marketplace, a currency was invented to increase the number of transactions and improve the accuracy and objectiveness in calculating (measuring) this concept that we all call ‘value’. Our currency, called the American dollar, emerged with the Coinage Act of 1792. But what is a ‘dollar’ if it is not defined/referenced to something of value and related to the ‘money’ item chosen by the marketplace? Think! What is a ‘dollar’ today? Can anyone find or discover this unit within our observable material universe? Try to find it!

The philosopher and mind behind our historical American dollar was Thomas Jefferson (with input also from Alexander Hamilton). These two founding fathers of our money/currency recognized that a word/name like ‘dollar’ had no meaning or significance if this word/name was not ‘defined’ specifically. What is a WORD and NAME (including symbols like $1.00) if they are not defined and specified? How would these ‘units of consciousness’ become OBJECTIVE within the marketplace if they are not defined in terms of a MONEY item? What Jefferson and Hamilton concluded is that the word/name ‘dollar’ needed to be defined specifically. They then proceeded to assay the money item which most Americans preferred for their ‘value exchanges’ (the Spanish Silver Coin which contained precisely 371.25 grains of pure silver within the coin). Jefferson then chose this ‘definition’ for our American dollar. This definition was presented to our Congress and the result was the Coinage Act of 1792 and then the American Mint in Philadelphia. Our Constitution also specified that our Congress be responsible for ‘coining our MONEY and regulating the value thereof” (including fixing the standard of weights and measures). The concept that we call ‘value’ has zero meaning (objectively) if our currency unit is not defined precisely. This concept (value) is totally a subjective ‘unit of consciousness’ and impossible to derive objectively if our currency unit is not defined in terms of some physical MONEY item (chosen by the marketplace). Think about these concepts of finance/economics/philosophy!

Today’s subjective currency units (globally) are totally meaningless and without any objective reality. What is a ‘dollar’, ‘yen’, ‘pound’, ‘euro’, etc. without any definition (reference point to material reality)? What is the meaning of a ‘dollar’ when our Fed merely CREATES this unit by ‘typing’ numbers into the computer screen? Are you aware that ‘typing’ numbers into the computer screen is a subjective operation? What did our esteemed Fed Chairman, Ben Shalom Bernanke, start with his QE operations after the financial crisis of 2008? What is Janet Yellen and her staff doing today to increase the Fed Balance Sheet? Are these accounting units (called dollars) capable to creating stable prices and objective calculations of value for all our goods/services (assets and collateral)? Think about what is now transpiring at all the Central Banks on this planet! Are any of these QE operations (or similar manipulations) leading to stable prices, market confidence, and a growing/prosperous economy? Think about what is now happening within our global interconnected (web-based) markets? Can a ‘cyberspace’ dollar (typed into the computer screen) work to create stable ‘prices’ and ‘values’? What we now need to understand is the DIFFERENCE between a ‘currency’ and ‘MONEY’. These historical word/names (and the currency symbols now in cyberspace) do not mean the same. When a currency is divorced from a MONEY commodity the result is subjectivity! Think and talk to your students for some feedback. Enjoy this day! I am:

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