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Questions and Answers: for Kingdom Blog Readers!

August 20, 2014

I am receiving many emails (responding to my prior missives) which lead me to the conclusion that many readers of my blog do not understand some basic principles of economics, money, history. I realize that economics and money are difficult subjects to fully understand. The voices within this profession are many and each voice tends to espouse a unique point-of-view. Maybe if I pose some questions and provide some new direct answers this will help with understanding. I hope the following questions and answers will help those seeking clarity and meaning:

1. What is the meaning of the concept which I call: ‘value’ for ‘value’?  Answer: When Americans purchase goods from China we assume that these goods (let’s think of goods at Wal-mart) have a perceived ‘value’. This means that we should be providing China with an equivalent ‘value’ in terms of the currency which we give them (in exchange). China produces goods within their country and labor and intellect is ‘spent’ to produce these goods. So we assume that they desire payment in terms of something which is perceived as having equivalent ‘value’. This is economics 101. We receive ‘value’ and we then give equivalent ‘value’.

2. Is the American ‘dollar’ (now mostly a digital unit) a thing perceived to have ‘value’ (in the minds of foreigners)? Answer: A currency unit (like our cyber dollar) which is not defined in terms of some physical ‘thing’ (perceived to have ‘value’) is really NOTHING of substance (we can say that it is ‘valueless’). If I give you a currency symbol ($) and a number (1.00) for goods which you provide me (say items of food, clothing, technology, etc.) am I giving you some ‘thing’ of ‘value’? Is a symbol and a number (typed into the computer screen) and sent to your computer screen a ‘thing’ of ‘value’? I would say NO! A mere symbol/number is a mental abstraction (similar to an imaginary tooth fairy) and can not be viewed as a ‘thing’ of ‘value’. We need to focus directly on what is being exchanged for the products provided. Is the exchange a ‘value’ for ‘value’ exchange?

3. Is Gold (the metal/element derived from our earth) a ‘thing’ of ‘value’? Answer: Within economics and monetary history, the element that we call ‘gold’ has been chosen as money and has been perceived as being a ‘thing’ of ‘value’ (by most market participants). When we barter products in the marketplace, each party desires to exchange ‘value’ for ‘value’ when negotiating an exchange. Since ‘value’ is a subjective concept of our Mind, we invented a substitute (proxy) for this subjective concept called ‘value’. Gold was one commodity which served as an objective proxy for the subjective concept called ‘value’. Silver also was chosen (invented) as a proxy. For small transactions, copper was chosen. This means that gold (and silver) are elements which the marketplace has chosen as ‘things’ with a perceived ‘value’.

4. How did a ‘currency unit’ emerge from the greater marketplace? Answer: Within a barter marketplace people first choose some ‘thing’ (perceived to have ‘value’) as their money item (let’s say gold). Then to calculate or measure this subjective concept called ‘value’, we developed a ‘currency’ (a mental abstraction) which is ideal for ‘counting’ purposes. Americans developed the concept called ‘dollar’ as their currency unit. We then created the symbol ($) and the number (1.00) as a mathematical tool for our ‘valuations’ within the marketplace. To give this symbol/number ($1.00) meaning we DEFINED this mental abstraction in terms of the money item chosen (say gold/silver). For Americans we initially defined our ‘dollar’ (a mental abstraction) as 24.75 grains of the element called Gold and/or 371.25 grains of the element called silver. This gave our ‘dollar’ meaning and also perceived ‘value’. Can you discern how important this definition becomes when trading with foreigners?

5. Is the meaning of the word ‘money’ different from the word ‘currency’? Answer: Absolutely! The element called gold is initially chosen as our proxy for ‘value’. This is done within our greater barter marketplace. We then create the concept called a ‘currency’ to specify a specific weight or quantity of gold. This gives our currency (a mental abstraction) meaning (especially when we provide users of this currency the option of exchanging the currency unit, if desired, directly for the defined element…upon which the currency name is based). In other words, a currency unit like our ‘dollar’, takes on meaning when we can exchange this unit for either 24.75 grains of gold and/or 371.25 grains of silver (minted into a coin or coins). Without this definition and exchange option, the currency unit is merely a ‘mental abstraction’ (a valueless symbol/number/name). Think about our foreign counterparties who are supplying us our products at Wal-mart, etc.

6. Who took America off the gold standard…which had given our currency meaning and real ‘value’ for over 140 years? Answer: This was initially done in 1933-34 by Franklin D. Roosevelt. FDR called in all private gold bullion (owned by Americans) and then chose to force Americans to accept the Federal Reserve Notes (created by our centralized Federal Reserve Bank) as a substitute. This was done, with the hope that Americans would start spending and developing confidence in his New Deal policies. FDR felt that ownership of gold (for Americans) was not necessary to get our economy moving forward. FDR did, however, provide foreigners the option of converting their ‘dollars’ into our gold.

7. Who took America off the gold standard for our international exchanges of goods/services? Answer: This was done by Richard Milhous Nixon on August 15, 1971. RMN was advised by his Treasury Secretary and also by famed economist, Milton Friedman, that our gold supply (held at Fort Knox) was declining rapidly (due to foreign exchanges of our currency for gold)…based upon the agreements reached at the Bretton Woods Monetary Agreement of 1944-46. In 1944 America had some 740 million ounces of gold at Fort Knox, Kentucky. This supply was declining rapidly due do foreigners desiring to exchange their surplus ‘dollars’ for our gold (pursuant to this Bretton Woods Agreement). As of August 15, 1971, America’s gold supply (our ownership) had declined to some 272 million ounces (over 60% decline). A continuation of these exchanges of our paper currency for its backing (gold) would leave America with a currency of zero perceived ‘value’. Can you discern the problem?

8. How did America continue to create confidence in a ‘dollar’ which had no perceived ‘value’ after August 15, 1971? Answer: What happened is that our ‘dollar’ emerged as a valueless mental abstraction (after 1971) but Richard Milhous Nixon was able to convince Saudi Arabia (who controlled the global oil supply) to ‘price’ their oil in our ‘dollar’ and to force every foreign purchaser of this oil to convert their National currency into our American dollar prior to getting oil from Saudi Arabia (and later the OPEC cartel). Henry Kissinger, Secretary of State, was the negotiator for this dollar/oil cartel agreement. This agreement gave our fiat (valueless) dollar the illusion of having ‘value’ in the minds of foreigners. The rhetoric from American politicians was that our valueless fiat dollar was backed by oil (really a complete illusion but it never-the-less worked). A deceptive America forced the world community to buy into their mental abstraction currency (now called a fiat dollar which was technically ‘valueless’). Deception can work for a time period!

9. Why are foreigners now desiring to abandon our fiat (valueless) dollar which provided America with a favored status since 1971? Answer: Foreigners are now recognizing that America (4% of the world’s population) has been consuming some 20-30% of the world’s resources due to their favored status…provided by our illusionary dollar (also called the Reserve Currency for the World). This unfairness (weighted towards America and their consumers) is now being recognized as totally unbalanced for our globalized world where resources need to be shared more equitably. Why should America have this favored status…and control over the entire planet (economically) in this new interconnected world of cyber currencies and globalization? Also, energy (oil) is now changing ownership and foreigners would like oil and other key resources to be priced in alternative currencies (including gold) so that fairness is restored within the international currency exchange system. Do you blame them?

10. Will America give up its favored status and its favored claim on the planet’s resources going forward? Answer: Probably not without a military fight! America is now so spoiled (given their favored economic status for the past 43 years) that they may desire to use their Super Power Status to hold onto this favored (economic exceptionalism) status using their philosophy of MIGHT makes RIGHT (their military prowess) to bomb and kill all those who desire to change the System. Human Nature tends to be self-centered and prideful when it comes to changing habits which have seemed so special for so many years. Politicians, also have a hard time giving up privileges which they assume as a given for a Super Power Nation. Would you think differently?

The above questions may help readers of Kingdom Economics to understand how our system has evolved and changed since going off the gold standard in 1971. Will Americans desire to understand this history? Will Americans desire to give up their favored economic status going forward? These are the big questions which everyone needs to think about. My sense is that most Americans will desire a meaningful change once they fully understand this history and the unfairness of the current economic model of debt, deficits, and currencies which have become illusions of the mind. Think about the above questions and the answers which follow. Do you desire to create a New System?  I am:

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